Strategic Analysis and strategic choice

Chapter 4
 Strategic Formulation Process

© 2006 Prentice Hall 6-2

 what is Strategy Formulation?

 Strategies Means by which long-term

objectives are achieved
 Strategy Formulation : the process of creating
strategies
 A strategy of a corporation forms a comprehensive
master plan stating HOW the corporation will
achieve its mission and objectives.
• The determination of the long run goals and
objectives of an enterprise, and the adoption of
courses of action and the allocation of resources
necessary for carrying out these goals
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -4
Alternative strategies and strategy selection
 HIERACHY OF STRATEGY
1. Corporate strategy: What business
are we in?

2. Business strategy: How do we

compete?
3. Functional strategy: How do we
support the business-level strategy?
 Hierarchy of Strategy

Corporate Strategy

Business
(Division Level)
Strategy

Functional
Strategy
 1.CORPORATE STRATEGY

• Corporate strategy is the overall managerial game

plan for a diversified company.
• Corporate strategy extends companywide—an
umbrella over all a diversified company’s businesses.
• It consists of the moves made to establish business
positions in different industries and the approaches
used to manage the company’s group of businesses.
• Forming corporate strategy for a diversified company
involves four kinds of initiatives:
 Characteristics of Strategic Management Decisions

Greater risk, cost, and profit

potential

Corporate -
level decisions Greater need for flexibility
involve

Longer time horizons

Prof. Sushil\IITD\Session - I 9
 Corporate Strategies

Corporate Strategy
– Growth
– Stability
– Retrenchment
 Growth Strategies

 Growth Strategy
• Expansion through current operations
• Concentration
– Horizontal integration
– Vertical integration: Expansion by acquiring existing suppliers
or distributors
• Diversification: Expansion occurs by entering new business areas
– Concentric diversification: Expansion within an existing
business area
– Conglomerate diversification
Any of these four growth strategies may be though internal
development or external acquisitions, mergers, or joint ventures.
 Stability Strategies
• Pause
• Proceed-with-caution
• No change
• Profit
 Restructuring and Retrenchment Strategies

– Retrenchment: Changes operations to correct

weaknesses
• Liquidation: An extreme form of retrenchment
wherein the business closes and sells off its
assets
– Restructuring: Reduces the scale or mix of
operations
– Downsizing: Decreases the size of operations
– Divestiture: Sells off part of the organization to
focus on core businesses
 The Business Portfolio
• An overall grand strategy is useful when the corporation has
only a few related businesses.
• When it has many different businesses (that is, when it is
diversified), and especially when those businesses are
unrelated, the firm needs a different approach.
• A common tool used to manage multiple businesses is the
business portfolio involves viewing the corporation as a
collection of businesses, each of which can have its won
competitive businesses strategy
•
 2.The Business Portfolio

• The starting pint in using the portfolio approach is to identify within the
corporation each strategic business unit (SBU).
• Each SBU is usually a separate division within the company. It has its won
mission, its won competitors, and its won unique strategy apart from that
of other SBUs in the organization.
• For example, one business unit was defined as the set of all food
preparation appliance producers (for example, toaster ovens and ranges).
• After a corporation’s SBUs have been appropriately defined,
the next step is to classify them.
• The BCG Matrix The BCG matrix classifies each SBU in
terms of the growth rate of its market (high or low) and its
relative share (high or low) of the market.
• It was the framework originally developed for General Electric
by the Boston Consulting Group.
The BCG Matrix

16
 A star

• A star is an SBU that has a relatively large share of a high-

growth market.
• Stars usually require a large amount of cash to support their
rapid growth, and managers try to invest in the future by
maximizing long-term potential.
• As markets mature, many stars become cash cows for the
organization.
 Substantial investment to maintain or strengthen dominant
position
 Integration strategies, intensive strategies, joint ventures
 A cash cow

• A cash cow is an SBU that has a large share of a low-

growth market.
• It requires little money for growth and expansion,
thereby generating surplus revenue that the
company can use in other areas (to promote stars,
for example).
 Maintain strong position as long as possible
 Product development, concentric diversification
 If weakens—retrenchment or divestiture
 A question mark

• A question mark is an SBU with a relatively low share

of a high-growth market.
• Managers must decide whether to commit the
financial resources necessary to transform the SBU
into a star; they may also decide to get rid of it.
 Decision to strengthen (intensive strategies) or divest
 Dogs

• Finally, a dog is an SBU that has a small share of a market with

little growth.
• Dogs are often unable to support themselves and re frequently
cash drain on other SBUs.
• In general, most organizations that use the BCG matrix like to have
cash cow in their portfolio to generate cash and stars that can
become cash cows in the future.
• They are willing to keep a few question marks because of their
potential, but they often sell or liquidate dogs.
 Low relative market share & compete in slow or no market growth
 Weak internal & external position
 Liquidation, divestiture, retrenchment
 Example
Example: Raymond
SBU’s
1. Textiles – Star
2. Cement – Problem child
3. Steel – Dog
- Raymond divested cement business
- Focus on textiles.

Why Raymond divested cement?

21
 B.BUSINESS-LEVEL STRATEGY
• After determining corporate strategy, managers must
then develop business-level strategies for each SBU.
• A business-level strategy is concerned with how to
best compete in a given market.
• Even if an organization competes in only one market,
it must still develop its own competitive strategy for
that market.
• The most common approaches to business-level
strategy are
 the adaptation model,
 porter’s competitive strategies, and
 Characteristics of Strategic Management Decisions

Bridge decisions at corporate and

functional levels

Business -level Are less costly, risky, and

decisions potentially profitable than
corporate-level decisions

Are more costly, risky, and

potentially profitable than
functional-level decisions
Prof. Sushil\IITD\Session - I 23
 Adaptation Model

• The adaptation model of business strategy argues

that managers of a business should attempt to match
the business’s strategy with basic condition in its
environment.
• In particular, this model suggests that different levels
of environmental complexity and change call for
different forms of strategy.
 Defenders

• A defender strategy may be appropriate when

the business operates in an environment
characterized by relative stability and little
uncertainty or risk.
• The defender attempts to carve out for itself a
relatively narrow niche in the market and to direct a
limited set of products or services at that niche.
• Although defenders may employ competitive pricing
or high-quality production standards to guard their
positions, they are likely to ignore trends and
developments outside their chosen domains.
 Defenders

• For example, Hershey Foods pays little attention to what

happens in the market for soups, meats, or soft drinks
because it makes and sells only confectionery products.
• Defenders also tend to concentrate on the most efficient
production and distribution techniques, with little concern for
long-term effectiveness.
• The often maintain a rigid, bureaucratic form of organization
to facilitate control and efficiency.
 Prospectors

• The prospector strategy is almost the exact opposite of the

defender.
• The prospector approach usually works best when the environment is
dynamic, growing, and characterized by uncertainty and risk.
• Prospectors develop a knack for discovering and capitalizing on new-
product locate and then systematically develop such opportunities.
• Because prospectors focus on new products and markets, they try to avoid
a long-term commitment to any single type of technology, instead using
several different technologies.
• this allows the organization to shift from one product or in a new plants
and equipment.
• Prospectors usually adopt flexible forms of organization, relying o
decentralization and rewarding creativity, innovation, and risk taking.
• The firm has operations in diverse industries including hotels (Sheraton),
insurance (Harford), wood products, and auto parts.
 Analysers

• The analyser strategy is midrange approach appropriate when the

environment is moderately stable but still offers some degree of
uncertainty and risk.
• It attempts to identify and take advantage of new products and markets
while maintaining a nucleus of traditional products and customers.
• The analyser works to achieve a balance between the conflicting demands
for flexibility and stability in its technology.
• Analysers are usually structured in such a way as to support the forces of
stability associated with the nucleus of existing products and technologies
while still accommodating the forces for dynamism stimulated by the
organization’s some units and groups maintaining the traditional products
and other units exploring and developing new products and markets.
• A prime example of an analyser is The Procter & Gamble Co.
• The firm has a core of traditional products, such as Crest toothpaste and
Head and Shoulders shampoo, but it continues to search for new products
to add to its list.
 Reactors

• A strategy that some firms inadvertently use is the reactor strategy.

• Essentially, reactors are strategic failures.
• They respond to their environment in appropriate ways, which resulting poor
performance.
• Poor performance causes reactors to become less aggressive in the future.
• Several factors might cause organization to become reactors. First, top
management may not have clearly articulated the organization’s structure to fit its
chosen strategy.
• Or management may try to maintain the organization’s strategy-structure
relationship despite major changes in environmental conditions.
• An excellent illustration of an organization employing the reactor strategy was W.T
Grant, one of the largest retailers in the United States before its bankruptcy in
1976.
• In response to the success of K mart Corp.in the discounting area, Grant adopted
the ill-conceived strategy of expanding rapidly without the necessary resources.
• Further, the company had inadequate training programs for its managers and too
few controls over day-to-day operations. The company simply tried to do too many
things too fast, and then it refused to step back and retrench.
•
 Business Strategy

• Business strategy... is concerned with how the firm

competes within a particular industry or market... to win
a business unit must adopt a strategy that establishes a
competitive advantage over its rivals.
– Business Strategy
• Identifies how a strategic business unit or division will
compete in its product or service domain Business
Strategy
• Identifies how a strategic business unit or division will
compete in its product or service domain
Emphasizes on improving the competitive position of a
firm’s strategic business
– Also referred to as competitive strategies
MICHAEL PORTER’S GENERIC STRATEGIES

Strategic Advantage

Uniqueness Low Cost Position

Industrywide Overall Cost

Strategic Target

Differentiation
Leadership

Particular
Segment Focus
only
 Porter’s Competitive Strategies

• Cost Leadership:
Cost leadership emphasizes producing standardized
products at very low per-unit cost for consumers
who are price-sensitive.
– Low-cost competitive strategy
– Aimed at broad mass market
– Aggressive construction of efficient-scale facilities
– Cost reductions/Cost minimization
 example
COST LEADERSHIP
• Bajaj Auto-scooters
- Maruti-cars
• Zen
- Cost minimizations
- Japan in 60’s
1. Lowest cost producer
2. Later Taiwan and Korea lower cost producers
3. Moved to differentiation
4. Success due to quality management
33
 Porter’s Competitive Strategies
• Differentiation:
• Differentiation is a strategy aimed at producing products and
services considered unique industry wide and directed at
consumers who are relatively price-insensitive Broad mass
market
– Unique product or service
– Charge premiums
– Lower customer sensitivity to price
Differentiation Strategy
– Offers products and services that are uniquely different from
the competition
The product or service might be differentiated by attributes such as quality, design, and
service.
 example
DIFFERENTIATION
- Mercedes
- Sony
1. Creating unique image
2. Branding
- Singapore Airlines
1. Superior inflight services
2. Most modern fleet
3. Excellent ground services
Customers willing to pay more
35
 Porter’s Competitive Strategies
• focus: Focus means producing products and
services that fulfill the needs of small group
consumers.
– Low cost competitive strategy
– Focus on particular buyer group or market
– Niche focused
– Seek cost advantage in target market
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter’s Five Forces
• Power of suppliers of key inputs – are there many
suppliers who can provide what the firm needs, if so,
their power is relatively low; alternatively, few
suppliers increases their power over the firm;
• Power of buyers-many buyers have low power; few
customers buying large quantities from the firm
increases the customers’ power; more than one
buyer group
 Porter’s Five Forces
• Threat of new entrants-profitable & growing
industries tend to attract new players; high rivalry
among firms discourages entrants, also consider
barriers to entry;
• Threat of substitute products/services – new
methods of accomplishing the same outcome (e.g.
contact lenses as a substitute for eye glasses), how
likely is this to occur?
• Rivalry among firms – the stronger it is, the higher
the level of competition and retaliation by other
firms
 STRATEGY FORMULATION

MILITARY ANALOGIES FOR MARKET LEADERS

• Position defence
• Mobile defence
• Flanking defence
• Contraction defence
• Pre-emptive defence
• Counter-offensive defence

40
 STRATEGY FORMULATION

POSITION DEFENCE
• Impregnability of a fixed position
• Not very successful
• Attackers use indirect approach rather than
taking head-on approach
• Maruti’s rapid loss of market share in late 90’s
• Unable to defend the attack of Hyundai

41
 STRATEGY FORMULATION

ENCIRCLEMENT ATTACK
SEIKO watches
• Multiple products
• constant changes
• Occupy many dealer outlets
• Heavy advertising
• Left many British and US watch companies in bad
shape
• Attack from all fronts

42
 STRATEGY FORMULATION

BYPASS ATTACK
• Avoid attacks against defender’s existing
products
• Focus on unrelated products

43
 STRATEGY FORMULATION

GUERILLA ATTACK
• series of hit-and-run moves
• Designed to demoralize the opponent
• Keep competitor off-balance
• Airtel offering free hand-sets with connection
took MTNL/BSNL by surprise

44
 STRATEGY FORMULATION
MARKET FOLLOWER STRATEGIES
- Not interested as leaders
- Less proactive
- Cost of leadership too high
- Avoid confrontation

45
 STRATEGY FORMULATION
MARKET NICHER STRATEGIES
- What is attractive
• Market size profitable
• Growth potential
• Negligible interest to major competitors
• Resources to serve niche markets
• Can defend when attacked.
E.g.: Avon mobike tyres.

46
 3.FUNCTIONAL STRATEGIES

• Yet another basic level of strategic planning involves

the development of functional strategies.
• These functional strategies focus on how the
organization will approach its basic functional
activities.
• Many organizations develop marketing, financial,
production, research and development, and human
resources strategies.
 Characteristics of Strategic Management Decisions

Implement overall strategy

Involve action-oriented
operational issues
Functional-
level decisions
Are relatively short range and
low risk

Incur only modest costs

Prof. Sushil\IITD\Session - I 48
 FUNCTIONAL STRATEGIES SUMMARY

Functional Area Major Concern

Marketing Product mix
Market position
Distribution channels
Sales promotions
Pricing issues
Public policy

Finance Capitalization structure

Debit policies
Assets management
Dividend policies

Production Quality
Productivity improvement
Production planning
Government regulations
Plant location
Technology

Human Resource Human resources policies

Labour relations
Government regulation
Executive development

Research and Development Production development

Technological forecasting
Patents and Licenses
 Marketing Strategy
• The marketing strategy deals with a number of major issues
confronting the organisation.
• One of these is the product mix. For General Motors Corp.’s
Chevrolet Division, the product mix includes the various lines
(Camero, Corsica, and Beratta) and different versions of each model.
• Other major issues in marketing strategy include the desired market
position (Kmart and Wal-Mart Stores, Inc., compete for fist place in
retailing), distribution channels ( a major reason for Timex’s initial
success was its decision to sell watches in drugstores), sales
promotion (such as an initially high price to skim off the “cream”
followed by planned price cuts), and public policy (dealing with
legal, cultural, and regulatory constraints).
• International firms often find that they must tailor marketing
strategies to each individual country where they do business.
 Financial Strategy
Developing the right financial strategy is essential
to an organization.
• deciding on the most appropriate capital
structure:
• what combination of common stock, preferred
stock, and long-term debt (such as bonds) will
provide the firm with the capital it needs at the
lowest possible costs?
• Another element in financial strategy is debt
policy: how much borrowing is allowed and in
what forms?
 Production Strategy

• Production planning (when to produce, how much to

produce, and how to produce) is especially important for
manufacturers.
• Finally, production strategy must take into account the
regulations of government bodies such as the Environmental
Protection Agency (EPA) and the Occupational Safety and
Health Administration (OSHA).
•
 Human Resource Strategy

• Organizations find it useful to develop a human

resources strategy for a number of reasons.
• Human resources policies are required on such
matters as compensation, selection, and
performance appraisal.
• Another aspect of human resources strategy is
labour relations, especially negotiations with
organized labour.
• Government regulations, such as the Civil Rights
Act of 1964, also need to be taken into account .
•
 Research and Development Strategy

• A primary area of concern here is making decisions

about product development.
• Should the firm concentrate on new products or on
the modification of existing product?
• What use should be made of technological
forecasting-predictions of technical trends, new
discoveries and breakthroughs, and so on?
• Some organizations R&D strategies also include a
policy on patents and licenses.
• If a firm develops a new product or procedure and
patents it, other firms cannot use it.
 OPERATING STRATEGY

• Operating strategies concern the even narrower

strategic initiatives and approaches for
managing key operating units (plants, sales
districts, distribution centers) and for handling
daily operating tasks with strategic significance
(advertising campaigns, materials purchasing,
inventory control, maintenance, shipping).
• Operating strategies, while of limited scope, add
further detail and completeness to functional
strategies and to the overall business plan.
 Other type of Strategies
1. INTEGRATION STRATEGIES
2. INTENSIVE STRATEGIES
3. DIVERSIFICATION STRATEGIES
4. DEFENSIVE STRATEGIES
5. ACQUISITIONS, MERGERS AND LEVERAGED
BUYOUTS
6. Outsourcing
 1.INTEGRATION STRATEGIES

 Forward integration: Forward integration involves gaining

ownership or increased control over distributors or retailers.
 backward integration: backward integration is a strategy of
seeking ownership or increased control of a firm’s suppliers. and
• horizontal integration refers to a strategy of seeking ownership
of or increased control over a firm’s competitors(
• a growth strategy :Mergers, acquisitions, and takeovers among
competitors allow for increased economies of scale and
enhanced transfer of resources and competencies are
• sometimes collectively referred to as vertical integration
strategies.
• Vertical integration strategies allow a firm to gain control over
distributors, suppliers, and/or competitors.
 2.INTENSIVE STRATEGIES:
 Market penetration: A market penetration strategy seeks
to increase market share for present products or services
in present markets through greater marketing efforts,
 market development: Market development involves
introducing present products or services into new
geographic areas, and
 product development : Product development is a strategy
that seeks increased sales by improving or modifying
present products or services . sometimes referred to as
intensive strategies because they require intensive efforts
to improve a firm’s competitive position with existing
products
 DIVERSIFICATION STRATEGIES
1.Concentric Diversification: Adding new, but
related, products or services is widely called
concentric diversification.
2.Horizontal Diversification: Adding new,
unrelated products or services for present
customers is called horizontal diversification.
3.Conglomerate Diversification: Adding new,
unrelated products or services is called
conglomerate diversification.
 4.DEFENSIVE STRATEGIES

• In addition to integrative, intensive, and

diversification strategies, organizations also
could pursue
joint venture,
retrenchment,
divestiture or liquidation.
 4.1.Joint Venture
• : when two or more companies form a
temporary partnership or consortium for the
purpose of capitalizing on some opportunity.
• This strategy can be considered defensive only
because the firm is not undertaking the
project alone.
• Often, the two or more sponsoring firms form
a separate organization and have shared
equity ownership in the new entity.
 4.2.Retrenchment
• Retrenchment occurs when an organization regroups
through cost and asset reduction to reverse declining sales
and profits.
• Sometimes called a turn-around or reorganizational
strategy, retrenchment is designed to fortify an
organization’s basic distinctive competence.
• During retrenchment, strategists work with limited
resources and face pressure from shareholders, employees,
and the media.
• Retrenchment can entail selling off land and buildings to
raise needed cash, reduce product lines, closing marginal
businesses, closing obsolete factories, automating
processes, reducing the number of employees, and
instituting expense control systems.
 4.3.Divestiture:
• Selling a division or part of an organization is
called divestiture. Divestiture often is used to
raise capital for further strategic acquisitions or
investments.
• Divestiture can be part of an overall
retrenchment strategy to rid an organization of
businesses that are unprofitable, that require
too much capital, or that do not fit well with the
firm’s other activities.
 4.4.Liquidation:
• Selling all of a company’s assets, in parts, for
their tangible worth is called liquidation.
Liquidation is recognition of defeat and
consequently can be an emotionally difficult
strategy.
• However, it may be better to cease operating
than to continue losing large sums of money.
 4.5.combination strategy
• Many, if not most, organizations pursue a combination of two or more
strategies simultaneously, but a combination strategy can be exceptionally
risky if carried too far.
• No organization can afford to pursue all the strategies that might benefit the
firm. Difficult decision must be made.
• Priorities must be established. Organizations, like individuals, have limited
resources. Both organizations and individuals must choose among
alternative strategies and avoid excessive indebtedness.
• Organizations cannot do too many things well because resources and
talents get spread thin and competitors gain advantage.
• In large diversified companies, a combination strategy is commonly
employed when different divisions pursue different strategies.
• Also, organizations struggling to survive may employ a combination of
several defensive strategies, such as divestiture, liquidation, and
retrenchment, simultaneously.
 5.ACQUISITIONS, MERGERS AND LEVERAGED
BUYOUTS
• Acquisition and Merger are two commonly used ways
to pursue strategies.
• 1. An acquisition occurs when a large organization
purchases (acquires) a smaller firm, or vice versa.
• 2.A merger occurs when two organizations of about
equal size unite to form one enterprise.
• When an acquisition or merger is not desired by both
parties, it can be called a takeover or hostile
takeover.
 7.Outsourcing
• Generally done to reduce costs although it also
allows firms to focus on their core activities.
• Nike and Reebok are major firms that outsource
almost all activities other than accounting,
marketing, and corporate activities. They award
short-term production contracts to Asian producers
but are still highly criticized for their ‘sweat shops’.
 Global Strategies
• Global Strategies
– Globalization Strategy
• Adopts standardized products and advertising
for use worldwide
– Multidomestic Strategy
• Customizes advertising and products to best fit
local needs
– Transnational Strategy
• Seeks efficiencies of global operations with
attention to local markets
 Global Strategies
• E-Business Strategies
– E-Business Strategies
• Focus on Using the Internet for Business
Transactions
– B2B Business Strategies
• use IT and Web portals to vertically link
organizations with members of their supply
chains.
– B2C Business Strategies
• use IT and Web portals to vertically link
organizations with members of their customers.
Strategy Analysis & Selection
 STRATEGIC CHOICE
• Generates number of possible strategies, evaluate and
select.
• After the pros and cons of the potential strategies
alternatives have been identified any evaluate one
must be selected from implementation.
• The most important criteria is the identity of the
propose strategy to deal with the specific strategic
factors developed earlier in SWOT analysis
• It is concern with developing and nurturing a
distinctive competence to provide a company or a
business unit with a competitive advantage
Strategy-Formulation Analytical Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

Grand Strategy Matrix

Copyright 2007 Prentice Hall Ch 6 -72

SPACE Matrix
Strategic Position & Action Evaluation Matrix

Aggressive
Conservative
Defensive
Competitive

Copyright 2007 Prentice Hall

SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)
Competitive Advantage (CA)
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)

Copyright 2007 Prentice Hall Ch 6 -74

 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business

Copyright 2007 Prentice Hall Ch 6 -75

 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization

Copyright 2007 Prentice Hall Ch 6 -76

 Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA, ES,

& IS
2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA,
ES, & IS

Copyright 2007 Prentice Hall Ch 6 -77

 Steps to Developing a SPACE Matrix

1. Plot the average score on the appropriate

axis
2. Add the two scores on the x-axis and plot the
point. Add the two scores on the y-axis and
plot the point. Plot the intersection of the
new xy point
3. Draw a directional vector from the origin
through the new intersection point.

Copyright 2007 Prentice Hall Ch 6 -78

 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3

-4
-5
Defensive Competitive
-6
ES
Copyright 2007 Prentice Hall Ch 6 -79
Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions
 Competitive position
 Market growth

Copyright 2007 Prentice Hall Ch 6 -80

 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Liquidation

SLOW MARKET GROWTH

Copyright 2007 Prentice Hall Ch 6 -81
 Strategic Planning

Alice said, “would you tell me which way to go from here? “

The cat said,” that depends on where you want to get to”
Liews Carrel, cited p.167, Fred R.David, Strategic management concepts
 the Difference Between Strategic Planning and
Strategic Management
• 1. Strategic planning is focused on making optimal strategy decisions,
while strategic management is focused on producing strategic results: new
markets, new products and/or new technologies.
• To paraphrase Peter Drucker, strategic planning is management by plans,
while strategic management is management by results.
2. Strategic planning is an analytical process, while strategic management
is an organizational action process.
3. Strategic planning is focused on business, economic and technological
variables.
Strategic management broadens the focus to include psychological,
sociological and political variables. Thus, strategic planning is about
choosing things to do, while strategic management is about choosing
things to do and also about the people who will do them.
4. Strategic management consists of: formulating strategies, designing the
firm's capability, managing implementation of strategies and capabilities.
 Model of Strategic Planning Process

Planning element Plan component Key question

Mission What should we be doing?

Strategic analysis
Goals Where are we going?

Strategic choice Strategies What routes have we selected?

How do we shape our decisions

Policies
to get there?

Strategic
implementation Decisions What choices do we have?

Shall we do it?
Actions
 Strategy Formulation
• Selecting Strategy
– Corporate strategy (Stability, Growth,
Retrenchment)
– Business strategy (Competitive,
Cooperative)
– Functional strategy (Technological
Leadership, Technological Followership)
• Defining Policies
– Guidelines for decision making that links
formulation to implementation

85