Chapter 6 – Strategy Formulation: Situational Analysis & Business Strategy
Strategy formulation -–Strategic planning or long-range planning
•Develops mission, objectives, strategies, policies
6-1
Situational Analysis
- Process of finding a strategic fit
between external opportunities and
internal strengths while working around
external threats and internal weaknesses
6-2
SFAS (Strategic Factors Analysis Summary) Matrix
The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organization’s
strategic factors by combining the external factors from the EFAS Table with the internal
factors from the IFAS Table. The SFAS Matrix requires the strategic decision maker to
condense these strengths, weaknesses, opportunities, and threats into fewer than ten strategic
factors. This is done by reviewing and revising the weight given each factor. The revised
weights reflect the priority of each factor as a determinant of the company’s future success.
The highest weighted EFAS and IFAS factors should appear in the SFAS Matrix.
6-3
Situational Analysis
Niche -–Need in the marketplace that is currently
unsatisfied
6-4
Situational Analysis
Corporate Goal -–Find favorable niche
–Strategic window
6-5
Situational Analysis
SWOT -–Internal
•Strengths/Weaknesses
–External
•Opportunities/Threats
6-6
TOWS (Threats, Opportunities, Weaknesses, and Strengths) Matrix
The TOWS Matrix is a relatively simple tool for generating strategic options. By using it, you can
look intelligently at how you can best take advantage of the opportunities open to you, at the same
time that you minimize the impact of weaknesses and protect yourself against threats.
Used after detailed analysis of your threats, opportunities, strength and weaknesses, it helps you
consider how to use the external environment to your strategic advantage, and so identify some of
the strategic options available to you.
At a practical level, the only difference between TOWS and SWOT is that TOWS emphasizes the
external environment whilst SWOT emphasizes the internal environment.
6-7
Business Strategy
Focuses on improving competitive
position of company’s products or
services within the specific industry or
market segment
6-8
Porter’s Competitive Strategies
Competitive Strategy -–Low cost
–Differentiation
–Direct competition
–Focus on niche
6-9
Porter’s Competitive Strategies
Generic Competitive Strategies -–Lower Cost strategy
•Greater efficiencies than competitors
–Differentiation strategy
•Unique/superior value, quality, features, service
6-10
Porter’s Competitive Strategies
Competitive Advantage -–Determined by Competitive Scope
•Breadth (wide range and scope) of the target
market
6-11
Porter’s Competitive Strategies
6-12
Porter’s Competitive Strategies
Cost Leadership -–Low-cost competitive strategy
–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization
6-13
Porter’s Competitive Strategies
Differentiation –
–Broad mass market
–Unique product/service
–Premiums charged
–Less price sensitivity
6-14
Porter’s Competitive Strategies
Cost-Focus –
–Low-cost competitive strategy
–Focus on market segment
–Niche focused
–Cost advantage in market segment
6-15
Porter’s Competitive Strategies
Differentiation Focus –
–Specific group or geographic market focus
–Differentiation in target market
–Special needs of narrow target market
6-16
Porter’s Competitive Strategies
Stuck in the middle –
–No competitive advantage
–Below-average performance
6-17
Risks of Generic Strategies
Risks of Cost Leadership
Risks
of Cost isLeadership
Cost
leadership
not
Cost
leadership
is
not
sustained:
• sustained:
Competitors imitate.
•
Competitors
imitate.
• Technology
changes.
Technology
changes.
• •Other
bases for
cost
•leadership
Other bases
for
erode. cost
leadership
erode.
Proximity
in differentiation
is
Proximity
in
differentiation
is
lost.
lost.focusers achieve even
Cost
lower cost in segments.
Risks of Differentiation
Risks of Differentiation
Differentiation
is not
Differentiation
is not
sustained:
• sustained:
Competitors imitate.
•
Competitors
imitate.
• Bases
for differentiation
•become
Bases less
for differentiation
important to
become
less
important to
buyers.
Costbuyers.
proximity is lost.
Cost
proximity
is lost.
Differentiation
focusers
achieve even greater
differentiation in segments.
Risks of Focus
Risks
ofstrategy
Focus is
The
focus
The focus strategy is
imitated:
imitated:
The
target segment becomes
The
targetunattractive:
segment becomes
structurally
unattractive:
• structurally
Structure erodes.
Structure
erodes.
• •Demand
disappears.
• Demand
disappears.
Broadly
targeted
competitors
Broadly
targeted
competitors
overwhelm the segment:
the segment:
• overwhelm
The segment’s
•differences
The segment’s
from other
differences
from other
segments narrow.
segments
narrow.
• The
advantages
of a
•broad
The advantages
of a
line increase.
line subsegment
increase.
Newbroad
focusers
New
focusers subsegment
the
industry.
the industry.
6-18
8 Dimensions of Quality
6-19
Competitive Tactics
Timing Tactics -–First mover
–Late movers
6-20