Strategy Analysis & Choice
Denis Manley
Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting best alternative to achieve
mission & objectives
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Stage 1: The Input Stage
Basic input information comes from the internal
/external evaluation (matrices)
Requires strategists to quantify subjectivity
early in the process: the assigned weights…
Good intuitive judgment always needed
Strategy-Formulation Analytical
Framework
Stage 2:
The Matching Stage
SWOT Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2: The Matching Stage: SWOT
analysis
Match between organization’s internal
strengths and weaknesses and the opportunities
& risks created by its external factors
E.g. internal: strong R and D function
External changing demographics (e.g.
population getting older)
Strategy: Develop new products for older
adults (related to long term objectives
financial or strategic)
Stage 2: The Matching Stage: SWOT Matrix
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
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
S1: Own 42 bases in
Europe (strength)
+
02: lower interest rates
on borrowing money
(opportunity)
+
Cheaper holiday’s
being offered by resorts
(opportunity)
+
Risk of increasing oil
prices(threat)
W7: charge for items free
on other airlines
(weakness)
S7: profits increase by
200%(strength)
W2: Poor customer
service (weakness)
T2: increase in
+ competitors
customers services
(threat)
Resultant Strategy
=
Invest money (e.g. 100
million) in terminal space at
new airports now currently
served.
=
Increase amount spent on
advertising to attract
customers only concerned
about price.
=
Hedge (invest) money to
protect against rising oil
prices
=
Spend money annually
to increase customer
services.
The above is based on the internal and external evaluation of Ryanair:
9
Strengths:
1.
2.
3.
4.
5.
6.
7.
R and D almost complete
Basis for strong management team
Key first major customer acquired
Initial product can evolve into range
of offerings
Located near a major centre of
excellence
Very focused management/staff
Well-rounded and managed
business
Weaknesses:
1.
2.
3.
4.
5.
6.
7.
Threats:
1.
2.
3.
4.
5.
6.
Major player may enter targeted
market segment
New technology may make products
obsolescent
Economic slowdown could reduce
demand
Euro/Yen may move against $
Market may become price sensitive
Market segment's growth could
attract major competition
Over dependent on borrowings Insufficient cash resources
Board of Directors is too narrow
Lack of awareness amongst
prospective customers
Need to relocate to larger premises
Absence of strong sales/marketing
expertise
Overdependence on few key staff
Emerging new technologies may
move market in new directions
Opportunities:
1.
2.
3.
4.
Market segment is poised for rapid
growth
Export markets offer great potential
Distribution channels seeking new
products
Scope to diversify into related
market segments
Key Strategies
1.
2.
3.
4.
5.
6.
7.
8.
Accelerate product launches by strengthening R and D
team
Extend links with key technology centres
Raise additional venture capital
Expand senior management team in sales/marketing
Recruit non-executive directors
Strengthen human resources function and introduce
share options for staff
Appoint advisers for intellectual property and finance
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
(based on current internal/external
environment)
• May lead the firm to overemphasize a
single internal or external factor in
formulating strategies
Boston Consulting Group (BCG)
Matrix
Enhances multi-divisional firm in formulating
strategies
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
BCG Matrix
Relative Market Share Position
Industry Sales Growth Rate
High
1.0
Medium
.50
Low
0.0
High
+20
Stars
II
Question Marks
I
Cash Cows
III
Dogs
IV
Medium
0
Low
-20
Ratio of a division’s own market share in an industry to the
market share held by the largest rival firm in that industry: Which
one is Ryanair
14
BCG Matrix
Quadrant 1: Question Marks
Low relative market share – compete in highgrowth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies)
or divest – selling part of the organisation - (a
defensive strategy)
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or
strengthen dominant position
Integration strategies, intensive strategies
BCG Matrix
Cash Cows
High relative market share, competes in lowgrowth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, Related diversification
If weakens—retrenchment or divestiture
Why do you think you would not use other generic
strategies?
BCG Matrix
Dogs
Low relative market share & compete in slow or
no market growth
Weak internal & external position
Defensive strategy: Liquidation, divestiture,
retrenchment
Grand Strategy Matrix
RAPID MARKET GROWTH
1.
2.
3.
4.
5.
6.
WEAK
COMPETITIVE
POSITION
1.
2.
3.
4.
5.
Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
1.
2.
3.
4.
5.
6.
7.
Quadrant III
Retrenchment
1.
Related diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Related diversification
STRONG
COMPETITIVE
POSITION
Quadrant IV
Related diversification
Horizontal diversification
Conglomerate (unrelated)
diversification
Joint ventures
GROWTH
Where do you think you would position Ryanair?
19
The grand strategy matrix
• The grand strategy matrix is very similar to
the Boston consultants group matrix
except the matrices quadrants are not in
the same position:
– Cash cow is equivalent to quadrant IV
– Stars: is equivalent to Quadrant I
– ? is equivalent to quadrant II
– Dogs is equivalent to quadrant III
Strategy-Formulation Analytical Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
Technique designed to determine the relative
attractiveness of feasible alternative actions
Steps to Develop a QSPM
1. Make a list of the firm’s key external
opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor
3. Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores (A.S)
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
Ryanair: Sample QSPM matrix
Increase
terminal
space at
airports
Increase
advertising
Opportunities
1. Local competitors’ going bankrupt allows Ryanair to capture
their customers and possibly buy equipment they are forced to
sell.
Weight
AS
TAS
AS
TAS
0.08
4
0.32
3
0.24
2. Lower interest rate on borrowing money.
3. Down cycle of economy has increased potential profit because
people are most cost sensitive.
4. Potential increase in investors due to high dividend payout $500 million dividend.
5. The economy is recovering.
6. Cheaper vacation prices are being offered by resorts.
0.05
3
0.15
2
0.10
0.06
2
0.12
3
0.18
0.05
0
0.00
0
0.00
0.05
2
0.10
3
0.15
0.05
2
0.10
3
0.15
0.07
0
0.00
0
0.00
0.09
4
0.36
3
0.27
7. European countries lowering or doing away with tourist taxes
will attract more vacationers.
8. Passengers expected to grow to 73.5 million by the beginning of
2012.
Ryanair: Sample QSPM matrix
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Threats
Regulatory rules in Europe can change that would restrain the
way Ryanair does business.
Increase in competitor customer service could attract customers
to their airlines.
Cost increase at Dublin airport will lower passenger traffic
through Dublin airport.
Weather threats operating in Europe during winter.
Fluctuations of foreign currency and longevity of the Euro.
Heavily unionized labor force.
Risk of oil rising back over $100 a barrel.
Weaking of the global economy.
Internet has led to more competitive pricing and more price
sensitivity to industry.
Continued threat to industry’s human relations concerning
displeasure over carbon dioxide emissions.
Weight
AS
TAS
AS
TAS
0.08
0
0.00
0
0.00
0.05
3
0.15
4
0.20
0.03
0
0.00
0
0.00
0.04
0.06
0.07
0.07
0.04
0
0
0
0
2
0.00
0.00
0.00
0.00
0.08
0
0
0
0
3
0.00
0.00
0.00
0.00
0.12
0.04
2
0.08
4
0.16
0.02
0
0.00
0
0.00
Ryanair: Sample QSPM matrix
Increase
terminal
space at
airports
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Weight
Strengths
Owning 42 bases allows Ryanair to operate at a lower cost then
0.06
competitors.
92% of bookings being done over the internet lower cost by
0.04
lower workers needed and telephone usage.
Ryanair being the second largest airlines in Europe is a well
0.07
known company among European flyers.
90% of Ryanair’s flights arrive on time.
0.04
Ryanair has created a niche in the market by offering many direct
0.04
flights.
284 new routes will allow Ryanair to capture new passenger
0.05
business.
Profits increased by 204% due to an increase in planes, routes
0.10
and passengers.
The down turn in the economic cycle and low fares has lead to
0.05
an increase in traffic growth by 14%.
Ryanair forecast generating over $1 billion in surplus cash.
0.10
Have 51 new planes.
0.05
Increase
advertising
AS
TAS
AS
TAS
4
0.24
2
0.12
2
0.08
4
0.16
4
0.28
3
0.21
1
0.04
3
0.12
4
0.16
2
0.08
4
0.20
3
0.15
4
0.40
2
0.20
4
0.20
3
0.15
3
4
0.30
0.20
2
2
0.20
0.10
Ryanair: Sample QSPM matrix
1.
2.
3.
4.
5.
6.
7.
8.
Weaknesses
Low customer loyalty because of a no refund policy and relax
attitude on canceling of flights.
Poor customer service leaves an opening for competitors to
capture our customers.
Ryanair advertisements may be viewed as poor do to the use of
vulgar, explicit, and sexual material.
Ryanair’s lack of major city destinations.
Low market growth opportunities.
Staff cost increased by 8%.
Ryanair charges customers for many ancillaries items that are
free on most other airlines.
Maintenance cost increased by 29%.
TOTALS
Weight
AS
TAS
AS
TAS
0.05
0
0.00
0
0.00
0.06
0
0.00
0
0.00
0.02
2
0.04
4
0.08
0.05
0.05
0.04
4
3
0
0.20
0.15
0.00
2
2
0
0.10
0.10
0.00
0.06
0
0.00
0
0.00
0.07
0
0.00
0
0.00
3.95
Recommendations:
Invest $100 million in terminal space annually at new airports
not currently serviced. What is this type of “generic”
strategy; does it correspond to the proposed strategies of
the grand strategy and BCG matrix
3.34
QSPM
Limitations
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs (
Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal
factors in the decision making process
Questions
• The SWOT analysis and the BCG matrix are two
models to help an organisation derive a set of
strategies. Compare and contrast each model,
using suitable examples.
• Discuss, using a suitable examples, a
framework that would be suitable to help an
organisation derive and choose suitable
strategies to help ensure competitive advantage.