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Strategy Analysis & Choice

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Vanchi K

on 15 February 2013

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Transcript of Strategy Analysis & Choice

Group Members
Chirantha Pitigala
Danushka Jeyasuriya
Ilhavanchi Kanaganayagam
Manesha De Silva Strategy Analysis and Choice Overcoming Governance Issues…
Hewlett-Packard Directors use special board website twice a week and conduct confidential business brief based on information posted by the top management.

Composed BoD with outsiders who more involved in organization’s strategic management.

Much smaller BoD’s for accountability of firm (18 –> 12 in US)
“Principles of good governance” in US by BusinessWeek
“Board of Directors are now rolling up their sleeves and becoming much more closely involved with management decision making” – Jeff Sonnerfeld, associate dean of Yale school of management.
Laws for more female representation in BoD’s. 25% in Sweden, 40% corporate director seats for women in Norway. Governance Issues contd.. Board of Directors are responsible and accountable for the entire performance of the firm. Ex – In the Worldcom, Tyco and Enron bankruptcies and scandals, the firm’s board of directors were sued by shareholders for mismanaging their interests.

In the recession and credit crunch of 2008-2009, shareholders of hundred of firms were demanding for new compensation policies are needed as well as direct shareholder involvement in some director activities. Ex – Boards could require CEO’s to groom possible replacements from within the firm because exorbitant compensation often paid to new CEO’s coming from outside.

Shareholders are upset at board for allowing CEO’s to receive huge year end bonuses when the fir’s stock price drops drastically during the year. Ex – Chesapeake Energy Corp. and its board of directors are under fire from shareholders for paying chairman and CEO $112 million in 2008 as the firm’s stock price plummeted. Governance Issues contd.. Definitions and references for Governance
“The act of oversight and direction.”
“The characteristic of ensuring that long-term strategic objectives and plans are established and that the proper management structure is in place to achieve those objectives, while at the same time making sure that the structure functions to maintain the corporation’s integrity, reputation and responsibility to its various constituencies.”

Director is one of a group of persons entrusted with the overall direction of a corporate enterprise.

Board of Directors is a group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who lookout for shareholders interests.
Governance Issues Political tactics can be aid for strategies,
Equifinality – often possible to achieve similar results using different means or paths. Strategists should recognize that achieving a successful outcome is more important than imposing the method of achieving it.

Satisfying – Achieving satisfactory results with an acceptable strategy is far better than failing to achieve optimal results with an unpopular strategy.

Generalization – Shifting focus from specific issues to more general ones may increase strategist's options for gaining organizational commitment.

Focus on higher-order issues – By raising an issue to a higher level, many short-term interests can be postponed in favour of long-term interests. Ex – by focusing in issues of survival, the airline and automobile industries are able to persuade unions to make concessions on wage increases.

Provide political access on important issues – Strategy and policy decisions with significant negative consequences for middle managers will motivate intervention behavior for them. If middle managers do not have an opportunity to take a position on such decisions in appropriate political forums, they are capable of successfully resisting the decisions after they are made. The Politics of Strategy Choice contd.. Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy and results in the loss of some valuable employees.

Successful strategist assigned responsibilities thrusts to champions.

Successful strategist ensure that all major power bases within an organization were represented in or had access to top management.

New faces and new views are interjected into considerations of major changes. The Politics of Strategy Choice Culture = shared values + beliefs + attitudes + customs + norms + personalities + heroes + heroines

Culture is the human dimension that creates solidarity and meaning, and it inspires commitment and productivity in an organization when strategy changes are made.

Changes are easily being made when strategies are supported by cultural products and it is beneficial to see the strategic changes from cultural perspective because success rests upon the support received from firm’s culture.

Firms do not have supporting culture will have ineffective or counterproductive strategies.

Strategies that require fewer cultural changes may be more attractive because extensive changes can take considerable time and effort. Cultural Aspects of Strategy Choice Make a list of the firm’s key external opportunities/ threats and internal strengths/weaknesses in the left column

Assign weights to each key external and internal factor

Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

Determine the Attractiveness Scores (A.S)

Compare the Total Attractiveness Scores

Compute the Sum Total Attractiveness Score Way to do QSPM..
Based on two evaluative dimensions:

Competitive Position
Market Growth Grand Strategy Matrix Select a set of variables to define financial position (FP), competitive position (CP), stability position (SP), and industry position (IP).
Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions. Assign a numerical value ranging from -1 (best) to -7 (worst) to each of the variables that make up the SP and CP dimensions. On the FP and CP axes, make comparison to competitors. On the IP and SP axes, make comparison to other industries.
Compute an average score for FP, CP, IP, and SP by summing the values given to the variables of each dimension and then by dividing by the number of variables included in the respective dimension.
Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE Matrix.
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.
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. 6 steps required to develop a SPACE Matrix SPACE Analysis is a systematic appraisal of four key issues that balance the external and internal factors that should determine the general theme of the strategy:

External factors
Industry Position (IP)
(Environmental) Stability Position (SP)

Internal factors
Competitive Position (CP)
Financial Position (FP) The Strategic Position and Action Evaluation (SPACE) Matrix SO Strategies

Establish more hotels in the heritage regions (S9, O1, O2)
Target t reach more international markets (S3, O3)
Launch more hotel resorts by implementing ecological concepts in all over Sri Lanka (S6, O10)

WO Strategies
Build a Human Resource management centre which is acting as a central place for Aitken Spence’s hotels all over the world and switch employees based on their interests among countries (W2, O3).
Involve the community people more in the operations of the resorts to get more customer loyalty (W9, O9).
In India, target for different types of tourism such as mass tourism, geo tourism, adventure tourism, etc. (W10, O6, O8). SWOT Matrix – Aitken Spence Weaknesses

Failure to attract local tourists during the unfavorable period of international tourism.
Employee turnover is considerably high since some employees like to work overseas.
Since south Asian people are egoistic, need to well train the employees.
In some places charging 15-20% more than any other hotels in the region so that occupancy rate is low.
Some of the local hotels are staffed heavily.
The services offered by hotels are limited and will not meet with the world standards.
High tax structure in the industry makes the hotel services worse off than its international equivalent.
Poor staff's performance due to lack of effective control.
Emerging competitors with better service quality.
Expectation of customers in mass tourism concepts. SWOT Matrix – Aitken Spence List the firm’s key external opportunities.
List the firm’s key external threats.
List the firm’s key internal strengths.
List the firm’s key internal weaknesses.
Match internal strengths with external opportunities, and record the resultant SO Strategies in the appropriate cell.
Match internal weaknesses with external opportunities, and record the resultant WO Strategies.
Match internal strengths with external threats, and record the resultant ST Strategies.
Match internal weaknesses with external threats, and record the resultant WT Strategies. 8 steps involved in constructing a SWOT Matrix Important matching tool that helps managers develop four types of strategies called SO, WO, ST & WT.

SO (strengths-opportunities) Strategies:
Use a firm’s internal strengths to take advantage of external opportunities.

WO (weaknesses-opportunities) Strategies:
Aim at improving internal weaknesses by taking advantage of external opportunities.

ST (strengths-threats) Strategies:
Use a firm’s strengths to avoid or reduce the impact of external threats

WT (weaknesses-threats) Strategies:
Defensive tactics directed at reducing internal weaknesses and avoiding external threats. SWOT Matrix Matching Stage Focuses upon generating feasible alternative strategies by aligning key external and internal factors.

Consists of:
Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
Strategic Position and Action Evaluation (SPACE) Matrix
Boston Consulting Group (BCG) Matrix
Internal-External (IE) Matrix
Grand Strategy Matrix

A good offense without a good defense, or vice versa, usually leads to defeat.
Offensive => Strategies that use strengths to capitalize on opportunities.
Defensive => Strategies designed to improve upon weaknesses while avoiding threats. Matching Stage Summarizes the basic input information needed to formulate strategies.

Consists of:
External Factor Evaluation (EFE) Matrix
Internal Factor Evaluation (IFE) Matrix
Competitive Profile Matrix (CPM)

Input tools require strategists to quantify subjectivity during early stages of the strategy-formulation process.

Good intuitive judgment is always needed in determining appropriate weights and ratings. Input Stage Determine alternative courses of action that could best enable the firm to achieve its mission and objectives.

Alternative strategies:
Represent incremental steps that move the firm from its present position to a desired future position

Derived from firm’s present strategies, objectives & mission, coupled with the external and internal audit information. The Nature of Strategy Analysis and Choice The essence of strategy formulation is an assessment of whether an organization is doing the right things and how it can be more affective in what it does.
Not to become prisoners of its own strategy.
Objectives and strategies should be consciously developed and communicated clearly.
The strategy formulation analytical framework consist of 3 stages, each stage is integrated with modern strategy formulation tools.
Behavioral, cultural and political aspects of strategy generation and selection are always important to consider and manage.
Board of Directors are assuming more active role in strategy analysis and choice. Conclusion Decision Stage How does the IE matrix work?
Score from the EFE matrix -- this score is plotted on the y-axis
Score from the IFE matrix -- plotted on the x-axis

Refer chapter 3!!! What is IE Matrix?
It is another strategic management tool used to analyze working conditions and strategic position of a business. The IE matrix is based on an analysis of internal and external business factors which are combined into one suggestive model. The Internal-External (IE) Matrix The following table shows what values were used to create the SPACE matrix. Space Matrix of Aitken Spence Themes & Suggested Actions of the SPACE Matrix ST Strategies

Establish business relationships with travel agents and air services to increase the tourists visit from overseas to ASSH (S7, T10)
Create joint ventures with existing local competitors in India (S7, T5).
Diversify into different segments in India such as garment manufacture, elevator agency and infrastructure development (S5, T6, T8).
WT Strategies

Promote employment opportunities in between ASSH’s Sri Lankan branch and ASSH’s overseas branches (W2, T1)
Target the high-yield domestic tourists to some specific resorts (W4, T3).
Introduce some effective employee performance audits in the ASSH resorts to increase the employee performance to compete with competitors. (W8, T2). SWOT Matrix – Aitken Spence Opportunities
Tourists visiting Sri Lanka have increased by 8.6% in 2008
Hotels industry in 2009 has grown by 25.2% percent as opposed to a negative 0.4% for 2008.
Internationalization expected to increase (By 2008 only in India, Oman & Maldives. By 2012 it has expanded to 6 countries including Bangladesh, South Africa & Mozambique).
Sri Lanka is poised to become a services hub in the South Asian region due to its strategic geographical position.
Tourism master plan in Maldives, which introduced more involvement of people to tourism and increasing occupancy rates.
International tourism growth was expected to shift from North America and Europe to Asia.
Opportunities in GULF area such as Oman.
Huge middle class population in India
High community support due to CSR projects
Natural resources all over the island. SWOT Matrix – Aitken Spence Involves a single technique, the Quantitative Strategic Planning Matrix (QSPM).

QSPM uses input information from input stage to objectively evaluate feasible alternative strategies identified in matching stage.

A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. Decision Stage A three-stage decision making framework
Input Stage
Matching Stage
Decision Stage
Strategy-Formulation Framework Should involve managers & employees who earlier assembled the organizational vision & mission statements, performed the external audit, & conducted the internal audit.

Alternative strategies proposed should be considered & discussed.
Proposed strategies should be listed in writing.

Strategies should be ranked in order of attractiveness by all participants.
1= should not be implemented.
2 = possibly should be implemented.
3 = probably should be implemented.
4 = definitely should be implemented.

Output is a prioritized list of best strategies that reflects the collective wisdom of the group. Process of Generating and Selecting Strategies Where are we now?
The Nature of Strategy Analysis and Choice
Strategy-Formulation Framework
Input Stage
Matching Stage
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Decision Stage
Cultural Aspects of Strategy Choice
The Politics of Strategy Choice
Governance Issues
Conclusion Agenda Strategy Analysis and Choice Group Members
Chirantha Pitigala
Danushka Jeyasuriya
Ilhavanchi Kanaganayagam
Manesha De Silva The BCG Matrix - Summary Companies that are large enough to be organized intro strategic business units has a business portfolio.

These companies can use BCG matrix to allocate resources among those units based on where these businesses units resides in the grid. Four types What is BCG matrix ? The Boston Consulting Group (BCG) Matrix SWOT Matrix – Aitken Spence Strengths

Good management concepts used in Aitken Spence Hotel Holdings
Skilled HR experts employed in ASSH
Revenue from tourism segment of the company increased from 12,000 million (year 2007) to 18,000 million (year 2008)
Working Capital ratio is positive (nearly 1 in 2008)
Has diversified into several sectors including power generation, plantations, garment manufacture, elevator agency and infrastructure development.
Has good experience in echo friendly tourism.
Performing as a strong business group (involved in successful diversified business)
Exclusive branding of ASSH
Heritance concepts used which attracts a segment all over the world.
Established in an area which is conducive to tourism. Technique designed to determine the relative attractiveness of feasible alternative actions Decision Stage Stage 3:
The Decision Stage Quantitative Strategic
Planning Matrix
(QSPM) SWOT Matrix – Aitken Spence

Damage of country image during war situation
Competition from John Keels, Hayleys and Vallilbel holdings
Increase of fuel, electricity and commodity prices in Sri Lanka hit the hotel industry badly.
Land is expensive in India compared to Sri Lanka.
Local competition is huge in India.
Domestic tourism is not actively used in India.
Sustainable concepts may not like by average Indian people.
Political instability in India.
Multi-branding and HR management is difficult in Oman.
Low frequency flights to and from overseas markets Quadrant II
Evaluate present approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive strategy Quadrant I
Excellent strategic position
Concentration on current markets and products
Take risks aggressively when necessary Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated (retrenchment) Quadrant IV
Strong competitive position
Slow-growth industry
Diversification indicated to more promising growth areas Aggressive Aitken Spence should pursue Aggressive strategies Plotting the result on the Graph SWOT Matrix Grand Strategy Matrix IE Matrix BCG Matrix SPACE Matrix Formulation Framework Strategic Alternatives Weight Strategy 1 Strategy 2 Strategy 3 QSPM Key External Factors
Competitive Key Internal Factors
Research and Development
Computer Information Systems STRONG

Market development
Market penetration
Product development
Horizontal integration
Liquidation Quadrant I

Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification Quadrant III

Concentric diversification
Horizontal diversification
Conglomerate diversification
Liquidation Quadrant IV

Concentric diversification
Horizontal diversification
Conglomerate diversification
Joint ventures Matching Stage SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2:
The Matching Stage Aitken Spence should pursue Aggressive strategies Competitive Defensive Conservative Suggested Strategy Type Decision Stage A question for Audience Tata Nano had following strategic choices at 2011
Should TATA Nano stick to current planned annual capacity of 350000?
Should the company take first mover advantage by making aggressive capacity commitment?

Note :
You can take use of you preparation notes of TATA NANO Case Study done in class 2.
Prepare a QSPM matrix for the evaluation. Questions? QSPM – Aitken Spence Grand Strategy Matrix Grand Strategy Matrix - Quadrant Indicators IE Matrix What is governance?
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