UNIT 6 - STRATEGIC IMPLEMENTATION REVIEW AND EVALUATION

Introduction

Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in today‘s dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management.

 The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc.

The 7-S framework of McKinsey

McKinsey 7S Framework is a strategic planning tool designed to help an organization understand if is it set-up in a way that allows it to achieve its objectives.

Before the advent of the 7S Model, when managers thought about organizational design, they tended to focus on structure and strategy. They thought about who is responsible for what, who reports to whom, how many layers of management there should be, and how to beat the competition.

However, as organizations got larger and more complex, coordination became just as important, if not more important, than structure.

Why Use the 7S Framework?

The model is most widely used to assist with:

• Organizational change.
• Mergers and acquisitions.
• Implementation of a new strategy.
• Understanding the weaknesses (blind spots) of an organization.

Understanding the diagram

There are many things to note from this diagram:

All the areas are interconnected. This means that a change to one area will have implications for all other areas.

There is no hierarchy and all areas are the same size. This indicates that all areas are considered to be equally important.

The areas are divided into hard and soft areas. Hard areas are easy for management to influence and change. Soft areas are more woolly and influenced by the culture of the organization.

Positioning Shared Values in the center of the 7Ss indicates that the organization’s values are central to all elements.

1. Strategy

The organization’s plan to win in the marketplace. How will it gain a comparative advantage over the competition? 

2. Structure

How the organization structures its resources (people, machinery, money etc) into teams and groups.

3. Systems

The processes and daily activities that are undertaken by the people who work in the organization, and the tools they use to help them with those processes.

4. Style

This is the way the organization does things. You can think of this area as being the culture of the organization. The informal rules of the organization.

5. Staff

The employees of the organization and how they are grown and developed.

6. Skills

The skills of employees and the skills of the organization. What is the core competency of the organization and what should be outsourced?

7. Shared Values

The core values of the organization that permeates all areas and aspects of the organization. In the original version of the 7S Framework, this was called Superordinate Goals. These values need to reinforce what the organization is trying to achieve.

The McKinsey 7S Framework can help an organization understand how to get from where it is now to where it wants to be.

It is particularly good at helping organizations take into consideration how a change to one area can have a wider impact on the organization.

LEADERSHIP STYLE

Leadership has a very broad scope. 

They are all very different in the sense that there is a wide variety of these styles ever since leadership was incepted. 

There are over ten different leadership styles, and one style just doesn’t suit a specific organization. 

Leadership in that sense is complex. Sometimes “leaders” don’t know that they are leading within the capacity of any responsible role.

The truth is that each leadership style has its place in a leader's toolkit. The wise leader knows to flex from one style to another as the situation demands.

The following are the common leadership styles examples that you will eventually bear witness to. Keep in mind that if you ever find yourself in the shoes of a leader, don’t forget to improvise. People like a person who is servant, assertive and caring.

1. Autocratic Style

The phrase most illustrative of an autocratic leadership style is "Do as I say." Generally, an autocratic leader believes that he or she is the smartest person at the table and knows more than others. They make all the decisions with little input from team members.

This command-and-control approach is typical of leadership styles of the past, but it doesn't hold much water with today's talent.

That's not to say that the style may not be appropriate in certain situations. For example, you can dip into an autocratic leadership style when crucial decisions need to be made on the spot, and you have the most knowledge about the situation, or when you're dealing with inexperienced and new team members and there's no time to wait for team members to gain familiarity with their role.

2. Authoritative Style

The phrase most indicative of this style of leadership (also known as "visionary") is "Follow me." The authoritative leadership style is the mark of confident leaders who map the way and set expectations, while engaging and energizing followers along the way.

They help people see where the company is going and what's going to happen when they get there.

Unlike autocratic leaders, authoritative leaders take the time to explain their thinking: They don't just issue orders. Most of all, they allow people choice and latitude on how to achieve common goals.

3. Pacesetting Style

"Do as I do!" is the phrase most indicative of leaders who utilize the pacesetting style. This style describes a very driven leader who sets the pace as in racing. Pacesetters set the bar high and push their team members to run hard and fast to the finish line.

While the pacesetter style of leadership is effective in getting things done and driving for results, it's a style that can hurt team members. For one thing, even the most driven employees may become stressed working under this style of leadership in the long run.

If you're an energetic entrepreneur working with a like-minded team on developing and announcing a new product or service, this style may serve you well. However, this is not a style that can be kept up for the long term. A pacesetting leader needs to let the air out of the tires once in a while to avoid causing team burnout.

4. Democratic Style

Democratic leaders are more likely to ask "What do you think?" They share information with employees about anything that affects their work responsibilities. 

They also seek employees' opinions before approving a final decision.

There are numerous benefits to this participative leadership style. It can engender trust and promote team spirit and cooperation from employees. 

It allows for creativity and helps employees grow and develop. 

A democratic leadership style gets people to do what you want to be done but in a way that they want to do it.

5. Coaching Style

When you having a coaching leadership style, you tend to have a "Consider this" approach. 

A leader who coaches views people as a reservoir of talent to be developed. 

The leader who uses a coach approach seeks to unlock people's potential.

Leaders who use a coaching style open their hearts and doors for people. 

They believe that everyone has power within themselves. 

6.  Affiliative Style

Of all the leadership styles, the affiliative leadership approach is one where the leader gets up close and personal with people. 

A leader practicing this style pays attention to and supports the emotional needs of team members. 

The leader strives to open up a pipeline that connects him or her to the team.

Ultimately, this style is all about encouraging harmony and forming collaborative relationships within teams.

It's particularly useful, for example, in smoothing conflicts among team members or reassuring people during times of stress.

7. Laissez-Faire Style

The laissez-faire leadership style is at the opposite end of the autocratic style. 

You could say that the autocratic style leader stands as firm as a rock on issues, while the laissez-faire leader lets people swim with the current.

On the surface, a laissez-faire leader may appear to trust people to know what to do, but taken to the extreme, an uninvolved leader may end up appearing aloof. 

While it's beneficial to give people opportunities to spread their wings, with a total lack of direction, people may unwittingly drift in the wrong direction—away from the critical goals of the organization.

This style can work if you're leading highly skilled, experienced employees who are self-starters and motivated. To be most effective with this style, monitor team performance and provide regular feedback.

STRATEGY REVIEW AND EVALUATION

The best formulated and best implemented strategies become obsolete as a firm’s external and internal environments change. Therefore, it is essential for strategists to systematically review, evaluate, and control the execution of strategies.

Strategy Evaluation is vital to an organization’s well being. Timely evaluations can alert management to potential or actual problems before a situation becomes critical. 

   Strategy Evaluation includes three basic activities: 

       (1) Examining the underlying bases of a firm’s strategy.

       (2) Comparing expected results to actual results.

       (3) Taking corrective actions to ensure that   performance conforms to plans.

Strategy Review, Evaluation, and Control

Strategy Evaluation

Adequate and timely feedback is the cornerstone of effective Strategy Evaluation.

Strategy Evaluation is important because organizations face dynamic environments in which key external and internal factors can change quickly and dramatically. 

Strategy Evaluation is essential to ensure that the stated objectives of an organization are being achieved.

Strategy evaluation is essential to ensure that stated objectives are being achieved. In many organizations, evaluation is an appraisal of performance – 

•  Have assets increased? 
• Increase in profitability? 
• Increase in sales? 
• Increase in productivity? 
• Profit margins, ROI and EPS ratios increased?

Rumelt’s criteria for Evaluating Strategies:

 It is impossible to demonstrate conclusively that a particular strategy is optimal, but it can be evaluated for critical flaws. Here are four criteria to use in evaluating a strategy:

 a. Consistency: A strategy should not present inconsistent goals and policies. Are the external strategies consistent with (supported by) the various internal aspects of the organization? 

Organizational conflict and interdepartmental bickering are often symptoms of managerial disorder, and may be a sign of inconsistency. You must examine all the various functional and internal management strategies employed by the organization and compare them with the external business strategy.

b. Consonance: Consonance refers to the need for strategists to examine set of trends in evaluating strategies.

c. Feasibility: Strategy is reasonable in terms of org’s resources initiate managerial questioning of expectations and assumptions on a continuous basis rather than periodic basis should continually be aware of progress being made . Monitor the following.

Is the strategy reasonable in terms of the organization's resources? 

• Physical resource 
• Human resource 
• Financial resource 

d. Advantage: Does the strategy create and/or maintain a competitive advantage? 

Resource 

Skill 

Strategic evaluation is becoming increasingly difficult with the passage of time. 

These trends make strategy evaluation difficult: 

dramatic increase in environmental complexity 

difficult in predicting future 

increasing number of variables 

rapid rate of obsolescence 

increase in the number of world events affecting organization 

decreasing time spans for planning. 

The process of Evaluating Strategies

Strategy evaluation is necessary for all sizes and kinds of organizations. 

Strategy evaluation should initiate managerial questioning of expectations and assumptions, trigger a review of objectives and values, and stimulate creativity in generating alternatives and formulating criteria of evaluation. 

Evaluating strategies on a continuous rather than a periodic basis allows benchmarks of progress to be established and more effectively monitored. 

Managers and employees of the firm should continually be aware of progress being made toward achieving the firm’s objectives. 

As critical success factors change, organizational members should be involved in determining appropriate corrective actions. 

The process of Evaluating Strategies

A. Reviewing Bases of Strategy By developing a revised EFE Matrix and IFE Matrix

A revised IFE Matrix should focus on changes in the organization’s management, marketing, finance/ accounting, production/operations, R&D, and MIS strengths and weaknesses. 

 A revised EFE Matrix should indicate how effectively a firm’s strategies have been in response to key opportunities and threats.

B. Measuring Organizational Performance

 Another important strategy-evaluation activity is measuring organizational performance. 

This activity includes; 

• comparing expected results to actual results,
• investigating deviations from plans, 
• evaluating individual performance, and 
• examining progress being made towards meeting
• stated objectives. 

C. Taking Corrective Action 

The final strategy-evaluation activity, taking corrective action, requires making changes to reposition a firm competitively for the future. 

Examples of changes that may be needed: 

• altering an organization’s structure, 
• replacing one or more key individuals, 
• selling a division

Unit 5 - Policies in functional areas

Policy

Policy refers "to specific guidelines, methods, procedures, rules, forms and administrative practices established to support and encourage work towards stated goals.“

Importance of Policies

• They establish indirect control over independent action by clearly stating how things are to be done i.e. they control decisions yet permit and empower employees to conduct activities without direct intervention by top management.
• They ensure quicker decisions in routine activities by standardizing answers to routine, recurring questions.
• They counteract resistance to chosen strategies by clarifying what is expected and facilitate acceptance especially when operating managers participate in policy formulation.
• They provide communication channels between organizational units, thereby providing a necessary foundation for coordinated, efficient efforts. E.g. of a policy; to accept customers’ return of goods submitted within one month of purchase

Policies and procedures help enforce strategy implementation in several ways:

• Policy facilitates strategy-supportive practices and operating procedures throughout the organization.
• The policy reduces uncertainty in repetitive and day-to-day activities in the direction of efficient strategy execution.
• Policy limits independent action and discretionary decisions and behavior. Procedures establish steps on how things are to be handled.
• The policy helps align actions and behaviors with strategy. This minimizes zigzag decisions and conflicting practices and establishes consistent patterns of action in terms of how the organization is attempting to make the strategy work.
• The policy helps to shape the character of the working environment and to translate the corporate philosophy into how things are done, how people are treated, and what corporate beliefs and attitudes mean in terms of everyday activities.
• The policy helps establish a fit between corporate culture and strategy.

Product Policy

Product policy is the top management (Strategic) decision.

Every organisation has their own product strategies or policies, which form the basis of competing in the market.

They become the unique selling proposition (USP) of the company.

As per the requirements of the company, it may choose product policies.

The same company can opt for different policies for the different products.

Lowest Price:

The Company will be the price leader and the company is going to offer the product at the cheapest price than its competitors.

Price becomes the criteria used to compete in the market.

Though the profit per unit is less, the company is going to make the substantial profit by the large volume.

Highest Quality:

Some organizations offer highest quality products irrespective of the cost.

They are catering to the needs of special class of customers who value quality as the only criteria to purchase the product.

Product Policy

Compromise between Cost and Quality:

Some Organizations in order to capture the larger sections of the customers, offer products with the optimum blend of quality and cost.

The products are reasonably of good quality in proportion to its price.

These organisations try to give good value to the customers for his money.

Safety:

Some Organizations give maximum importance to safety.

Safety is the criteria on which they compete in the market, eg. – All home appliances, electrical gadgets etc.

Thus Organizations have to choose the policies suitable for them.

This policy is going to influence the design to the large extent.

Personnel Policy

Personnel policies are the rules that govern how to deal with a human resources or personnel related situation. They are guidelines to decision making that help keep the system as fair and unbiased as possible.

The policies for human resources are formulated by the top management for assisting the executives to deal with the personnel at work.

When developing policies, the organisation should always consult an expert who is very knowledgeable about federal, state/provincial and local laws regarding employment practices.

The following is a sample list of policies.

This list is by no means definitive for every organization.

The policies developed by an one organization depend on the nature and needs of the organization.

Work Schedule

• Work day hours
• Lunch periods
• Holidays
• Vacation
• Sick Leave
• Paid Leave
• Privilege Leave

Hiring Procedures

• Interviewing job candidates
• Checking references
• Offering employment

Compensation

• Paydays
• Overtime and compensation time
• Salary ranges
• Reclassifying positions
• Salary review policy
• Promotional increases
• Withholding salary increase due to performance
• Withholding salary increase due to leave of absence

Benefits

• Eligibility and general information
• Types of available benefits
• Medical insurance
• Dental insurance
• Disability insurance
• Life insurance
• Retirement plan

Public Relation Policy

PR policy outlines the rules and processes the organisation follows in their interactions with the media for all interested external audiences.

Public Relation Policy

Accepting Media Interviews

Spokespeople (analysts, consultant) should only accept an interview that focuses on their coverage area. If a reporter asks about topics or an industry that is not in their coverage area, associates should take the journalist’s contact details and forward them to the Public Relations (PR) department. The PR team will help the journalist further.

Spokespeople can accept interviews if they have time available (particularly in regard to broadcast media that requires travel to a studio) and approval from their manager.

Spokespeople may need to decline interview opportunities if demand on their time from client commitments prevents them from being prepared for the interview.

Sharing information with journalists

The organisation tries to keep a balance between providing journalists with enough information to use in a story, while not giving away too much of what our clients pay for.

When sharing content with journalists, the spokespeople should make sure that content has already been available to clients.

Comments to the media should be consistent with the published content.

Commenting on media speculation

The media will at times report on industry speculation, such as “company X is rumored to be in talks with company Y” or “it’s widely believed that it was company X that caused the problem, but they haven’t confirmed or denied it yet.”

As a general rule, spokespeople should not comment on a specific company that is the subject of media speculation or rumor.

If the spokesperson is not sure how to handle a media situation such as this, they can contact their local PR manager.

Attending third-party conferences

A spokesperson should not automatically accept an invitation to present at a third-party event.

Permission must be obtained from the spokesperson’s manager, and the organisation.

R & D Policy

Research and development (R&D) includes activities that companies undertake to innovate and introduce new products and services. 

The goal is typically to take new products and services to market and add to the company's bottom line.

• Existing Product New Design
• Existing product Improvisation.
• New Product
• Variations in Products

Marketing Policies

Marketing policy is a long-term, forward-looking approach and an overall game plan of any organization or any business with the fundamental goal of achieving a sustainable competitive advantage by understanding the needs and wants of customers.

Paid advertising

This includes multiple approaches for marketing. It includes traditional approaches like TVCs and print media advertising. Also, one of the most well-known marketing approach is internet marketing. It includes various methods like PPC (Pay per click) and paid advertising.

Cause marketing

Cause marketing links the services and products of a company to a social cause or issue. It is also well known as cause related marketing.

Relationship marketing

This type of marketing is basically focused on customer building. Enhancing existing relationships with customers and improving customer loyalty.

Internet marketing

It is also known as cloud marketing. It usually happens over the internet. All the marketing items are shared on the internet and promoted on various platforms via multiple approaches.

Transactional marketing

Sales is particularly the most challenging work. Even for the largest retailers, selling is always tough especially when there are high volume targets.

However with the new marketing strategies, selling isn’t as difficult as it was.

In transactional marketing the retailers encourage customers to buy with shopping coupons, discounts and huge events.

It enhances the chances of sales and motivates the target audience to buy the promoted products.

Unit 4 - Strategic Analysis and Choice

Introduction

Strategy analysis and choice focuses on generating and evaluating alternative strategies, as well as on selecting strategies to pursue. 

Strategy analysis and choice seeks to determine alternative courses of action that could best enable the firm to achieve its mission and objectives.

The firm’s present strategies, objectives, and mission together with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies. 

The alternative strategies represent incremental steps that move the firm from its current position to a desired future state.

FACTORS INFLUENCING CHOICE

‘Strategic choice’ involves selecting from among several alternatives the most appropriate strategy which will best serve the enterprise objectives. 

To choose a good strategic option, past data, current data, forecasted data, and various other factors should be examined carefully. The selection process becomes a complex job because it is influenced by various factors.

• Environmental Constraints 
• Intra-Organisational Factors 
• Pressures from Stakeholders
• Personal Characteristics
• Managerial Attitude towards Risk

Environmental Constraints

The dynamic elements of environment affect the way in which choice of strategy is made. 

The survival and prosperity of a firm depend largely on the interaction of the elements of environment—such as shareholders, customers, suppliers, competitors, the government and the community. 

These elements constitute the external constraints. 

The flexibility in the choice of strategy is often governed by the extent and degree of the firm’s dependence on the environment.

Intra-Organisational Factors

Organisational factors also affect the strategic choice. 

These include organisational mission, strategic intent, goals, organisation’s business definition, resources, policies, etc.

Besides these factors, organisational strengths, weaknesses, and capability to implement strategic alternatives also affect the strategic choice.

Pressures from Stakeholders

The attractiveness of a strategic alternative is affected by its perceived compatibility with the key stakeholders in a corporation’s task environment. 

Creditors want to be paid on time. Unions exert pressure for comparable wage and employment security. 

Governments and interest groups demand social responsibility. 

Shareholders want dividends. All these pressures must be given some consideration in the selection of the best alternative.

Personal Characteristics

Personal factors like own perception, views, interests, preferences, needs, aspirations, personal disposition, ambitions, etc., are important and play a vital role in affecting strategic choice. 

Even the most attractive alternative might not be selected if it is contrary to the attitude, mindset, needs, desires and personality of the selector/strategist himself.

Managerial Attitude towards Risk

Managerial attitude towards risk is an important factor that influences the choice of strategy. 

Individuals differ considerably in their attitude towards risk taking. Some are risk prone, others are risk averse.

Risk is necessary for success;

Risk is a fact of life and some risk is desirable; 

High risk destroys enterprises and needs to be minimized.

Strategy formulating techniques

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

The Strategy-Formulation Analytical Framework

Stage 1 (Input Stage) summarizes the basic input information needed to formulate strategies.
Stage 2 (Matching Stage) focuses on generating feasible alternative strategies by aligning key external and internal factors.
Stage 3 (Decision Stage) uses the QSPM to objectively evaluate feasible alternative strategies identified in Stage 2.

INPUT STAGE

1. INTERNAL FACTOR EVALUATION MATRIX (IFE)

Internal Factor Evaluation (IFE) matrix is a strategic management tool for evaluating major strengths and weaknesses  in  functional areas of a business.

The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company. 

How to create the IFE matrix?

The IFE matrix can be created using the following five steps:

Key internal factors...

Conduct internal audit and identify both strengths and weaknesses in all your business areas. Identify 10 to 20 internal factors, but the more you can provide for the IFE matrix, the better. It is wise to be as specific and objective as possible. (You can for example, express in percentages, ratios, and comparative numbers.)

Weights...

Having identified strengths and weaknesses, Each key factor should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high importance).After you assign weight to individual factors, make sure the sum of all weights equals 1.

The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. 

Rating...

Assign a 1 to 4 rating to each factor. Your rating scale can be per your  preference. If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating.

Rating 1=a major weakness. Rating 2 = a minor weakness. Rating 3=a minor strength. Rating 4= a major strength.

Note: the weights determined in the previous step are industry based. Ratings  are company based.

Multiply... Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will give you a weighted score for each factor.

Sum...

The last step in constructing the IFE matrix is to sum the weighted scores for each factor. This provides the total weighted score for your business.

What values does the IFE matrix take?

Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from a low of 1.0 to a high of 4.0 (assuming you used the 1 to 4 rating scale). The average score you can possibly get is 2.5.

Total weighted scores well below 2.5 point to internally weak business. Scores significantly above 2.5 indicate a strong internal position.

It is important to note that a thorough understanding of individual factors included in the IFE matrix is still more important than the actual numbers.

2. EXTERNAL FACTOR EVALUATION MATRIX (EFE)

External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions. The EFE matrix  is a good tool to visualize and prioritize the opportunities and threats that a business is facing.

The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely with external factors.

External factors assessed in the EFE  matrix are the ones that are subjected  to the will of social, economic, political, legal, and other external forces.

How to create the EFE matrix?

List factors…..

The first step is to gather a list of external factors. Divide factors into two groups: opportunities and threats.

Assign weights………

Assign a weight to each factor. The value of each weight should be between 0.0 and 1.0. The total value of all weights together should equal 1.

Rate factors…..

Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates how effective the firm’s current strategies respond to the factor. 1 = the response is poor, 2 = the response is below average. 3 = above average, 4 = superior.

Note: the weights determined in the previous step are industry based. Ratings  are company based.

Multiply weights by ratings…..

Multiply each factor weight with its rating. This will calculate the weighted score for each factor.

Total all weighted scores….

Add all weighted scores for each factor. This will calculate the total weighted score for the company.

Competitive Profile Matrix (CPM)

The Competitive Profile Matrix (CPM) is a tool that compares the firm and its rivals and reveals their relative strengths and weaknesses.

In order to better understand the external environment and the competition in a particular industry, firms often use CPM. 

The matrix identifies a firm’s key competitors and compares them using industry’s critical success factors. 

The analysis also reveals company’s relative strengths and weaknesses against its competitors, so a company would know, which areas it should improve and, which areas to protect. 

Weight..... Each critical success factor should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high importance).

Rating..... The ratings in CPM refer to how well companies are doing in each area. They range from 4 to 1, where 4 means a major strength, 3 – minor strength, 2 – minor weakness and 1 – major weakness.

Score & Total Score..... The score is the result of weight multiplied by rating. Each company receives a score on each factor. Total score is simply the sum of all individual score for the company. The firm that receives the highest total score is relatively stronger than its competitors. 

MATCHING STAGE

1. SWOT Matrix

SWOT matrix is a systematic identification  of the factors and the strategy that reflects the best match between them. It   is based on the logic that an effective strategy maximizes the business’s strengths and opportunities but at the same time minimizes its weaknesses threats.

The SWOT matrix is a 2 x 2 four quadrant matrix. It has quadrants dedicated to

Strengths

Weaknesses

Opportunities

Threats

SO strategies use a firm’s internal strengths to take advantage of external opportunities

WO strategies improve internal weaknesses by taking advantage of external opportunities

ST strategies use a firm’s strengths to avoid or reduce the impact of external threats

WT strategies defensive tactics aimed at reducing internal weakness and avoiding external threats

2. SPACE Matrix

The    Strategic    Position  &  Action    Evaluation    matrix    or    short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization.

The SPACE matrix’s four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. 

Its axes represent two internal dimensions (financial strength [FS] and competitive advantage [CA]) and two external dimensions (environmental stability [ES] and industry strength [IS]).

Internal dimensions

Financial strength (FS)

Competitive advantage (CA)

External dimensions

Environmental stability (ES)

Industry strength (IS)

SPACE Matrix Graph Quadrant

Aggressive

Conservative

Defensive

Competitive

Steps to construct a SPACE Matrix

The steps required to develop a SPACE Matrix are as follows:

1. Select a set of variables to relating to financial strength, competitive advantage, environmental

stability, and industry strength.

2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make

up the financial strength and industry strength dimensions. Assign a numerical value ranging from -

1 (best) to -6 (worst) to each of the variables that make up the environmental stability and

competitive advantage dimensions.

3. Compute an average score by dividing by the number of variables

4. Plot the average scores in the SPACE Matrix.

5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-

axis and plot the resultant point on Y. Plot the intersection of the new xy point.

6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point.

This vector reveals the type of strategies recommended for the organization: aggressive,

competitive, defensive, or conservative.

3. BCG Matrix / Growth Share Matrix

Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. 

It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates. 

It is a two dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is a comparative analysis of business potential and the evaluation of environment.

BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. 

Using the Boston Consulting Group approach, a company classifies all its SBUs according to the growth-share matrix. 

By dividing the growth-share matrix as indicated, four types of SBUs can be distinguished:

Stars- Stars represent business units having large market share in a fast growing industry. 

They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. 

SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. 

If successful, a star will become a cash cow when the industry matures.

Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. 

Cash cows require little investment and generate cash that can be utilized for investment in other business units. 

These SBU’s are the corporation’s key source  of cash, and are specifically the core business. 

They are the base of an organization. These businesses usually follow stability strategies. 

When cash cows lose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. 

They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. 

Question marks are generally new goods and services which have a good commercial prospective. 

There is no specific strategy which can be adopted. 

If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. 

Most businesses start as question marks as the company tries to enter  a high growth market in which there is already a market-share. 

If ignored, then question marks may become dogs, while if huge investment is made, and then they have potential of becoming stars.

Dogs- Dogs represent businesses having weak market shares in low- growth markets. 

They neither generate cash nor require huge amount of cash.

Due to low market share, these business units face cost disadvantages. 

Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. 

These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. 

Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. 

Number of dogs should be avoided and minimized in an organization.

4. Internal-External (IE) Matrix

The Internal-External (IE) Matrix positions an organization’s various divisions in a nine cell matrix. The IE Matrix is a strategic management tool which is used to analyze the current position of the divisions and suggest the strategies for the future.

The  Internal-External (IE) Matrix  is based on an analysis of internal and external business factors which are combined into one suggestive model.  The IE matrix is a continuation of the  EFE matrix  and  IFE matrix  models.

The  Internal-External (IE) Matrix  is based on two key dimensions: the IFE total weighted scores on the X-axis and the EFE total weighted scores on the Y-axis. 

Internal-External (IE) Matrix

The total weighted scores derived from the divisions allow construction of the corporate-level IE Matrix. 

On the X-axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a weak internal position; 

a score of 2.0 to 2.99 is considered average; 

and a score of 3.0 to 4.0 is strong. 

Similarly, on the Y-axis, an EFE total weighted score of 1.0 to 1.99 is considered low; 

a score of 2.0 to 2.99 is medium; 

and a score of 3.0 to 4.0 is high.

5. Grand Strategy Matrix

The Grand Strategy Matrix charts two dimensions – the market growth vs the organisations competitive position.

Each of the four quadrants has a number of strategic options and the framework is designed to assist you evaluate the potential direction you decide to move in as a business.

First Quadrant:

If your business is in this quadrant then you have a strong competitive position and the market is in rapid growth. 

This is the best quadrant to be in, with opportunity high and your position strong.

Second Quadrant:

If your business is in this quadrant then you have a relatively weak competitive situation as a business, but there’s a lot of opportunity to go for and a lot of success to be had within the market. 

The strategies in this position are all about why you’re not taking advantage of the position. 

If you’re placed in this quadrant then you know you can change to improve results.

Third Quadrant:

Being in the third quadrant means you have a weak competitive situation and the market is also quite slow. This is a tricky position because you’re already not doing well and there isn’t the huge opportunity that presents itself like the second quadrant. If you find yourself here you need to consider major changes to improve your competitive position, consider areas such as cost reduction, differentiation or diversification.

Fourth Quadrant:

If you’re placed within the fourth quadrant you have a strong competitive situation, which is great, but your market is slow to grow or in decline. This lends itself to strategies such as diversification as you have the funds to innovate in numerous areas before the market decline becomes unsustainable. Watch out for cheaper competitors entering the market to attack you as the leader.

What are the strategies in the Grand Strategy Matrix?

1. Strong Market Position + Strong Market Growth Strategies:

Market Development

Product Development

Market Penetration

Backward Integration

Forward Integration

Concentric Diversification

2. Weak Market Position + Strong Market Growth Strategies:

Market Development

Product Development

Market Penetration

Horizontal/Vertical Integration

Liquidation

Divestiture

3. Weak Market Positioning + Weak Market Growth Strategies:

Related / Unrelated Diversification

Conglomerate Diversification

Retrenchment

Liquidation

What are the strategies in the Grand Strategy Matrix?

4. Strong Market Positing + Weak Market Growth Strategies:

Related / Unrelated Diversification

Horizontal / Vertical Diversification

Joint Ventures

Conglomerate Diversification

Strategy-Formulation Framework

DECISIVE STAGE

Quantitative Strategic Planning Matrix

QSPM determines the relative attractiveness of various strategies based on key internal and external factors. 

The relative attractiveness of each strategy within a set of alternatives is computed by determining the cumulative impact of each key internal and external factors. 

Any number of sets of alternative strategies can comprise a given set. 

For example, one set of strategies may include concentric, horizontal or conglomerate diversification

The steps involved are:

List the firm’s key internal and external strengths/weaknesses and external opportunities/threats in the left column of the QSPM. This information should be taken directly from the IFE&EFE matrix. A minimum of 5 key internal factors and 5 external factors should be included in the QSPM. Remember that each factor should be stated in specific terms.

Assign ratings to each key internal and external factor. These ratings are identical to those in the IFE and EFE matrix. The ratings are presented in a straight column just to the right of the key internal and external factor statements.

Examine state 2 (matching) matrices and identify alternative strategies that the organization should consider implementing. Record these strategies in the top row of the QSPM. Group the strategies into sets if appropriate.

Determine the attractiveness score. They are defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. Attractiveness scores are determined by examining each internal and external factor, one at a time and asking a question is YES, then the strategy should be evaluated relative to the key factor. 

Specifically, attractiveness scores should be assigned to each strategy in the given set of alternatives, and where 

1=the strategy is not acceptable, 

2=the strategy is possible acceptable, 

3=the strategy is probably acceptable and

 4= the strategy is most acceptable. 

However, if the answer to the above question is NO, indicating that the respective key factor does not affect the specific choice being made, then do not assign attractiveness scores to the strategies in that set.

Compute the total attractiveness score, which is defined as the product of multiplying the ratings (step 2) by the attractiveness scores (step 4) in each row. The total attractiveness scores indicate the relative attractiveness of each alternative strategy, considering only the impact of the adjacent internal and external factors. The higher the total attractiveness score, the more attractive the strategic alternative.

Compute the total attractiveness score in a strategy column of the QSPM. 

This reveals which strategy is most attractive in each set of alternatives. Higher scores indicate more attractive strategies, considering all the relevant internal and external factors that could impact the strategic decisions. Attractiveness scores in a given set of strategic alternatives indicate the relative desirability of one strategy over another.