UNIT - 3

STRATEGIC ANALYSIS & CHOICE PROCESS

STRATEGIC ANALYSIS & CHOICE PROCESS

I). Focusing on Strategic Alternatives:

• It involves identification of all Alternatives.
• The Strategist examines what the Organization
wants to achieve (Desired performance) and
what it has really achieved (Actual
performance).
• Gap Analysis - The gap between the two
positions constitutes the Background for
various Alternatives and Diagnosis.
STRATEGIC ANALYSIS & CHOICE PROCESS

II). Evaluating Strategic Alternatives:

• The next step is to assess the Pros and Cons of
various Alternatives and their Suitability.
• The Tools which may be used are Portfolio
analysis, GE Business screen and Strategic
Advantage Profile.
 TOOLS OF STRATEGIC ANALYSIS & CHOICE
PROCESS
• Environmental Threat & Opportunity Profile (ETOP)
• Organizational Capability Profile (OCP)
• Strategic Advantage Profile (S.A.P)
• Corporate Portfolio Analysis
• Mc Kinsey’s 7S Framework
• GE 9 Cell model
• Selection of Matrix
• Balanced Scorecard
• Gap Analysis
 STRATEGIC ANALYSIS & CHOICE PROCESS

III). Considering Decision factors:

(i) Objective factors:
♦ Environmental factors
- Flexibility of Environment (Capability)
- Internal Environmental Factors.
- Strengths and weaknesses
♦ Organizational factors
- Business Definition.
- Organization Mission
- Strategy Plan
STRATEGIC ANALYSIS & CHOICE PROCESS

III). Considering Decision factors:

(ii) Subjective factors:
- Personal preferences of Decision- makers;
- Management’s attitude toward Risk;
- Pressure from Stakeholders;
- Pressure from Corporate culture;
- Strategies adopted in the Previous-period;

- Needs and desires of key Managers.

STRATEGIC ANALYSIS & CHOICE PROCESS

IV). Process of Strategic Choice:

Two techniques are used in the process of
selection of a strategy, namely:
(i) Devil’s Advocate
(ii) Dialectical Inquiry
 TOOLS OF STRATEGIC ANALYSIS & CHOICE
PROCESS
• Environmental Threat & Opportunity Profile (ETOP)
• Organizational Capability Profile (OCP)
• Strategic Advantage Profile (S.A.P)
• Corporate Portfolio Analysis
• Mc Kinsey’s 7S Framework
• GE 9 Cell model
• Selection of Matrix
• Balanced Scorecard
• Gap Analysis
 Types of Global Strategies
• Corporate Strategies
 Top management’s overall plan for the entire
organization
• Types of Corporate Strategies
 Growth: expansion into new products and markets
 Stability: maintenance of the status quo
 Renewal: examination of organizational
weaknesses that are leading to performance
declines
Chapter 8, StephenP.Robbins, Mary Coulter, Management,
Copyright © 2010 Pearson Education, Inc. Publishing as 8–13
Prentice Hall
 Corporate Strategies
• Growth Strategy
 Seeking to increase the organization’s business by
expansion into new products and markets.
• Types of Growth Strategies
 Concentration
 Vertical integration
 Horizontal integration
 Diversification

Chapter 8, StephenP.Robbins, Mary Coulter, Management,

Copyright © 2010 Pearson Education, Inc. Publishing as 8–14
Prentice Hall
 Corporate Strategies
• Concentration
 Focusing on a primary line of business and
increasing the number of products offered or markets
served.
• Vertical Integration
 Backward vertical integration: attempting to gain
control of inputs (become a self-supplier).
 Forward vertical integration: attempting to gain
control of output through control of the distribution
channel or provide customer service activities
(eliminating intermediaries).
Chapter 8, StephenP.Robbins, Mary Coulter, Management,
Copyright © 2010 Pearson Education, Inc. Publishing as 8–15
Prentice Hall
 Corporate Strategies
• Horizontal Integration
 Combining operations with another competitor in
the same industry to increase Competitive
strengths and lower Competition among Industry
Rivals.
• Related Diversification
 Expanding by combining with firms in same &
Related industries that are “Strategic fits.”
• Unrelated Diversification
 Growing by combining with firms in Unrelated
industries where higher financial returns are
possible.
Chapter 8, StephenP.Robbins, Mary Coulter, Management,
Copyright © 2010 Pearson Education, Inc. Publishing as 8–16
Prentice Hall
 Corporate Strategies
• Stability Strategy
Ø A strategy that seeks to maintain the Status-quo to
deal with the uncertainty of a dynamic environment,
when the industry is experiencing slow- or no-growth
conditions, or if the owners of the firm elect not to
grow for Personal reasons.
Ø No Extra Efforts
Ø No Additional Investments
Ø Don’t even compete with Competitors

Chapter 8, StephenP.Robbins, Mary Coulter, Management,

Copyright © 2010 Pearson Education, Inc. Publishing as 8–17
Prentice Hall
 Corporate Strategies
• Retrenchment Strategies
 Reduces the Company’s Activities or Operations
 Retrenchment Strategies include
 Cost Reductions
 Layoffs
 Closing underperforming Units
 Closing entire Product lines or Services

Chapter 8, StephenP.Robbins, Mary Coulter, Management,

Copyright © 2010 Pearson Education, Inc. Publishing as 8–18
Prentice Hall
 Types of Competitive Strategies
• Cost Leadership Strategy
 Seeking to attain the lowest total overall costs
relative to other industry competitors.
• Differentiation Strategy
 Attempting to create a distinctive product or
service for which Customers will pay a Premium.
Eg : Volvo, Apple.
• Focus Strategy
 Using a cost advantage to exploit a particular
Market segment rather a larger market.
Eg: Rolls Royce
Chapter 8, StephenP.Robbins, Mary Coulter, Management,
Copyright © 2010 Pearson Education, Inc. Publishing as 8–19
Prentice Hall
 BUILDING AND RE-STRUCTURING THE
CORPORATION
There are various methods for the firms to enter into a
Business :
I).Start-up route: In this route, the business is started from
the scratch by Building facilities, purchasing Equipments,
recruiting Employees, opening up Distribution outlet and
so on.
II).Acquisition: Acquisition involves purchasing an
Established company, completed with all Facilities,
Equipment and Personnel.
III). Joint Venture: Joint venture involves starting a new
Venture with the help of a Partner.
 BUILDING AND RE-STRUCTURING THE
CORPORATION
IV).Merger: Merger involves fusion of two or
more Companies into one Company.

V).Takeover: A Financially Distress company

requesting another Successful company to take
over its Assets & liabilities and save it from
becoming Bankrupt
 BUILDING AND RE-STRUCTURING THE
CORPORATION
Re-structuring Strategies:
 Re-structuring involves Strategies for
reducing the scope of the Firm by exiting
from unprofitable Business.
Restructuring is a popular strategy where
Diversified organizations Exit to best Suit to
the current Situations.
 BUILDING AND RE-STRUCTURING THE
CORPORATION
I). Harvest strategy: A harvest strategy involves
halting Investment in a Product/Service unit in
order to maximize Short- term Cash flow from
that unit.

II). Divestment Strategy: Divestment strategy

requires dropping of some Part of the
Businesses or some Product Unit of the firm, to
reverse a negative Trend.
 BUILDING AND RE-STRUCTURING THE
CORPORATION
III). Spin-off: Selling of a Business unit to
independent Investors is known as Spinoff. The
highest Bidder gets the divested unit. It is the
best way to recover the Initial investment as
much as possible
IV). Management-buyout: Selling off the
Divested unit to its Management is known as
Management buyout.
 BUILDING AND RE-STRUCTURING THE
CORPORATION
V). Retrenchment: Retrenchment strategies are
adopted when the Firm’s performance and its
Competitive position is Poor.
VI). Liquidation: Liquidation is considered to be
an unattractive strategy. It is pursued as a last
Step because all Employees lose Jobs and it is
considered to be a sign of Failure of the Top
management.
• Retrenchment Strategies
 Reduces the Company’s Activities or Operations
 Retrenchment Strategies include
 Cost Reductions
 Closing underperforming Units
 Closing entire Product lines or Services

Chapter 8, StephenP.Robbins, Mary Coulter, Management,

Copyright © 2010 Pearson Education, Inc. Publishing as 8–28
Prentice Hall
Strategic Advantage Profile (S.A.P)

Generally there are five functional areas in

most of the Organizations. These areas ar e:
 Production or Operat ion
 Finance or Accounting
 Marketing or Distribution
 Human Resource & Corpor at e
Planning
 Research & Development
 Tax Holiday
• A Period of Exemption from Income Tax
• New Industries (‘Pioneer’ or ‘Infant’
Industries)
• Developing Countries
• Aim : To boost the Economy.
 Strategic Advantage Profile

• No firm is equally strong in all its Functions. Every

firm has Strategic advantages and disadvantages.

• The Strategist should Transform the Firm Stronger

in the Weaker Functions than its Competitor s.

• When a firm is strong in the market , it has a strategic

advantage in launching new Product or Services
and increasing market share of present Products and
services
 Organizational Capability Profile (OCP)

Assessing the various Functional areas and

assign values to the different Functional
capability sub-factors along a scale ranging from
values of -10 to +10.
Organizational Capability Profile (OCP)

Weakness (-10) Normal (0) Strength (+10)

Capability Factors
Financial -10
Technical 0
Human Resource -10
Marketing 10
R&D 0
 EXAMPLES OF ORGANIZATIONAL CAPABILITY PROFILE

Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high Investor confidence
Escorts - Amicable relation with FIS (world's top-ranked technology
provider to the Banking
industry)
Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
Tata - Company / Product Image
Operations Capability
Lakshmi machine works - absorb imported Technology
Balmer & Lawrie - R&D - New specialty chemicals

Personnel Capability
Apollo tyres - Industrial relations problem
General management capability
The Hindu - largest selling newspaper
(Unchallenged - Unified, stable Best edited &
Leadership) Professionally produced Articles
 Organizational Capability Profile (OCP)

Financial Capability Profile

(a) Sources of funds

(b) Usage of funds
(c) Management of funds
Marketing Capability Profile

(d) Product related

(e) Price related
(f) Promotion related
(g) Integrative & Systematic
Organizational Capability Profile (OCP)

Weakness (-10) Normal (0) Strength (+10)

Capability Factors
Financial -10
Technical 0
Human Resource -10
Marketing 10
R&D 0
Operations Capability Factor

(a) Production system

(b) Operation & Control system
(c) R&D system
Personnel Capability Factor

(d) Personnel system

(e) Organization & employee characteristics
(f) Industrial Relations
General Management Capability
(g) General Management Systems
(h) External Relations
(i) Organization climate
 Outcome of Organizational Capability
Profile (OCP)

• Identify & classify firm’s Resources

• Combine firm’s strength intospecific

capabilities – Corporate capability- may be
Distinctive competence
• Identify Resource gaps & Invest in
Upgradation
• Strategy that best exploits the Firms
Resources.
 Difference between O.C.P & S.A.P
Organizational Capability Profile
 An organizational capability profile describes the
Expertised knowledge, Skills and Resources that
enable your company to provide Quality products or
services to customers.
 The profile provides useful Background information
for your Marketing and Corporate communications.
 O.C.P can be used as a part of a formal Bid-
document to win Contracts and decisions upon any
Investment in Upgradations.
Environmental Threat & Opportunity Profile
(ETOP)
ETOP analysis (Environmental threat and
opportunity profile) is the process by which
organizations monitor their relevant
Environment to identify Opportunities and
Threats affecting their Business for the purpose
of taking Strategic decisions.
 How to prepare an ETOP?
Dividing the environment into different
sectors such as economical, market, social,
international, legal, technological, political,
ecological, etc.
 Analyzing the impact of each sector on the
organization
 Sub-dividing each environmental sector into
sub factors
 Impact of each sub-sector on Organization in
form of a statement
S. Environmental Factors Opportunity Reasons/Remarks
No. /Threat
1. Macro-Economic Factors 1). Rising PCI means
1).Per capita Income ↑ more
affordability.
(Seventh Pay
Commission)
2).Loans Availability ↑
2).Banks provide easy Loan-
schemes.
3).High Interest Rates ↓
3).People can’t pay
high Interest Rates.
2. Social/
Demographics ↑ 1).Demand for Passenger
Factors cars Sales are increasing at
1). Urbanization YOY of over 60 % in the
( 28% to 40% long run.
by 2028 ) ↑
2).India has one of the
2). Labors cheapest labour available
hence many foreign
↑ companies are eyeing to
Merge with Indian
3).Growing ↓ players.
Working Class 3).Resulted in more no of
Cars
S. Environmental Factors Opportunity Reasons/Remarks
No /Threat
.
3. Policy
1).Custom Duty ↑ 1).Currently Custom
duty is reduced by
2).Excise Duties ↑ 12%.
2).Excise duty has
been reduced from 16
3).Regulatory Issues like ↓ %to 14%.
Acts, Safety Standards
etc. 3).MVA 1988 and MVR
1989
which promotes use
capital Intensive
technology
4. Technology
↓ 1).Bharat III resulting in
1).Emission Standards
dependence on other
countries for
Technology
2).Fuels ↑
2).Upcoming Bio- fuels
& LPG .
S. Environmental Factors Opportunity Reasons/Remarks
No. /Threat
5. Industrial Factors

-Raw material price ↓ Steel Prices have touched

Rs. 52,000 since May 2018

6. Business Environment

1).Market Share ↓ 1).With players like

Hyundai and TATA having
Market Share of 9% and
32%.
2).Expansion Plans of ↓
Incumbent players 2).In future has huge
Expansion plans which
will give the Incumbent
companies a Higher
Advantage.

56
 Advantages of ETOP
• Helps organization to identify Opportunities and
Threats
• To consolidate and Strengthen Organizations
Position
• Help organization know where it stands with
respect to its External Environment.
• Provides the strategists of which Sectors have a
favorable Impact on the Organization
• Helps in Formulating appropriate Strategy
 McKinsey’s 7S Framework

• McKinsey Framework was developed in late

1970 by McKinsey, a well-known Consultancy
firm in the United States.
• The model recognizes 7 Elements and considers
them to be Interlinked
• Organizational effectiveness is examined by the
Alignment of the Seven Essential elements
 MCKINSEY’S 7S FRAMEWORK

Structure
Strategy
System

Super ordinate
Goals

Skills
Style
Staff
 McKinsey 7S Framework

Hard S Soft S

Strategy Style

Structure Staff

Systems Skills

Shared Values
 McKinsey 7S Framework
1. Strategy
• Represents the plans for the allocation of a
Firm’s scarce Resources, to reach identified
goals.
• Actions formulated keeping in view the Long-
term Objectives
• Ways to cope with Pressure from Competitors
• Adaption towards Environmental Factors
• Effective Utilization of Resources & Capabilities
 STRATEGY

• A Method or Plan chosen to bring about a

desired future, such as achievement of a goal
or solution to a problem.

• Strategy is a High level plan to achieve one or

more goals under conditions of uncertainty
 McKinsey 7S Framework
2. Structure
• Structure means the way in which the
Organizational units relate to each other.
• Centralized or Decentralized Organizational
Hierarchy
• Span of Management
• Lines of Communication – Explicit or Implicit
• Employees Alignment towards Strategy
• Various Departments Co-ordinate their Activities.
 McKinsey 7S Framework
3. Systems
• Systems pertain to Procedures, Processes, and
Routines that characterizes how the Work
completion.
• Eg: Cash Payment, Recruiting, Performance
appraisal systems, Information systems etc
• Evaluation and Control Mechanisms to keep
track of Processes and Procedures.
 McKinsey 7S Framework
4. Staff
• Staff element is concerned with what type and how
many Employees an Organization will need.
• Staff element focuses on the number of Employees,
Recruitment, Development of employees,
Remuneration and other Motivational considerations.
• All Personnel are Placed at the right Positions/
Specializations to avoid Incompetencies.
 McKinsey 7S Framework
5. Skills
• Skills are the Capabilities that Firm’s Employees
perform very well
• An organization has to find out the Ability of its
Employees by adequately understanding their
Skills set.
• Strongest Skills needed must be assessed and
Skill Gaps must be Monitored.
 McKinsey 7S Framework
6. Style
• This refers to the Top Management’s Style of
the Company Leadership.
• Style includes the Management Actions they
take, the way they behave, and how they
Interact.
• Level of Employee participation in Decision
making is allowed by the Management style.
 McKinsey 7S Framework
7. Shared Values
• It is also called as Superordinate Goals. The
Interconnecting center of McKinsey’s model is
shared values.
• Shared values are the Standards, Principles,
Believes and Norms set by the Organization as
Guidelines for its People.
• Guide Employee behavior and Company Actions and
so, are the Foundation of every Organization.
 McKinsey 7S Framework
• The model recognizes 7 of these elements and
considers them to be Interlinked.
• To be successful, the Organization should
ensure that all these elements are Aligned
and Reinforced.
• Internal Assessment tool for Business
Organizations
 Corporate Portfolio Analysis

• 27% of Fortune 500 companies use it in

Strategy Formulation

• Top management views its Product lines and

Business units as a series of Investment
Return
 Strategy Formulation Process
1. Define the Organization
2. Define the Strategic mission,
3. Define the Strategic objectives,
4. Define the Competitive strategy,
5. Implement Strategies, and
6. Evaluate Progress.
BCG Matrix (Boston Consulting Group )
What is BCG (Boston
Consulting Group)
 Its portfolio planning model developed by
Bruce Henderson in 1970’s for Boston
Consulting Group.
 Based on observation combination of
Market growth and Market share.
 BCG matrix is to evaluate the Strategic position
of the Business portfolio and its Potential.
• Market Growth – Demand for the
particular Product or Business over a
Period of Time.

• Market Share – Percentage of Customers

that the Product or Business have
acquired in the Market(suitable
Demand/Supply) condition.
 Question Marks (Low Market share & High
Market growth)
• Wild Cats
• New products with Potential for Success
• Questions absorb great amount of cash since they are in
Introductory stage.
• High Risk category
• Question marks have the Possibility to become Dogs, if the Market
Growth decreases
• Question marks have potential to become Star, if the Market
share increases
• Investment should be high for Question marks.

Strategic choices: New Market Development, New Product

Development, Market Penetration
 ECONOMIES OF SCALE – Introductory Stage

Input Process-1 V Process- V Process- V Process-4 V Product

2 3

W W W W

V: Value added product/services

W: Wasteful sub-Product / practices/services that does not
add value
 Star (High Market share & High
Market growth)
• Market leader – Leader in Business
• Peak of Product Life cycle,
• Heavy investment to maintain it’s
large Market share
 Huge Cash Consumption – Huge Cash Generation
• Great potential – Future
• Medium Risk category
 Attempts should be made to hold the Market Growth

otherwise the star will became a cash cow.

Strategic choices: Market Development, Horizontal

Integration, Vertical Integration (Self Distributor/Supplier)
 CASH COWS
(LOW GROWTH, HIGH MARKET SHARE)

 Cash cows are Foundation of the company &

often the Stars of yesterday.
 They are located in an industry that is Mature

Stage
 More Money needed for maintaining Market share

 Extract Profit - Invest as little cash as possible

Strategic choices: Product development,

Diversification.
 DOGS
(LOW GROWTH, LOW MARKET SHARE)

 Dogs are the cash Traps - do not have

potential to bring Profits
 High cost – Low ROI.

 Business is situated at a Declining

stage

Strategic choices: Retrenchment,

Liquidation, Divestiture
BENEFITS of BCG
 BCG matrix is simple & easy to understand
 It helps to quickly & simply screen the

opportunity open to you, & help you think

about Investment Decisions.
 It is used to identify how Corporate Cash

Resources can best be used to maximize

Company’s Future growth.
 LIMITATION of BCG

 BCG matrix uses only Two dimensions :

relative market share & market growth rate -
High market share does not mean Profits
all time
 Problem of getting Data on Market share &

Market growth
 Does not include other external factors that may

change the Situation completely.

BCG - MATRIX FOR THE
PRODUCT LINE OF
Coca-Cola
 QUESTION MARKS
(HIGH GROWTH, LOW
MARKET SHARE
 STARS
(HIGH GROWTH, HIGH
MARKET SHARE)
 CASH COWS
(LOW GROWTH, HIGH
MARKET SHARE
 DOGS
(LOW GROWTH, LOW
MARKET SHARE)
CELL MATRIX
 Defenition

Business Portfolio Analysis - A method of

categorizing a Firm's products/services based on
how well they're performing (Superior
Performance) and their competitiveness
(competitive Advantage).
 GE Nine Cell Matrix
• The GE/Mc Kinsey Matrix is a Nine – cell (3 by
3) matrix used to perform Business Portfolio
Analysis as a step in Strategic Management
Process
• The GE/Mc Kinsey Matrix identifies the
optimum Business Portfolio that perfectly fits
to Company’s Strength and helps to Explore
the most attractive Industry sector .
 General Electric Matrix (GE Cell Matrix)

The GE Matrix overcomes a number of the disadvantages of the

BCG Box.

• Firstly, Market attractiveness replaces market growth as the

dimension of industry attractiveness, and includes a broader
range of factors other than just the market growth rate.

• Secondly, Competitive Strength replaces market share as

the dimension by which the competitive position of each
SBU is assessed.
Strategic Business Unit
 GE Nine Cell Matrix
STRENGTHS
 It allows Intermediate-Ratings between High & low and
between Strong & weak.
 It helps in better understanding of Businesss scope for
superior Performance and achieve Competitive–advantage.
Weaknesses
 Assessment of Business interms of 2- Dimensions is not fair
 It requires a highly experienced Business-Consultant to
determine the Market-strength and Industry attractiveness
Accurately.
 Gap Analysis
 Compares two things, what is with what should be.
 Often helps comparing two different states of something:
• E.g.: The current state with the future/Desired state.
 Once the gap is identified, an Action plan can be developed
to bridge the gap.
Continuous Improvement
Required State

The Gap

Current State
 Gap Analysis
Progress Evaluation

 Used when working with any Project

management Approach:

• To analyze Progress at any stage.

• Most useful at the beginning of a

Project,
when developing the Project
charter.
 Gap Analysis
Process Improvement:

 Helps to determine if the process needs to be simplified,

streamlined or redesigned.
• You need to compare both processes
step-by-step and note the differences.
• You need then to bridge the gap and
reach your goals.
 Gap Analysis
Performance Indicators :
 Gap analysis is conducted to address the unsatisfactory

Performance of a process.
 It is common to use performance indicators to compare the

Current performance against Targeted / Expected

performance.
 TOWS
Matrix or
Analysis
A TOWS analysis involves the same basic process of listing
strengths, weaknesses, opportunities and threats as a SWOT
analysis, but with a TOWS analysis, Threats and opportunities
are examined first and weaknesses & strengths are examined
last.

After creating a list of threats, opportunistic, weaknesses and

strengths, managers examine ways the company can take
advantage of Opportunities and minimize Threats by
exploiting Strengths and overcoming Weaknesses.
 TOWS Matrix

Internal (S) (W)

List 5-10 List 5-10
External Internal strengths Internal Weakness

(O) SO Strategies WO Strategies

List 5-10 Use ‘S’ to take Take advantage of ‘O’
External
advantage of ‘O’ by overcoming ‘W’
Opportunities

(T) ST Strategies WT Strategies

List 5-10
Use ‘S’ to Overcome ‘W’
External minimize ‘T’ and minimize ‘T’
Threats
 Balanced Scorecard
• The Balanced Scorecard model suggests
that we view the organization from 4
Perspectives.
• Then Develop Metrics, collect data and
Examine it relative to each of these
perspectives
Balanced Scorecard Measurements