Strategies for Growth

Session 7&8
Jan 22, 2013

INTRODUCTION
BOSTON CONSULTING GROUP (BCG) MATRIX was

developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970s.
According to this technique, businesses or products are

classified as low or high performers depending upon their market growth rate and relative market share.
A pet tool in the 80s (being revisited even today)

The Origin
Mead Corps inability to assess its financial products

viability like Savings Account, Sweepstakes, Bonds and Mortgages Needed a measure to assess the need for investment over period of time and understand net cash flows Hence also called Portfolio Matrix Overtime became useful for assessing SBU strength and investment potential Now even product strategies and multi brand strategies find its use for cash requirements and generation

Business Sense
To be successful, a company should have a portfolio of

products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows.

High growth products require cash to grow and low

growth products must generate excess cash to fund the high growth products

Four rules determine cash flow

Margins and cash generated are function of market share.

High margin = High MS (f) experience curve Growth requires cash input to finance added assets High MS must be earned or bought. Buying MS requires added incremental investments. No market or product can grow indefinitely. The payoff form growth must come form when growth slows down, or it never will. The payoff is cash that cannot be reinvested in that product.

Relative Market Share and Market Growth

To understand the Boston Matrix you need to understand how market share and market growth interrelate.

MARKET SHARE
Market share is the percentage of the total market that is being

serviced by your company, measured either in revenue terms or unit volume terms.
RELATIVE MARKET SHARE RMS = Business unit sales this year Leading rival sales this year
The higher your market share, the higher proportion of the

market you control.

MARKET GROWTH RATE

Market growth is used as a measure of a markets

attractiveness.
MGR = Sales

Sales this year last year Sales last year

Markets experiencing high growth are ones where the total

market share available is expanding, and theres plenty of opportunity for everyone to make money.

THE BCG GROWTH-SHARE MATRIX

It is a portfolio planning model which is based on the

observation that a companys business units can be classified in to four categories: Stars Question marks Cash cows Dogs

It is based on the combination of market growth and market

share relative to the next best competitor.

Cash Usage

Cash Generation

Views on Relative Market Share

Calculating Relative Market Share
Views of Richard Koch (ex BCG consultant)
Your sales in the niche / Sales of the biggest or next biggest rival

Brand's share relative to its largest competitor (Wiki)

Thus, if the brand had a share of 20 percent, and the largest competitor had the same, the ratio would be 1:1. If the largest competitor had a share of 60 percent; however, the ratio would be 1:3, implying that the organization's brand was in a relatively weak position.

Stars High growth, High market share

Stars are leaders in business. Stars represent business units having large market share in a

fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures . Could be an issue overtime Eg Pepsi vs. Coke; Symphony , Auto Ind ???; Apple?, Dell?

CASH COWS

Low growth , High market share

They are foundation of the company and often the stars

of yesterday. They represent business units having a large market share in a mature, slow growing industry. They generate more cash than required. They extract the profits by investing as little cash as possible and generate cash that can be utilized for investment in other business units. Formed by maturing Stars

Cash Cows
These SBUs are the corporations key source of cash, and are

specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. They are located in an industry that is mature, not growing or declining. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued. Examples: Tata companies Tisco, Telco.. (constantly trying to move to Star status).

DOGS
Low growth, Low market share
Dogs are the cash traps. They may show accounting

profits, but the profit needs to be reinvested to maintain shares, leaving no cash throw-off. Dogs represent businesses having weak market shares in low-growth markets. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. They neither generate cash nor require huge amount of cash. Dogs do not have potential to bring in much cash Due to low market share, these business units face cost disadvantages.

DOGS
Generally retrenchment strategies are adopted because these

firms can gain market share only at the expense of competitors/rival firms. Number of dogs in the company should be minimized. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share.

QUESTION MARKS High growth , Low market share

Question marks represent business units having low relative

market share and located in a high growth industry. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog Investments should be high for question marks. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable.

WHY BCG MATRIX ?

To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment decisions

MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU.

Assessing and comparing the prospects of each SBU

according to two criteria :

1. SBUS relative market share. 2. Growth rate OF SBUS industry.

Classifying the SBUS on the basis of BCG matrix. Developing strategic objectives for each SBU.

BCG MATRIX WITH CASH FLOW

BENEFITS
BCG MATRIX is simple and easy to understand.

It helps you to quickly and simply screen the

opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a companys future growth and profitability.

LIMITATIONS
BCG MATRIX uses only two dimensions, Relative

market share and market growth rate. Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too
BCG matrix classifies businesses as low and high, but

generally businesses can be medium also. Thus, the true nature of business may not be reflected.

Limitations
This model ignores and overlooks other indicators of

profitability. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. The focus on balancing cash flows rather than other interdependencies. The emphasis on cost leadership rather than differentiation as a source of competitive advantage. Lifecycle stages are important factors missing here Experince curves not factored in

 All products businesses must eventually become either

cash cows or dogs.

The value of a product is completely dependent upon

obtaining a leading share of its market before growth slows down.

Business Mix of ITC Ltd.

FMCG Cigarettes

Foods Lifestyle Retailing Greeting, Giftcards, Stationary Safety Matches Agarbatti

Paperboards & Packaging Paperboard and printing Packaging

Business Mix (Contd)

Agri - Business Agri Biz e-Choupal Leaf Tobacco Hotels
Group Companies ITC Infotech; etc.

Business wise Sales data

Business/ Year Growth Value (Rs in Crore) % 2005 2004 10002.54 9230.27 563.39 304.16

FMCG-Cigarettes 8.4 FMCG-Others 85.2

Hotels
Agribusiness Paper & pkg. Net revenue

124.1
4.2 24.9 12.99

577.25
1780.07 1565.31

257.53
1708.77 1253.29

13349.58 11815.04

CAGR during FY 2005-2008

Category CAGR Growth parameters Pricing power Inward traffic, occupancy

Cigarettes 10.9 % Hotels 22.7%

Paper
Agri business FMCGOthers

17.2 %
34.3 % 60.2 %

Capacity utilization, value added products E-choupal, choupal sagar,

Fast track, decent share.

Market share of ITC Ltd.

Outstanding market leader Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports. Gaining market share Nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards.

Segment Cigarettes Paper & Packg.

Dominance 70% share Packaging board No. 1 in Asia

Contribution % Revenue PBIT 77.0% 87.7% 7.3% 7.0% 4.3% 4.4% 10.7% 3.7% 5.4% -7.5%

Agri 1of the largest xporters business from India Hotels ITC Group ranks No.2 FMCG (Others) 20% share of greeting cards market, 'Aashirvaad' atta is No.1 in branded segment

A c t 2

Market attractiveness & Competitive strength is also important.

The BCG Matrix for ITC Ltd.

High

Stars Hotels Paperboards/ Packaging. Agri business. eChoupal

?
Food - Grocery, Snacks, Biscuits) FMCG Body care, Hair care Infotech (if ITS growth is >10% pa) Dogs Lifestyle (?)

Market Growth

Cows FMCG-Cigarettes
(RMS ratio) = 2

Low

High

Relative MS

Low

Soaps, Cards, Stationery? What if FDI in retail comes in? In 2002 + retail boomed and LS may be in Q, then fell to Dogs in 2008 11.

Action- Learning points and conclusions

Question marks (Food, FMCG, Infotech) to be handled

with care. (What are the pressure points?)

Strategic forays into emerging high growth markets. E-Choupal is a transformational strategy.

Strong brand building capability will be tested in Stars

and Qs.

Learning points (Contd)

Corporate strategy of creating multiple drivers of growth

anchored on its core competencies and distribution reach.

Embracing difficult and challenging corporate strategy.

(Ex: Paperboards).
Lifestyle challenge to be overcome

BCG Matrix-HUL
Stars Hair Care Skin Care Premium Soaps & Laundry Deodorants Water (PureIt) Question marks? Processed foods Colour Cosmetics

Cash Cows Mass Soaps Beverages Oral care Laundry

HULs decision to harvest Lipton Tree Top in 1995? Is it a case for multi model approach to BCG? The time dimension / business maturity angle to BCG

Dog Sea-food exports

The Product Life Cycle and the Boston Matrix

Sales (1) (2) (3)
Importance of (3) Cash from (2) Cash from B maintaining a C (1) A is at maturity The product used support balance of products used to support stage to cash cow. portfolio four growth of funds D and in the portfolio atfor Generates C through growth products in the possibly toto finance different stages of the development of stage and portfolio the PLC D. Boston extension strategy D launch A now Matrix helps with the for B? possibly a dog? analysis

C
Time

Building Star Business

Why star business

The star of the portfolio is a wonderful thing; its value

while recognized is typically mismanaged. Key Attributes

It is a leader in its market niche It is bigger in the niche than any other player Leadership defined in term of sales; not any subjective attribute like the nest, strongest

The market niche is growing fast (What is niche market?)

Niche Market
For a niche to be a separate market
Different customers Different product or service Different way of doing business

A niche can be in a category like car divided as luxury,

small, sports (High priced like Ferrari, Maseretti or ordinary like Porsche) and more such specific niche that address the varying needs of the customers

Identifying Niche Market

Sufficiently different to the enable lower cost, or higher

prices than competitors.

Cold drinks Colas Diet cola

Highly profitable Generates lots of cash The business must sooner or later

generate lost of cash, not just book profits Impact of Technology, Internet firms, E-commerce

Viability of a niche market

At least 10 15% PA over t next 5 years
High power of compounding A business of 10 Mn with 3% growth in 10 years = 13 Mn (30%) A business of 10 Mn with 30% growth in 10 years = 138 Mn (1000 + %)

Affects not only the growth but can alter the equation of

market share Example - Redbull Impact on the technology companies?

Identify Star Businesses

Google Flipkart

Yahoo
Amazon Netscape Facebook Apple Microsoft Nike

Infosys
Coke McDonalds Auto industry any

company? Airtel Ikea

Identify Star Business

Sony Walkman

Honda motor cycles

Apple iPod 3M

Dubai
Singapore

Strategy for Dogs

Divestment Turnaround Liquidation Retrenchment Can grow if Mkts suddenly open up Retail

Financing the dog with

potential
Debt Raise equity Other borrowings

Return of the Cash Cow

The whole intellectual edifice collapsed because the

data inputted into the risk management models generally covered only the past two decades, a period of euphoria Grow, grow, grow, invest, invest, invest period of excessive Stars and Qs and no focus on CC CCs pay for dividends, fund growth Generating investment cash internally still is the most prudent way of doing business. Companies with reserves may be in fashion once again

Session 9 Strategy for Growth

Refinements on BCG

What is the McKinsey GE Matrix?

A business portfolio analysis on the Strategic Business Units of a

corporation. Synonyms for this method are; GE Matrix, Business Assessment Array and GE Business Screen.
What is a portfolio? Collection of Strategic Business Units that

together form a corporation. The optimal business portfolio is one that fits perfectly to the company's strengths and helps to exploit the most attractive industries or markets.
What is a SBU?A SBU can either be an entire medium size

company or a division of a large corporation. As long as it formulates its own business level strategy and has separate objectives from the parent company.

GE / McKinsey Matrix
Business Unit Strength High Medium Low

Market Attractiveness

High
40%

Medium

30%

Low

More sophisticated than the BCG Matrix in three aspects:

Market (Industry) attractiveness instead of market growth. Market

Attractiveness includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry / market. Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit. Finally, the GE Matrix works with a 3*3 matrix, while the BCG Matrix has only 2*2. This also allows more sophistication.

Two Dimensions

Typical (external) factors that affect Market Attractiveness:

- Market size - Market growth rate - Market profitability - Pricing trends - Competitive intensity / rivalry - Overall risk of returns in the industry - Entry barriers - Opportunity to differentiate products and services - Demand variability - Segmentation - Distribution structure - Technology development

Typical (internal) factors that affect Competitive Strength of a Strategic Business Unit:
- Strength of assets and competencies - Relative brand strength (marketing) - Market share - Market share growth - Customer loyalty - Relative cost position (cost structure compared with competitors) - Relative profit margins (compared to competitors) - Distribution strength and production capacity - Record of technological or other innovation - Quality - Access to financial and other investment resources - Management strength

A six-step approach for the implementation of the McKinsey Matrix

Specify drivers of each dimension. Determine those factors

that are important to its overall strategy. Determine the weight of each driver. Assign relative importance weights to the drivers. Score the SBU's on each driver. Multiply weights and scores for each SBU. View resulting graph and interpret it. Perform a review/sensitivity analysis. Example: Titan

Some limitations of the McKinsey Matrix

Aggregation of the indicators is difficult. Core Competencies are not represented.

Interactions between Strategic Business Units are not

considered. (input of one into another SBU)

Still widely used

Arthur D Little Matrix

Business strategies need to be reconfigured when the

competitive position of the business changes or when the industry moves from one stage of its life cycle to another.
The ADL matrix, developed by Arthur D. Little, shows how a

business should plan its strategy keeping in mind its competitive position and the stage of the industrys life cycle.
The matrix is plotted with the industry life cycle stages on one

axis and the competitive positions on the other.

ADL Portfolio Matrix

The ADL portfolio management approach uses an industry

assessment and a business strength assessment as its dimensions.

The industry measurement is an identification of the life cycle of

the industry. The business strength measure is a categorization of the corporation's SBU's into one of five (six) competitive positions: dominant, strong, favorable, tenable, weak (and non-viable).
This yields a matrix of 5 competitive positions by 4 life cycle

stages. Positioning in the 20 cell matrix identifies a general strategy (More finely segmented).

Defining the line of business in the ADL matrix

In the ADL Matrix approach, distinction is not based on SBUs.

The strategist must identify discrete businesses by finding

commonalities among products and business lines using the following criteria as guidelines:
Common rivals eg HLL different groups may compete with P&G Prices May operate in same cluster Customers Same customer groups eg Male 35 - 45 Quality/Style Substitutability Eg Clinic & Dove may compete with a single product ARBER of Bodyshop addressing both the needs together. Divestment or liquidation

ADL Matrix
Industry life cycle stage

Embryonic
All out push for
Hold position.

Growth
Hold position. Hold share.

Mature

Aging

Dominant share. Competitive Position

Hold position. Grow with industry. Hold position.

Strong

Attempt to improve Attempt to improve Hold position. Hold position position. All out position. Grow with industry. or harvest. push for share. Push for share. Attempt to improve position. Selective push for share. Find niche and protect it. Custodial or mainteHarvest, or phased nance. Find niche out withdrawal. and attempt to protect it. Find niche and hang on, or phased out Withdrawal. Turnaround, orphaned out withdrawal. Phased out withdrawal, or Abandon.

Selective or all out push for share. Favorable Selectively attempt to improve position.

Tenable

Selectively push for position.

Weak

Up or out.

Turnaround or abandon.

Abandon.

Assessing the competitive position in the ADL Matrix

The competitive position of a firm is based on an

assessment of the following criteria:

Dominant. Rare, often the result from a almost-monopoly or protected leadership. Strong. A strong company can follow a strategy without too much consideration of moves by rival companies. Favorable. Industry is fragmented. No clear leader among stronger rivals. Tenable. The company has a niche, either geographical or defined by the product. Weak. Business is too small to be profitable or survive over the long term. Critical weaknesses.

LIMITATIONS
There is no standard life cycle length.

Determining the current industry life cycle phase is

difficult. Competitors may influence the length of the life cycle.

Next Steps in Building Strategy

Ch 6 -62

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Ch 6 -63

The Internal-External Matrix

Positions an organizations various divisions in a nine-cell

display
Based on two key dimensions
The IFE total weighted scores on the x-axis The EFE total weighted scores on the y-axis

Similar to BCG Matrix except the IE Matrix:

Requires more information about the divisions Strategic implications of each matrix are different

Ch 6 -64

Ch 6 -65

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Ch 6 -66

Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth
Ch 6 -67

RAPID MARKET GROWTH

1. 2.

3.
4. 5. 6.

Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation

1. 2.

3.
4. 5. 6. 7.

WEAK COMPETITIVE POSITION

1. 2. 3. 4. 5.

Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification Quadrant IV Related diversification Unrelated diversification Joint ventures

Quadrant III Retrenchment Related diversification Unrelated diversification Divestiture Liquidation

STRONG COMPETITIVE POSITION

1. 2. 3.

SLOW MARKET GROWTH

Ch 6 -68

Grand Strategy Matrix

Quadrant I

Excellent

strategic position

Concentration

on current markets/products
Take

risks aggressively when necessary

Ch 6 -69

Grand Strategy Matrix

Quadrant II
Evaluate How

present approach

to improve competitiveness
Rapid

market growth requires intensive strategy

Ch 6 -70

Grand Strategy Matrix

Quadrant III
Compete Weak

in slow-growth industries

competitive position changes quickly

Drastic Cost

& asset reduction (retrenchment)

Ch 6 -71

Grand Strategy Matrix

Quadrant IV
Strong

competitive position

Slow-growth

industry

Diversification

to more promising growth areas

Ch 6 -72

Strategy-Formulation Analytical Framework

Stage 3: The Decision Stage

Quantitative Strategic Planning Matrix (QSPM)

Choosing best strategy

Ch 6 -73

Introduction
Quantitative Strategic Planning Matrix (QSPM) is a

high-level strategic management approach for evaluating possible strategies

QSPM provides an analytical method for comparing

feasible alternative actions

The QSPM method falls within so-called stage 3 of the

strategy formulation analytical framework.

Comprehensive StrategyFormulation Framework

Why go for QSPM?

QSPM approach attempts to objectively select the

best strategy using input from other management techniques and some easy computations
The QSPM method uses inputs from stage 1 analyses,

matches them with results from stage 2 analyses, and then decides objectively among alternative strategies

Steps to form a QSPM

1.

2.

3. 4.

5. 6.

The overall strategic management analysis is used to identify key strategic factors. This can be done using the EFE & IFE matrix. Formulation of the type of the strategy we would like to pursue. This can be done using the SWOT analysis, SPACE matrix analysis, BCG matrix model, or the IE matrix model. Each key external and internal factor should have some weight in the overall scheme. These weights form the IFE and EFE matrices. Attractiveness Scores (AS) how each factor is important or attractive to each alternative strategy. Attractiveness Scores are determined by examining each key external and internal factor separately(0,1,2,3,4) Total Attractiveness Scores are defined as the product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) in each row. Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each strategy column of the QSPM.

SAMPLE QSP MATRIX (QSPM)

From SWOT, SPACE
Market Penetration CRITICAL SUCCESS FACTORS OPPORTUNITIES 1. Better relations w ith the present government. 2. Reach out to the youth market. 3. Reach out to the low er income markets not reached by the broadsheet. 4. Better new spaper technology. 5. Digital advertising services. THREATS 1. Television. 2. High new sprint costs. 3. Decline in new spaper readership. 4. Slow dow n in the economy. 5. Internet and on-line publications. STRENGTHS 1. Good editorial quality. 2. High readership ratings. 3. Continued market leadership. 4. Strong loyalty of staf f to the company. 5. Uited Board of Directors and good leadership. WEAKNESSES 1. Prof it margin squeeze. 2. No. 2 in classif ieds. 3. Lack of shared corporate culture. 4. Resistance to change. 5. Lack of Entrepreneurial Spirit TOTAL 0.15 0.05 0.10 0.05 2.00 2 1 2 5.00 0.30 0.05 0.20 3 2 3 4.90 0.45 0.10 0.30 4 3 1 3.45 0.60 0.15 0.10 0.15 0.05 0.10 0.10 0.15 3 4 4 4 0.45 0.60 0.20 0.40 4 3 3 3 0.60 0.45 0.15 0.30 2 2 2 2 0.30 0.30 0.10 0.20 0.15 0.10 0.15 0.10 0.05 3 3 3 4 0.45 0.30 0.15 0.60 4 4 2 3 0.60 0.40 0.10 0.45 2 2 1 2 0.30 0.20 0.05 0.30 0.15 0.05 0.05 4 0.60 2 0.30 3 0.45 0.10 0.10 4 3 0.40 0.30 3 4 0.30 0.40 2 2 0.20 0.20 Wgt. AS TAS STRATEGIC ALTERNATIVES Product Developm ent AS TAS Horizontal Integration AS TAS

78

HILDA L.0.10 TEODORO

Illustration: QSPM for Retail Computer Store

Step 1

Internal audit and IFE Matrix External audit and EFE Matrix

Step 2

Formulation of alternative strategies using SWOT

Step 3

QSPM Matrix formulation Recommendations

IFE matrix for Retail Computer Store

Stage 1
Key Internal Factors Strengths 1 Inventory turnover increased from 5.8 to 6.7 this year Average customer purchasse increased from $97 to $128 2 this year 3 Employee Morale is excellent In-store promotions resulted in 20% increase in sales this 4 year 5 Newspaper Advertising expenditure increased 10% this year Revenues from repair/service segment of store up 16% this 6 year In store Technical Support Personnel have MIS college 7 degrees Store debt-total assets ratio declined to 34% this year from 8 51% 9 Revenues from employee up 19% in last two years Weight 0.05 Rating 3 W*score 0.15

0.07 0.1
0.05 0.02 0.15 0.05 0.03 0.02

4 3
3 3 3 4 3 3

0.28 0.3
0.15 0.06 0.45 0.2 0.09 0.06

IFE matrix for Retail Computer Store Stage 1

Weakness Revenues from Software segment of storedown 10 12% this year Location of store negatively impacted by new 11 Highway34 to be completed in 1 year 12 Carpet and Paint in store somwhat in despair
Weight Rating W*score

0.1 0.15 0.02

2 2 1

0.2 0.3 0.02

13 Bathroom in store needs Refurbishing

14 Revenues from Business down 8% this year 15 Store has no website

0.02
0.04 0.05 0.03 0.05 1

1
1 2 1 1

0.02
0.04 0.1 0.03 0.05 2.5

Supplier on time delivery increased to 2.4 days in 16 last two quarters

Oftentimes customers have to wait 5min to check 17 out Total

EFE matrix for Retail Computer Store

Stage 1

Key External Factors

Opportunities 1 Population of city growing 10% annually 2 Rival computer store openeing 1 mile away 3 Vehicle traffic passing store up 12% in last year 4 Vendors average 6 new products per year 5 Senior citizen use of computer 8% this year 6 Small Business growth in area up 10% this year 7 Desires for websites up 18% by realtors yearly 8 Desires for websites up 12% by small firms Weight 0.15 0.05 0.1 0.05 0.05 0.05 0.1 0.05 Rating 4 2 1 3 4 2 3 1 Wscore 0.6 0.1 0.1 0.15 0.2 0.1 0.3 0.05

EFE matrix for Retail Computer Store

Stage 1

Threats
9 Best Buy opening a new store Nearby 10 Local universities offer Computer Repair 11 New bypass highway in 1 year will divert traffic 12 New Mall being builtnearby in 1 year 13 Gas prices up by 14% in pat year 14 Vendors raising prices 8% Quarterly Total

Weight 0.1 0.05 0.05 0.1 0.05 0.05 1

Rating 4 3 3 1 4 2

Wscore 0.4 0.15 0.15 0.1 0.2 0.1 2.7

SWOT
S W

Stage 2

1. 2. 3. 4. 5. 6.

Inventory turnover up 5.8 to 6.7 Average customer purchase up $97 to $128 Employee morale is excellent In store promo-20% increase in sales Newspaper ads expense down by 10% Revenues from repair up by 16%

1. 2. 3.

4.
5.

6.

Software revenues in store down by 16% Location of store hurt by new Highway Carpet & paint in store in disrepair Bathroom in store needs refurbishing Total store revenues down by 8% Store has no website

SWOT (Cont)
O T

Stage 2

1.

2.
3.

4.
5.

6.

Population of city growing at 10% Vehicle traffic passing store up 12% Senior citizens use of products up by 8% Small business grow in area up 10% Desire for websites up 18% by realtors Desire for websites up 12% by small firms

1.

2.
3.

4. 5. 6.

Best buy opening store in 1 year Local university offers computer repair New bypass highway will divert traffic in one year New mall being built near Gas prices up by 14% Vendor raising price by 8%

Strategy based on SWOT

A) Purchase land to build new larger store

B) Fully renovate the existing store

Rules for QSPM

If a particular factor affects one strategy and not other

then it affects the choice so the AS should be recorded for both strategies Scores in a row is never duplicated QSPM is always prepared row-wise If there is more than one strategy in QSPM then AS scores can range from 1 to no. of strategies being evaluated

Pros and Cons

Pros Sets of strategies considered simultaneously or sequentially Integration of pertinent external and internal factors in the decision-making process Cons Requires intuitive judgments and assumptions Only as good as the prerequisite inputs Only strategies in a given set are evaluated relative to each other

Cultural Aspects of Strategy Choice

Organization Culture
A

set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm
Successful

strategies depend on support of the firms culture

Ch 6 -89

Politics of Strategy Choice

Politics in Organizations

Hierarchy Career

of command

aspirations
of scarce resources

Allocation

Ch 6 -90

Politics of Strategy Choice

Political Tactics for Strategists

Equifinality Satisfying Generalization Higher-order Political

issues

access on important issues

Ch 6 -91

Governance Issues

Board of Directors Roles & Responsibilities

Control

& oversight over management to legal prescriptions

Adherence

Consideration
Advancement

of stakeholders interests
of stockholders rights

Ch 6 -92