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Strategic Analysis and Planning

Dr. Mohshin Habib


Discipline Leader, Management
Swinburne University of Technology
What is management?
It is a process
A series of activities: planning, deciding & evaluating

Of assembling and using sets of resources
Physical, financial & Human

In a goal directed manner to accomplish tasks
A purposeful activity

In an organisational setting
intentionally structured and coordinated to achieve
common purposes
I
m
p
o
r
t
a
n
c
e

High
Low
Front line
Managers
Mid-level
Managers
Top-level
Managers
Interpersonal skills
Technical skills
Conceptual skills
Managerial Skills at Different Organisational Levels
Instructions:
Rate each questions (1-18) according to the scale
Subtract your score for questions 6,10,14 & 17 from
number 6:
Q.6 = (6- 4(q.6 score))= 2
Q.10 = (6- 2)(q.10 score))=4
Q.14 = (6- 3)(q.14 score))=3
Q.17 = (6- 5)(q.17 score))=1

Conceptual Skills = Q1+Q3+Q6+Q9+Q12+Q15= (____)
Human Skills = Q2+Q5+Q8+Q10+Q14+Q17 = (____)
Technical Skills = Q4+Q7+Q11+Q13+Q16+Q18) = (___)
Exercise 1: Management in Practice
Rate each questions (0-4) according to the scale
Very accurate description of me = 4
Moderately accurate = 3
Neither accurate nor inaccurate = 2
Moderately inaccurate = 1
Very inaccurate description of me = 0
Need achievement: _____ + _____ + _____ + _____ + _____ + _____ + _____ =
(Q.2) (Q. 3) (Q.6) (Q.7) (Q.9) (Q.12) (Q14)

Need social approval: _____ + _____ + _____ + _____ + _____ + _____ + _____ +______ =
(Q.1) (Q. 4) (Q.5) (Q.8) (Q.10) (Q.11) (Q13) (Q.15)

Exercise 2: Need strength
Score Interpretation in Achievement Interpretation in social approval
28-32 High level of need High need
20-27 Above average level of need Above average need
12-19 Average level of need Average need
6-11 Below Average level of need Below average need
0-5 Low level of need Low need
What is Strategy
Plan of action
Resource allocation
Activities for dealing with the environment
Achieving competitive advantage
..a pattern in a stream of decisions
..the long-term direction of an organisation
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Strategies derive from or influenced by:
What is Strategy Continued..
Plan should have a Vision
Now
Future
What is Strategy Continued..
Resources and Capabilities:
fundamental building blocks of strategy
The tangible and intangible
inputs that firms use to deliver
services
A firms skill in using its resources
to deliver services.
Strategy
Component of Strategic capabilities
Exercise 3: Innkeepers America
Innkeepers of America's position in the economy segment of the lodging
industry.
Locating properties next to a restaurant rather than having food and
beverage in-house.
Price of rooms lowered further to meet competition.
New advertising campaign with discount coupons for weekend stays
Three new customer service positions.
Shares of company stock issued for employee bonuses.
Providing continental breakfast in the lobby.
Room service (for continental breakfast only).
Computerized reservation system.
Training program for front-desk employees.
Web site where reservations can be booked online.
New hotel properties built with additional features to appeal to an upscale
market.
Merger with Economy Lodge, Inc.
Rewrite mission statement.
Contracting cleaning and landscaping services.
s
s/o
o
o
o
o
o
o
s/o
o
o
o
s
s
s
Strategic Analysis: Why??
Generating Alternatives
Participation in generating alternative
strategies should be as broad as
possible
Establishing long-term objectives
Generating alternative strategies
Selecting strategies to pursue
Develop Best alternatives
Ensures effective use of resources
Provides base to measure progress
Builds strong teams
Purpose of Strategic Analysis
Strategys three branches
CONTEXT internal and external.
CONTENT strategic options.
PROCESS formation and implementation.
Strategic planning systems
Strategic planning systems take the form
of systematised & step-by-step procedures to
develop an organisations strategy.
Managerial equivalent of scientific analysis
The role of strategic planning
Strategic planning play several roles within an
organisation:
Formulating strategy - managers can understand
strategic issues and involve in developing alternative
Learning questioning and challenging the taken-for-
granted.
Co-ordinating - business-level strategies within an
overall corporate strategy.
Communicating - providing agreed objectives or
strategic milestones.
Strategic Planning Process
Benefits of strategic planning
There are psychological benefits of planning:
can provide opportunities for involvement,
leading to a sense of ownership,
provides security to managers and
re-assures managers that the strategy is
logical.
Perceptions of strategy development
Strategy will be seen differently by different people:
Senior executives: see strategy in terms of intended,
rational, analytic planned processes
Middle managers: see strategy as the result of
cultural and political processes.
Managers in public-sector organisations: see
strategy as externally imposed.
People who work in family businesses see strategy
as the influence of powerful individuals (owners of the
businesses).
Develop
vision and
mission
statements
Perform
Internal
Analysis
Perform
external
analysis
Establish
long term
objectives
Generate
evaluate &
select
Strategy
Implement
Strategy
Management
issues
Implement
Strategy
Marketing, finance,
Accounting, MIS
issues
Measure
and evaluate
performance
Strategy
formulation
Strategy
Implementation
Strategy
Evaluation
Comprehensive Strategic Management Model
STAGE 1: THE INPUT STAGE

External Factor
Evaluation (EFE)
Matrix
Competitive
Profile Matrix (CPM)
Internal Factor
Evaluation (IFE)
Matrix
STAGE 2: THE FORMULATION STAGE


GAP Analysis

SWOT Matrix

SPACE Matrix

BCG Matrix
STAGE 3: THE DECISION STAGE

Quantitative Strategic Planning Matrix (QSPM)
Strategy formulation Analytical Framework
Comprehensive Strategy-Formulation Framework
Stage 1:
The Input Stage
Stage 2:
The Formulation Stage
Stage 3:
The Decision Stage
Strategy-Formulation Analytical Framework
Internal Factor Evaluation
Matrix (IFE)
External Factor Evaluation
Matrix (EFE)
Competitive Profile Matrix
(CPM)
Stage 1:
The Input Stage
Stage 1: The Input Stage

Basic input information for the formulation & decision
stage matrices
Requires strategists to quantify subjectivity early in
the process
Good intuitive judgment always needed

Strategy-Formulation Analytical Framework
GAP Analysis
SWOT Matrix
SPACE Matrix
BCG Matrix
Stage 2:
The Formulation Stage
Stage 2: The Formulation Stage

Match between organisation's internal
resources & skills and the opportunities &
risks created by its external factors

Stage 2: Gap analysis
Assesses the fit between an organisations
strategy and:
its environment (external)
its capabilities (internal)
Assesses fit between strategy, performance and
stakeholder expectations
Aims to ensure that all elements of strategic
analysis are considered
Both positive and negative gaps can be revealed
Stage 2: Gap analysis
Environmentbusiness strategy gaps
Macro-environment
Identify the growth trends
Estimate when these trends take effect
Establish whether business strategy will fit new
environment (match / mismatch)

Industry environment
Compares consistency between business strategy and
industry environment
e.g. business strategy & expected profitability
Key competitor gaps
The organisations performance relative to
competitors
financial performance
market position and performance
technological performance
service performance

Analyse inconsistencies for possible danger
signals
e.g. good financial performance but lagging in
service or technology

Environmentbusiness strategy gaps
Assess how well existing capabilities match business
strategy (comparative analysis)
What may affect competitive strengths?
e.g. legal or economic barriers, complacency, regulators role,
changes in competitor strategy, changes in technology,
Key goals or objectives are compared with actual results
(under / over performance)
Compare performance with stakeholder expectations
Gaps identified should influence future strategy choices
Large gaps = New business strategy
Small gaps = Focus on implementation (functional strategies)

Business strategy: current to future options
Gap analysis summary
How does strategy match the macro-environment?
How does strategy match the industry environment?
How does strategy match performance?
How does strategy match capabilities and those of
competitors? (Now and in the future)
To be able to answer these, must identify current
business strategy.
Strategy-Formulation Analytical Framework
SWOT Matrix
GAP Analysis
SPACE Matrix
BCG Matrix
Stage 2:
The Formulation Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
Stage 2: The Formulation Stage
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
SO Strategies
Use a firms
internal strengths
to take advantage
of external
opportunities
SO
Strategies
Strengths
Weaknesses
Opportunities
Threats

SWOT
WO Strategies
Improving internal
weaknesses by
taking advantage
of external
opportunities
WO
Strategies
Strengths
Weaknesses
Opportunities
Threats

SWOT
ST Strategies
Use a firms
strengths
to avoid or
reduce the impact
of external
threats
ST
Strategies
Strengths
Weaknesses
Opportunities
Threats

SWOT
WT Strategies
Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
threats

WT
Strategies
Strengths
Weaknesses
Opportunities
Threats

SWOT
SWOT Matrix
Strengths S

List Strengths
Weaknesses W

List Weaknesses
Opportunities O

List Opportunities
SO Strategies

Use strengths to take
advantage of
opportunities
WO Strategies

Overcoming weaknesses
by taking advantage of
opportunities
Threats T

List Threats
ST Strategies

Use strengths to avoid
threats
WT Strategies

Minimize weaknesses and
avoid threats
Exercise 4: Robin Hood
Limitations with SWOT Matrix
Does not show how to achieve a competitive
advantage
Provides a static assessment in time
May lead the firm to overemphasise a single
internal or external factor in formulating
strategies
Strategy-Formulation Analytical Framework
SPACE Matrix
SWOT Matrix
GAP Analysis
BCG Matrix
Stage 2:
The Formulation Stage
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
SPACE Factors
Environmental Stability (ES)

Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Financial Strength (FS)

Return on investment
Leverage
Liquidity
Working capital
Cash flow
Earnings per share
Price earnings ratio



External Strategic Position Internal Strategic Position
SPACE Factors
Industry Strength (IS)

Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity utilisation
Competitive Advantage (CA)

Market share
Product quality
Product life cycle
Customer loyalty
Competitions capacity utilization
Technological know-how
Control over suppliers &
distributors

External Strategic Position Internal Strategic Position
Exercise 5: Winter Survival
Item Expert ranking
Ball of steel wool
2
Newspaper
8
Compass
12
Hand Axe
6
Cigarette lighter
1
45 calibre pistol
9
Section air map
11
Canvas
5
Shirt and Pants
3
Can of shortening
4
Whisky
10
Chocolate bar
7
Strategy-Formulation Analytical Framework
BCG Matrix
SWOT Matrix
SPACE Matrix
GAP Analysis
Stage 2:
The Formulation Stage
BCG Matrix
Boston Consulting Group Matrix
Enhances multidivisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry growth
rate
BCG Matrix
BCG Matrix
Question Marks
Low relative market share, competes in
high-growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies)
or divest
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, joint
ventures
BCG Matrix
Cash Cows
High relative market share, competes in low-
growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
If weakens retrenchment or divestiture
BCG Matrix
Dogs
Low relative market share, competes in
slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
BCG Matrix
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
Strategy-Formulation Analytical Framework
QSPM
Technique designed to determine
the relative attractiveness of feasible
alternative actions
Quantitative Strategic Planning Matrix
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives
Steps to Develop a QSPM
1. Make a list of the firms 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 (formulation) matrices, and
identify alternative strategies that the
organisation should consider implementing.
4. Determine the Attractiveness Scores.
5. Compare the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness
Score.
Steps to Develop a QSPM
QSPM
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs
Limitations
Cultural Aspects of Strategy Choice
Successful strategies depend on the degree
of consistency with the firms culture
Organisational Culture ?
Politics of Strategy Choice
Management hierarchy
Career aspirations
Allocation of scarce resources
Politics in Organisations
Satisfying
Generalisation
Higher-order issues
Political access on important issues
Political Tactics for Strategists
Politics of Strategy Choice
Governance & Strategy Choice
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
Board of Directors Roles & Responsibilities
Principles of Good Governance
Governance & Strategy Choice
1. No more than 2 directors are current or former company
executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director owns a large equity stake in the company
5. At least one outside director with extensive experience
6. Fully employed directors sit on no more than 4 boards,
retirees on no more than 7
7. Each director attends at least 75% of all meetings
Principles of good governance
8. Board meets regularly without management present
9. Audit committee meets at least four times a year
10. Board is frugal on executive pay, diligent in CEO
succession, and prompt to act when trouble arises
11. CEO is not also the chairperson of the board
12. Shareholders have considerable power and
information to choose & replace directors
13. Stock options are considered a corporate expense
14. No interlocking directorships
Governance & Strategy Choice
Yielding: _____ + _____ + _____ + _____ = _______
(Q.1) (Q. 6) (Q.11) (Q.16)
Compromising: _____ + _____ + _____ + _____ = ______
(Q.2) (Q. 7) (Q.12) (Q.17)
Forcing: _____ + _____ + _____ + _____ = _______
(Q.3) (Q. 8) (Q.13) (Q.18)
Problem solving: _____ + _____ + _____ + _____ = _______
(Q.4) (Q. 9) (Q.14) (Q.19)
Avoiding: _____ + _____ + _____ + _____ = _______
(Q.5) (Q. 10) (Q.15) (Q.20)

Exercise 6: Conflict handling