Strategy Analysis and Choice
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Strategy Analysis and Choice Learning Outcomes After Af ter studying this unit, you should be able to do the following:
Describe a three stage framework for choosing among alternative strategies.
Explain how to develop a S!" #atrix, S$A%E S$A%E #atrix, &%' #atrix, (E #atrix and )S$#
(dentif ify y importan antt bevioural, political, ethical and responsibility responsib ility considerations in strategy analysis and choice.
Discuss the role of intuition in strategic analysis and choice.
Discuss the role of organisational culture in strategic analysis and choice
Discuss the role of board of directors in choosing among alternative strategies.
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The Process of Generating and Selecting Strategies Strategists never consider all feasible alternatives that could bene*t the *rm *rm becaus because e there there are are an in*nit in*nite e number number of possib possible le action actions s and an in*n in*nit ite e numb number er of ways ways to imple impleme ment nt thos those e acti action ons. s. "her "heref efor ore, e, a manage manageabl able e set of the most most attra attracti ctive ve alter alternat native ive strate strategie gies s must must be deve develo lope ped. d. "he "he adva advant ntag ages es,, disa disadv dvan anta tage ges, s, trad trade+o e+os s,, cost costs, s, and and bene*ts of these strategies should be determined. determined. "his section discusses discusses the the proc proces ess s that that many many *rms *rms us use e to dete deterrmine mine an appr approp opri riat ate e set set of alternative strategies.
(dentifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organi-ational visi vision on and and miss missio ion n stat statem emen ents ts,, perf perfor orme med d the the exte exterrnal nal audi audit, t, and and conducted the internal internal audit. epresentatives from from each department and division division of the *rm should be included in this process, process, as was the case in Strategic Management Management in Health
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previous strategy+formulation activities. ecall that involvement provides the best opportunity for managers and employees to gain an understanding of what the *rm is doing and why and to become committed to helping the *rm accomplish ob0ectives.
All participants in the strategy analysis and choice activity should have the *rm1s external and internal audit information by their sides. "his information, coupled with the *rm1s mission statement, will help participants crystalli-e in their own minds particular strategies that they believe could bene*t the *rm most. %reativity should be encouraged in this thought process.
Alternative strategies proposed by participants should be considered and discussed in a meeting or series of meetings. $roposed strategies should be listed in writing. hen all feasible strategies identi*ed by participants are given and understood, the strategies should be ranked in order of attractiveness by all participants, with / 2 should not be implemented, 3 2 possibly should be implemented, 4 2 probably should be implemented, and 5 2 de*nitely should be implemented. "his process will result in a prioriti-ed list of best strategies that re6ects the collective wisdom of the group.
A Com"rehensi#e Strategy$%ormulation %rame&or' (mportant strategy+formulation techni7ues can be integrated into a three+ stage decision+making framework. "he tools presented in this framework are applicable to all si-es and types of organi-ations and can help strategists identify, evaluate, and select strategies.
Stage / of the formulation framework consists of the E8E #atrix, the (8E #atrix, and the %ompetitive $ro*le #atrix 9%$#. %alled the (nput Stage, Stage / summari-es the basic input information needed to formulate strategies.
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Stage 3, called the #atching stage, focuses upon generating feasible alternative strategies by aligning key external and internal factors. Stage 3 techni7ues include the Strengths+eaknesses+!pportunities+"hreats 9S!" #atrix, the Strategic $osition and Action Evaluation 9S$A%E #atrix, the &oston %onsulting 'roup 9&%' #atrix, the (nternal+External 9(E #atrix, and the 'rand Strategy #atrix.
Stage 4, called the Decision Stage, involves a single techni7ue, the )uantitative Strategic $lanning #atrix 9)S$#. A )S$# uses input information from Stage / to ob0ectively evaluate feasible alternative strategies identi*ed in Stage 3. A )S$# reveals the relative attractiveness of alternative strategies and thus provides ob0ective basis for selecting speci*c strategies.
All nine techni7ues included in the strategy+formulation framework re7uire the integration of intuition and analysis. Autonomous divisions in an organi-ation commonly use strategy+formulation techni7ues to develop strategies and ob0ectives. Divisional analyses provide a basis for identifying, evaluating, and selecting among alternative corporate+level strategies.
Strategists themselves, not analytic tools, are always responsible and accountable for strategic decisions. ;en- emphasi-ed that the shift from a words+oriented to a numbers+oriented planning process can give rise to a false sense of certainty< it can reduce dialogue, discussion, and argument as a means for exploring understandings, testing assumptions, and fostering organi-ational learning. Strategists, therefore, must be wary of this possibility and use analytical tools to facilitate, rather than to diminish, communication. ithout ob0ective information and analysis, personal biases, politics, emotions, personalities, and halo error 9the tendency to put too much weight on a single factor unfortunately may play a dominant role in the strategy+formulation process.
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"he information derived from these three matrices provides basic input information for the matching and decision stage matrices described later in this chapter.
"he input tools re7uire strategists to 7uantify sub0ectivity during early stages of the strategy+formulation process. #aking small decisions in the input matrices regarding the relative importance of external and internal factors, allows strategists to more eectively generate and evaluate alternative strategies. 'ood intuitive 0udgment is always needed in determining appropriate weights and ratings.
The Matching Stage Strategy is sometimes de*ned as the match an organi-ation makes between its internal resources and skills and the opportunities and risks created by its external factors. "he matching stage of the strategy+ formulation framework consists of *ve techni7ues that can be used in any se7uence: the S!" #atrix, the S$A%E #atrix, the &%' #atrix, the (E #atrix, and the 'rand Strategy #atrix. "hese tools rely upon information derived from the input stage to match external opportunities and threats with internal strengths and weaknesses. #atching external and internal critical success factors is the key to eectively generating feasible alternative strategies.
Any organi-ation, whether military, product+oriented, service+oriented, governmental, or even athletic, must develop and execute good strategies to win. A good oense without a good defense, or vice versa, usually leads to defeat. Developing strategies that use strengths to capitali-e on opportunities could be considered an oense, whereas strategies designed to improve upon weaknesses while avoiding threats could be termed defensive. Every organi-ation has some external opportunities and threats and internal strengths and weaknesses that can be aligned to formulate feasible alternative strategies.
The Strengths$)ea'nesses$O""ortunities$Threats *S)OT+ Matri,
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"he Strengths+eaknesses+!pportunities+"hreats 9S!" #atrix is an important matching tool that helps managers develop four types of strategies: S! 9strengths+opportunities Strategies, ! 9weaknesses+ opportunities Strategies, S" 9strengths+threats Strategies, and " 9weaknesses+threats Strategies. #atching key external and internal factors is the most di=cult part of developing a S!" #atrix and re7uires good 0udgment+++and there is no one best set of matches.
S! Strategies use a *rm1s internal strengths to take advantage of external opportunities. All managers would like their organi-ations to be in a position in which internal strengths can be used to take advantage of external trends and events. !rgani-ations generally will pursue !, S", or " strategies to get into a situation in which they can apply S! Strategies. hen a *rm has ma0or weaknesses, it will strive to overcome them and make them strengths. hen an organi-ation faces ma0or threats, it will seek to avoid them to concentrate on opportunities.
! Strategies aim at improving internal weaknesses by taking advantage of external opportunities. Sometimes key external opportunities exist, but a *rm has internal weaknesses that prevent it from exploiting those opportunities. 8or example, there may be a high demand for electronic devices to control the amount and timing of fuel in0ection in automobile engines 9opportunity, but a certain auto parts manufacturer may lack the technology re7uired for producing these devices 9weakness. !ne possible ! Strategy would be to ac7uire this technology by forming a 0oint venture with a *rm having competency in this area. An alternative ! Strategy would be to hire and train people with the re7uired technical capabilities.
S" Strategies use a *rm1s strengths to avoid or reduce the impact of external threats. "his does not mean that a strong organi-ation should always meet threats in the external environment head+on. An example of S" Strategy occurred when "exas (nstruments used an excellent legal department 9a strength to collect nearly >?@@ million in damages and royalties from nine apanese and Borean *rms that infringed on patents for semiconductor memory chips 9threat. ival *rms that copy ideas, innovations, and patented products are a ma0or threat in many industries. "his is still a ma0or problem for C.S. *rms selling products in %hina. Strategic Management in Health
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" Strategies are defensive tactics directed at reducing internal weakness and avoiding external threats. An organi-ation faced with numerous external threats and internal weaknesses may indeed be in a precarious position. (n fact, such a *rm may have to *ght for its survival, merge, retrench, declare bankruptcy, or choose li7uidation.
A schematic representation of the S!" #atrix is provided in 8igure +4. Fote that a S!" #atrix is composed of nine cells. As shown, there are four key factor cells, four strategy cells and one cell that is always left blank 9the upper+left cell. "he four strategy cells, labeled S!, !, S", and ", are developed after completing four key factor cells, labeled S, , !, and ". "here are eight steps involved in constructing a S!" #atrix: /. ;ist the *rm1s key external opportunities. 3. ;ist the *rm1s key external threats. 4. ;ist the *rm1s key internal strengths. 5. ;ist the *rm1s key internal weaknesses. . #atch internal strengths with external opportunities, and record the resultant S! Strategies in the appropriate cell. . #atch internal weaknesses with external opportunities, and record the resultant ! Strategies. ?. #atch internal strengths with external threats, and record the resultant S" Strategies. G. #atch internal weaknesses with external threats, and record the resultant " Strategies.
The -ecision Stage Analysis and intuition provide a basis for making strategy+formulation decisions. "he matching techni7ues 0ust discussed reveal feasible alternative strategies. #any of these strategies will likely have been proposed by managers and employees participating in the strategy analysis and choice activity. Any additional strategies resulting from the Strategic Management in Health
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matching analyses could be discussed and added to the list of feasible alternative options. As indicated earlier in this chapter, participants could rate these strategies on a / to 5 scale so that a prioriti-ed list of the best strategies could be achieved.
Cultural As"ects of Strategy Choice All organi-ations have a culture. %ulture includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a *rm. %ulture is the uni7ue way an organi-ation does business. (t is the human dimension that creates solidarity and meaning, and it inspires commitment and productivity in an organi-ation when strategy changes are made. All human beings have a basic need to make sense of the world, to feel in control, and to make meaning. hen events threaten meaning, individuals react defensively. #anagers and employees may even sabotage new strategies in an eort to recapture the status 7uo.
(t is bene*cial to view strategic management from a cultural perspective because success often rests upon the degree of support that strategies receive from a *rm1s culture. (f a *rm1s strategies are supported by cultural products such as values, beliefs, rites, rituals, ceremonies, stories, symbols, language, heroes, and heroines, then managers often can implement changes swiftly and easily. However, if a supportive culture does not exist and is not cultivated, then strategy changes may be ineective or even counterproductive. A *rm1s culture can become antagonistic to new strategies, and the result of that antagonism may be confusion and disarray.
Strategies that re7uire fewer cultural changes may be more attractive because extensive changes can take considerable time and eort. henever two *rms merge, it becomes especially important to evaluate consider culture+strategy linkages. 8or example, Hewlett+$ackard 9H$ and %ompa7 merged, and their company cultures were 7uite dierent. %ompa71s culture was top+downIoriented, whereas the H$ culture, called the JH$ ay,K was based on Jmanagement by walking around.K %ompa7 was a marketer that spent only 4. percent of revenues on LD, whereas Strategic Management in Health
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H$ is an inventor that spends percent of its revenues annually on LD. %ompa7 focused on a few ma0or products, whereas H$ boasts a wide array of products in many categories. %ompa71s management style was described as outgoing, whereas H$1s is introspective and analytical. %ompa71s workforce was highly competitive, aggressive, and took risks, whereas the H$ ay is to base decisions more on experience, professionalism, and careful analysis.
The Politics of Strategy Choice All organi-ations are political. Cnless managed, political maneuvering consumes valuable time, subverts organi-ational ob0ectives, diverts human energy, and results in the loss of some valuable employees. Sometimes political biases and personal preferences get unduly embedded in strategy choice decisions. (nternal politics aect the choice of strategies in all organi-ations. "he hierarchy of command in an organi-ation, combined with the career aspirations of dierent people and the need to allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of themselves *rst and the organi-ation second, third, or fourth. %oalitions of individuals often form around key strategy issues that face an enterprise. A ma0or responsibility of strategists is to guide the development of coalitions, to nurture an overall team concept, and to gain the support of key individuals and groups of individuals.
(n the absence of ob0ective analyses, strategy decisions too often are based on the politics of the moment. ith development of improved strategy+formation tools, political factors become less important in making strategic decisions. (n the absence of ob0ectivity, political factors sometimes dictate strategies, and this is unfortunate. #anaging political relationships is an integral part of building enthusiasm and esprit de corps in an organi-ation.
A classic study of strategic management in nine large corporations examined the political tactics of successful and unsuccessful strategists. Successful strategists were found to let weakly supported ideas and proposals die through inaction and to establish additional hurdles or tests for strongly supported ideas considered unacceptable but not openly Strategic Management in Health
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opposed. Successful strategists kept a low political pro*le on unacceptable proposals and strived to let most negative decisions come from subordinates or a group consensus, thereby reserving their personal vetoes for big issues and crucial moments. Successful strategists did a lot of chatting and informal 7uestioning to stay abreast of how things were progressing and to know when to intervene. "hey led strategy but did not dictate it. "hey gave few orders, announced few decisions, depended heavily on informal 7uestioning, and sought to probe and clarify until a consensus emerged.
Successful strategists generously and visibly rewarded key thrusts that succeeded. "hey assigned responsibility for ma0or new thrusts to champions, the individuals most strongly identi*ed with the idea or product and whose futures were linked to its success. "hey stayed alert to the symbolic impact of their own actions and statements so as not to send false signals that could stimulate movements in unwanted directions.
Successful strategists ensured that all ma0or power bases within an organi-ation were represented in, or had access to, top management. "hey inter0ected new faces and new views into considerations of ma0or changes. "his is important because new employees and managers generally have more enthusiasm and drive than employees who have been with the *rm a long time. Few employees do not see the world the same old way< nor do they act as screens against changes. Successful strategists minimi-ed their own political exposure on highly controversial issues and in circumstances in which ma0or opposition from key power centers was likely. (n combination, these *ndings provide a basis for managing political relationships in an organi-ation.
&ecause strategies must be eective in the marketplace and capable of gaining internal commitment, the following tactics used by politicians for centuries can aid strategists: •
./ui0nality+++(t is often possible to achieve similar results using dierent means or paths. Strategists should recogni-e that achieving a successful outcome is more important than imposing the method of achieving it. (t may be possible to generate new
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alternatives that give e7ual results but with far greater potential for gaining commitment. •
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•
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Satisfying+++Achieving satisfactory results with an acceptable strategy is far better than failing to achieve optimal results with an unpopular strategy. Generali1ation+++Shifting focus from speci*c issues to more general ones may increase strategists1 options for gaining organi-ational commitment. %ocus on Higher+!rder (ssues+++&y raising an issue to a higher level, many short+term interests can be postponed in favor of long+ term interests. 8or instance, by focusing on issues of survival, the airline and automotive industries were able to persuade unions to make concessions on wage increases. Pro#ide Political Access on (m"ortant (ssues+++Strategy and policy decisions with signi*cant negative conse7uences for middle managers will motivate intervention behavior from them. (f middle managers do not have an opportunity take a position on such decisions in appropriate political forums, they are capable of successfully resisting the decisions after they are made. $roviding such political access provides strategists with information that otherwise might not be available and that could be useful in managing intervention behavior.
Go#ernance (ssues A Jdirector,K according to ebster1s Dictionary, is Jone of a group of persons entrusted with the overall direction of a corporate enterprise.K A board of directors is a group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who look out for shareholders1 interests. "he act of oversight and direction is referred to as governance. "he Fational Association of %orporate Directors de*nes governance as Jthe characteristic of ensuring that long+term strategic ob0ectives and plans are established and that the proper management structure is in place to achieve those ob0ectives, while at the same time making sure that the structure functions to maintain the corporation1s integrity, reputation, and responsibility to its various constituencies.K "his broad scope of responsibility for the board shows how boards are being held accountable Strategic Management in Health
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for the entire performance of the *rm. (n the orldcom, "yco, and Enron bankruptcies and scandals, the *rms1 boards of directors were sued by shareholders for mismanaging their interests. Few accounting rules in the Cnited States and Europe are being passed to enhance corporate+ governance codes and to re7uire much more extensive *nancial disclosure among publicly+held *rms.
Cntil recently, boards of directors did most of their work sitting around polished wooden tables. However, Hewlett+$ackard1s directors, among many others, now log onto their own special board eb site twice a week and conduct business based on extensive con*dential brie*ng information posted there by the *rm1s top management team. "hen the board members meet face to face and fully informed every two months to discuss the biggest issues facing the *rm. "he JE+%ommerce $erspectiveK focuses on Jdoing governance online.K
"oday, boards of directors are composed mostly of outsiders who are becoming more involved in organi-ations1 strategic management. "he trend in the Cnited States is toward much greater board member accountability with smaller boards, now averaging /3 members rather than /G as they did a few years ago. &usinesseek recently evaluated the boards of most large C.S. companies and provided the following Jprinciples of good governanceK: /. Fo more than two directors are current or former company executives. 3. Fo directors do business with the company or accept consulting or legal fees from the *rm. 4. "he audit, compensation, and nominating committees are made up solely of outside directors. 5. Each director owns a large e7uity stake in the company, excluding stock options. . At least one outside director has extensive experience in the company1s core business and at least one has been %E! of an e7uivalent+si-e company.
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. 8ully employed directors sit on no more than four boards and retirees sit on no more than seven. ?. Each director attends at least ? percent of all meetings. G. "he board meets regularly without management present and evaluates its own performance annually. M. "he audit committee meets at least four times a year. /@. "he board is frugal on executive pay, diligent in %E! succession oversight responsibilities, and prompt to act when trouble arises. //.
"he %E! is not also the %hairperson of the &oard.
/3. Shareholders have considerable power and information to choose and replace directors. /4.
Stock options are considered a corporate expense.
/5. "here are no interlocking directorships 9where a director or %E! sits on another director1s board.
2ote: All notes for this cha"ter are sourced from the follo&ing te,t 3oo': -a#id4 % 574 Strategic Management: Cases and Concepts, Pearson .ducation4 2e& !ersey
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