STRATEGIC

CHOICES

TOPIC 6

Chapter Outlines
1.

Generic Strategy Alternatives

2.

Strategy Variations

3.

Strategic Choice

4.

Alternative Strategies

Copyright 2013 Pearson Education

11-2

Introduction

To excel in business, an organization must have a good strategies.

Sometimes, a firm may have a long list of strategies to be implemented

but failed to chose the best.

When an organization does not know where it wants to go, it usually ends
up some place it does not want to be.

Every organization needs to consciously establish and communicate clear

objectives and strategies.

Modern strategy-formulation tools such as the SWOT Matrix, SPACE

Matrix, BCG Matrix, IE Matrix, Grand Strategy Matrix, and QSPM can
significantly enhance the quality of strategic decisions.
Ch 6 -3

Strategy Analysis &

Choice
To acquire or not to acquire, that is the
question
Robert J. Terry

Life is full of lousy options -General P.X. Kelley

Ch 6 -4

Strategy Analysis &

Choice
Nature of Strategy Analysis &
Choice

Establishing long-term objectives

Generating alternative strategies

Selecting strategies to pursue

Best alternative - achieve mission & objectives

Ch 6 -5

Strategy Analysis &

Choice
Alternative Strategies Derive
From :

Vision

Mission

Objectives

External audit

Internal audit

Past successful strategies

Ch 6 -6

Strategy Analysis &

Choice
Generating
Alternatives :

Participation in
generating
alternative
strategies should be
as broad as possible
Ch 6 -7

Notable quotes
Even if youre on the right track, youll get run
over if you just sit there.
Will Rogers

The Process of Generating and Selecting

Strategies

1.

A manageable set of the most attractive

alternative strategies must be developed.

2.

The advantages, disadvantages, trade-offs,

costs, and benefits of these strategies should
be determined.

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6-9

The Process of Generating and Selecting

Strategies

3.

Identifying and evaluating alternative strategies

should involve many of the managers and
employees who earlier assembled the
organizational vision and mission statements,
performed the external audit, and conducted
the internal audit.

Copyright 2013 Pearson Education

6-10

The Process of Generating and Selecting

Strategies
4.

Alternative strategies proposed by participants should

be considered and discussed in a series of meetings.

5.

Proposed strategies should be listed in writing.

6.

When all feasible strategies identified by participants

are given and understood, the strategies should be
ranked in order of attractiveness.

Copyright 2013 Pearson Education

6-11

Generic Strategy Alternatives

Generic

strategy alternatives should

be able to identify the right strategy
which means that, the strategy
should:

Fulfill a real market need

Be competitively defended
Suit internal organizational resources and
skills
Suit the culture of the organization

Long-Term Objectives
Long-term objectives represent the results
expected from pursuing certain strategies.
Strategies represent the actions to be taken to
accomplish long-term objectives.

Objectives should be:

1. Quantifiable (quantitative)
2. Measurable
3. Realistic
4. Understandable
5. Challenging
Note: each objectives should associated

Long-Term Objectives-contd

Objectives are commonly stated in term such as:

1.
2.
3.
4.
5.
6.
7.

Growth in assets
Growth in sales
Growth in profitability
Growth in market share
Growth in diversification
Growth in earning per share
Growth in social responsibility.

Long-Term Objectives-contd

Clearly stated objectives can:

1.
2.
3.
4.
5.
6.
7.

Provide clear direction

Allow synergy
Aid in evaluation
Establish priorities
Reduce uncertainty
Minimize conflicts
Aid in resources allocation and the design of jobs

Long-Term Objectives-contd

Clearly stated and communicated objectives are

important to the organizational success.

1.

Stakeholders will understand clearly their role in an organizations future.

2.

It provide a basis for consistent decision making by managers whose

values and attitudes differ.

3.

Organization can minimize potential conflicts later on during

implementation stages.

4.

Can serve as standards by which individuals, groups, departments,

divisions, and entire organizations can be evaluated.

Long-Term Objectives
Varying Performance Measures
by Organizational Level
Organizational Basis for Annual Bonus/Merit Pay
Level

Corporate

75% on long-term objectives

25% on annual objectives

Division

50% on long-term objectives

50% on annual objectives

Function

25% on long-term objectives

75% on annual objectives

Financial vs. Strategic Objectives

In any organization or business, we have two (2) types of objectives:

1.

Financial objectives such as growth in revenues, earning per share, higher

dividend, larger profit margin, greater return on investment @ ROI and so on.

2.

Strategic objectives such as larger market share, quicker on-time delivery than
rivals, shorter design-to-market times than rivals, lower cost than rivals, higher
product quality than rival, achieving technological leadership, achieving ISO
certification, wider geographic coverage than rivals and so on.

Financial objectives can best be met by focusing first on

achievement of strategic objectives that improves a firms
competitiveness and market strength.

Financial vs. Strategic

Objectives

Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher Earnings per share
Improved cash flow

Financial vs. Strategic

Objectives

Strategic

Objectives

larger market share

quicker on-time delivery than rivals
shorter design-to-market times than rivals
lower cost than rivals
higher product quality than rival
achieving technological leadership
achieving ISO certification
wider geographic coverage than rivals

What Strategist should avoid in strategic

management?

1.

Managing by Extrapolation- if it aint broke, dont fix it.

2.

Managing by Crisis- a form of reacting rather than acting.

3.

Managing by Subjective- no general plan for which way to go and what to

do. Subordinates are left to figure out what is happening and why. do
your own thing, the best way you know how.

4.

Managing by Hope- decisions are predicted on the hope that they will
work well.

The Balanced Scorecard

Developed in 1993 by Robert Kaplan and David Norton (Harvard Business

School professors).

The Balanced Scorecard is a tool to manage and evaluate strategy

(strategy evaluation and control technique).

An effective Balanced Scorecard should contains a carefully chosen

combination of strategic and financial objectives tailored to the companys
business.

The overall aim of the Balanced Scorecard is to balance shareholder

objectives with operational and customer objectives.

Example of Generic Strategy

Alternatives

Balanced Scorecard @ BSC - One of the instruments

for performance management used by manager in keeping
the organization activity right in track.

Even though it is useful for strategy evaluation, BSC can

be used to ensure organizations to develop strategies that do
not only focusing on financial but also other items such as
customer knowledge, internal business processes and
learning and growth.

It is useful to balance financial measures in strategy

evaluation and control with non-financial measures such as
product quality and customer service. In public sector, this tool
is being used slightly different.

The Balanced Scorecard-contd

Example:
3M Corporation- has a financial objective
to achieve annual growth in earning per
share of 10% or better, as well as a
strategic objective to have at least 30% of
sales come from products introduced in
the past four (4) years.

The Balanced Scorecard

Robert Kaplan & David
Norton -Strategy evaluation & control
technique
Balance financial measures with
non-financial measures
Balance shareholder objectives with
customer & operational objectives

STRATEGY VARIATIONS

FOUR BASIC LEVELS OF STRATEGIES

(BRYSON, 2004)
1.

Grand strategy for the organization as a whole.

2.

Subunit strategies (subunits may be divisions, departments, or

units of a larger organizations)(Montanari and Bracker, 1986)

3.

Program, service or business process strategies (Hammer and

Champy, 1993)

4.

Functional strategies (such as financial, staffing, facilities,

information technology and procurement strategies)

TYPES OF STRATEGIES

TYPES OF STRATEGIES-contd

Even though an organization have a numbers of alternative strategies, no

organization can afford to pursue all the strategies that might benefit the
firm.

Since the firm have limited resources, decision on the best strategies
must be made and priority must be established.

Many of the organizations simultaneously pursue a combination of two (2)

or more strategies.

1. INTEGRATION STRATEGIES
Gain control over distributors, suppliers and
competitors.

Forward integration increased control over

distributors or retailers, web sites

Backward integration increased control of a

firms suppliers, when a firm current suppliers
are unreliable or too costly.

Types of Strategies
Forward
Integration
(A)

Integration
Strategies

Backward
Integration

Horizontal
Integration

A. Integration Strategies
1.

Forward Integration gaining ownership or increased

control over distributors or retailers.

2.

Backward Integration seeking ownership or

increased control of a firms suppliers.

3.

Horizontal Integration seeking ownership or

increased control over competitors.

2. INTENSIVE STRATEGIES
Require intensive efforts to improve competitive position.
Market penetration increase market share for present
services through greater marketing effort.

Market

development
- introducing
services/product into new geographic area.

present

Product development increased sales by improving or

modifying present services/products.

Types of Strategies
Market
Penetration
(B)

Intensive
Strategies

Market
Development

Product
Development

B. Intensive Strategies
1.

Market Penetration seeking increased market share

for present products or services in present markets
through greater marketing efforts.

2.

Market Development introducing present products or

services into new geographic area.

3.

Products Development seeking increased sales by

improving present products or services or developing
new ones.

Examples

Market
Penetration

McDonalds is spending
millions on its Shrek the Third
promotion aimed at convincing
consumers it offers healthy
items.

Market
Development

Burger King opened its first

restaurant in Japan.

Product
Development

Google introduced Google

Presents to compete with
Microsofts PowerPoint.

3. DIVERSIFICATION STRATEGIES

Related diversification when the value

chain posses competitively valuable across
business strategic fits
Related diversification adding new but related
products & services.
Unrelated diversification
unrelated products & services.

adding

new,

Types of Strategies
Related
Diversification
(C)

Diversification
Strategies

Unrelated
Diversification

C. Diversification Strategies
1.

Related Diversification adding new but

related products or services.

2.

Unrelated Diversification adding new,

unrelated products or services.

Examples

Related
Diversification
Unrelated
Diversification

MGM Mirage is opening its first

noncasino luxury hotel.
Ford Motor Company entered
the industrial bank business.

4. DEFENSIVE STRATEGIES
Turnaround or reorganizational strategy.
Closure departments, change of portfolio
i.

Retrenchment -government agency cutting back operations or

laying off workers

ii.

Divestiture - The partial or full disposal of a business unit through

sale, exchange, closure or bankruptcy

iii.

Liquidation - the process by which a company (or part of a

company) is brought to an end, and the assets and property of
the company are redistributed

Types of Strategies
Retrenchment

(D)

Defensive
Strategies

Divestiture

Liquidation

D. Defensive Strategies
1.

Retrenchment regrouping through cost and asset

reduction to reverse declining sales and profit.

2.

Divestiture selling a division or part of an

organization.

3.

Liquidation selling all of a companys assets, in parts,

for their tangible worth.

TYPES OF STRATEGY IN PUBLIC

SECTOR

The

public sector systems had been outlined

long time ago which create bureaucratic pattern
of thinking and behaviour.

Thus

strategy is important, with todays fast

changing
world,
globally
competitive
information age, systems that cannot change
are doomed to failure.

OSBORNE AND PLASTRIKS TYPOLOGY OF PUBLIC

SECTOR STRATEGIES

OSBORNE AND PLASTRIKS TYPOLOGY OF PUBLIC

SECTOR STRATEGIES

MALAYSIAN GOVERNMENTS STRATEGY

In ensuring the effectiveness and efficiency of

the public sector, in 1980s, government has took
several reform in order to improve the quality of
services provided by public sector agencies.

This also has led to the government reform

strategy. This can be seen where there were
major changes in administration of the
government.

EXAMPLE OF GOVERNMENT REFORM

STRATEGY

STRATEGIC CHOICE

STRATEGIC CHOICE
In private sector, the strategic choice would be
difficult for the managers because the final
decison of strategic choice will be finalised by
their top management.Therefore they may
have limitation in strategic choice.

In

public sector, the strategic choice mostly

based on the politicians agendas.

Hence, strategy analysis and choice is important to

determine the alternative courses of action that could
best enable the firm to achieve its mission and
objectives.

This can be done by developing SWOT (Strength,

Weakness, Opportunities and Threats) Analysis.
[Please refer to David for further explanation for a
comprehensive strategy formulation framework]

The Strategy-Formulation Analytical

Framework

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6-53

How to select and adopt the right

strategies?
The input stage
EFE, CPM, IFE, Stakeholders demands, government
policy.
The matching stage
SWOT, Annual Budget, available resources, Existing
Act and etc.

The decision stage

Top-bottom decision making, the politicians , the
partys ideology and etc.

A Comprehensive Strategy-Formulation
Framework

Stage 1 - Input Stage

summarizes the basic input information
needed to formulate strategies.
consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM)

Copyright 2013 Pearson Education

6-55

A Comprehensive Strategy-Formulation
Framework

Stage 2 - Matching Stage

focuses on generating feasible alternative strategies
by aligning key external and internal factors.
techniques include the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix, the Strategic
Position and Action Evaluation (SPACE) Matrix, the
Boston Consulting Group (BCG) Matrix, the InternalExternal (IE) Matrix, and the Grand Strategy Matrix

Copyright 2013 Pearson Education

6-56

A Comprehensive Strategy-Formulation
Framework

Stage 3 - Decision Stage

involves the Quantitative Strategic Planning
Matrix (QSPM)
reveals the relative attractiveness of
alternative strategies and thus provides
objective basis for selecting specific
strategies

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6-57

Matching Key External and Internal Factors

to Formulate Alternative Strategies

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6-58

Stage 2: The Matching

Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats

Ch 6 -59

SWOT Matrix
Four Types of
Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

Ch 6 -60

SO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

SO
Strategies

Use a firms
internal strengths
to take advantage
of external
opportunities

Ch 6 -61

WO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

WO
Strategies

Improving internal
weaknesses by
taking advantage
of external
opportunities

Ch 6 -62

ST Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

ST
Strategies

Use a firms
strengths
to avoid or
reduce the impact
of external
threats

Ch 6 -63

WT Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

WT
Strategies

Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
environmental
threats

Ch 6 -64

SWOT Matrix
Developing the SWOT
List firms key internal
Strengths
List firms key internal
Weaknesses
List firms key external
Opportunities
List firms key external
Threats

Ch 6 -65

SWOT Matrix
Strengths S

Weaknesses W

Leave Blank

List Strengths

List Weaknesses

Opportunities O

SO Strategies

WO Strategies

List Opportunities

Use strengths to take

advantage of
opportunities

Overcoming weaknesses
by taking advantage of
opportunities

Threats T

ST Strategies

WT Strategies

List Threats

Use strengths to avoid

threats

Minimize weaknesses and

avoid threats

Ch 6 -66

Matching Key Factors to Formulate Alternative

Strategies
Key Internal
Key External
Resultant
Factor
Factor
Strategy
Excess working
capacity (strength)

Insufficient
capacity (weakness)

Strong R&D
(strength)

Poor employee
morale (weakness)

20% annual growth

in the cell phone
industry
(opportunity)

Exit of two major

foreign
competitors form
the industry
(opportunity)

Acquire Cellfone,
Inc.

Pursue horizontal
integration by buying
competitor's
facilities

Decreasing numbers
+ of young adults
=
(threat)

Develop new products

for older adults

Strong union
activity
(threat)

Develop a new
employee benefits
package

Ch 6 -67

TUTORIAL
Can you think any example of strategy used by
public sector?

What are the main focus and consideration?

Example?
MITI- SM&SP.pdf

Face your past without regret...handle your present with

confidence...and prepare for the future without fear.

Ch 6 -69

End of Topic 6
ANY
QUESTION?

Ch 6 -70