Lesson 1, Topic 1
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4.1 Three-stage framework for choosing among alternative strategies Copy

Nik Shazana November 1, 2022

A COMPREHENSIVE STRATEGY-FORMULATION FRAMEWORK

Important Strategy-Formulation Techniques

1. Important strategy-formulation techniques can be integrated into a three-stage decision-making framework. The tools presented in this framework are applicable to all sizes and types of organizations and can help strategists identify, evaluate, and select strategies.


2. The framework described above has three stages:
    a. Stage 1: The Input Stage
    b. Stage 2: The Matching Stage
    c. Stage 3: The Decision Stage

THE INPUT STAGE

1. The Input Stage includes the External Factor Evaluation (EFE) Matrix, the Competitive Profile Matrix (CPM), and the Internal Factor Evaluation (IFE) Matrix.

2. The input tools require strategists to quantify subjectively during early stages of the strategy-formulation process. Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to generate and evaluate alternative strategies more effectively.

THE MATCHING STAGE

1. The Matching Stage includes the Threats-Opportunities-Weaknesses-Strengths (SWOT) Matrix, the Boston Consulting Group (BCG) Matrix and the Grand Strategy Matrix.

2. Any organization, whether military, product-oriented, service-oriented, governmental, or even athletic must develop and execute good strategies to win.

FOUR TYPES OF STRATEGIES

Strengths-Opportunities (SO):

Use a firm’s internal strengths to take advantage of external opportunities

Weaknesses-Opportunities (WO):

Improving internal weaknesses by taking advantage of external opportunities

Strengths-Threats (ST):

Use a firm’s strengths to avoid or reduce the impact of external threats.

Weaknesses-Threats (WT):

Defensive tactics aimed at reducing internal weaknesses and avoiding external threats


Strengths:

1. R and D almost complete
2. Basis for strong management team
3. Key first major customer acquired
4.Initial product can evolve into range of offerings
5. Located near a major centre of excellence
6. Very focused management/staff
7. Well-rounded and managed business

Weaknesses:

1. Over dependent on borrowings – Insufficient cash resources
2. Board of Directors is too narrow
3. Lack of awareness amongst prospective customers
4. Need to relocate to larger premises
5. Absence of strong sales/marketing expertise
6. Overdependence on few key staff
7. Emerging new technologies may move market in new directions

Threats:

1. Major player may enter targeted market segment
2. New technology may make products obsolescent
3. Economic slowdown could reduce demand
4. Euro/Yen may move against $
5. Market may become price sensitive
6. Market segment’s growth could attract major competition

Opportunities:

1. Market segment is poised for rapid growth
2. Export markets offer great potential
3. Distribution channels seeking new products Scope to diversify into related market segments

Key Strategies

1. Accelerate product launches by strengthening R and D team
2. Extend links with key technology centres
3. Raise additional venture capital
4. Expand senior management team in sales/marketing
5. Recruit non-executive directors
6. Strengthen human resources function and introduce share options for staff
7. Appoint advisers for intellectual property and finance
8. Seek new market segments/applications for products

Limitations with SWOT Matrix
• Does not show how to achieve a competitive advantage
• Provides a static assessment in time
• May lead the firm to overemphasize a single internal or external factor in formulating strategies

BCG Matrix

Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
§ Focus on market-share position & industry growth rate

Relative Market Share Position

The four quadrants represent the following:

a. Question Marks—Divisions in Quadrant I have a low relative market share position, yet compete in a high-growth industry. Generally these firms’ cash needs are high and their cash generation is low.

b. Stars—Quadrant II businesses represent the organization’s best long-run opportunities for growth and profitability. These businesses have a high relative market share and compete in high growth rate industries.

c. Cash Cows—Divisions positioned in Quadrant III have a high relative market position, but compete in a low-growth industry. Called cash cows because they generate cash in excess of their needs.

d. Dogs—Quadrant IV divisions of the organization have a low relative market share position and compete in a slowed or no-growth industry; they are Dogs in a firm’s portfolio.

The Grand Strategy Matrix

1. In addition to the SWOT Matrix and BCG Matrix, the Grand Strategy Matrix has become a popular tool for formulating alternative strategies. All organizations can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants.


2. It is based on two evaluative dimensions: competitive position and market growth.

CULTURAL ASPECTS OF STRATEGIC CHOICE

Culture includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm.

All Organizations Have a Culture

1. It is beneficial to view strategic management from a cultural perspective because success often rests on the degree of support that strategies receive from a firm’s culture.

2. If a firm’s strategies are supported by cultural products such as values, beliefs, rites, rituals, ceremonies, stories, symbols, language, heroes, and heroines then managers often can implement changes swiftly and easily.

3. Strategies that require fewer cultural changes may be more attractive because extensive changes can take considerable time and effort.

Self-Check Activity

1. Explain the cultural aspects of strategic choice.

2. Discuss the important strategy-formulation techniques.