Application assignment 2

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Strategic Management Concepts

Chapter 9

Strategy Formulation

Chapter 9: Key Issues

Fundamentals of the SWOT analysis

Human, Organizational, & Physical Resources

Using the SW/OT Matrix to Help Make Strategic Decisions

Using the SCLC Matrix to Help Evaluate Alternatives

Issues in Strategy Formulation

8-1 SWOT Analysis: Strengths and Weaknesses

Strengths (internal)

Weaknesses (internal)

Opportunities (external)

Threats (external)

Purpose of the SWOT: To organize research and perspectives into a useful framework for strategic decision-making.

Strengths and Weaknesses: Key Concepts

Gap analysis identifies the distance between a firm’s current position and its desired position with regard to an internal weakness. When possible, a firm should take action to close the gap, especially when itleaves a firm vulnerable to external threats.

The value chain helps a firm analyze its strengths and weaknesses, and understand how they might translate into competitive advantage or disadvantage.

Firm resources are translated into strengths (or weaknesses) via strategic capabilities, the mechanism through which individuals in an organization coordinates efforts along one or more resources to solve a particular problem.

Sources of Organizational Strengths and Weaknesses

Human Resources: The experience, capabilities, knowledge, skills, and judgment of all the firm’s employees.

Organizational Resources: The firm’s systems and processes, including its strategies at various levels, structure, and culture.

Physical Resources: Plant and equipment, geographic locations, access to raw materials, distribution network, and technology.

9-2 Human Resources

Issues to Consider

Board of directors: Tenure, experience, and present level of investment

Top managers, including the CEO: Background, capabilities, experience

Other managers & employees: Effective HR planning, training & development, turnover, effective performance appraisal (PA)

9-3 Organizational Resources

Issues to Consider

Consistency among corporate, business, and functional strategies

Consistency between organizational strategies and the firm’s mission/goals

Consistency between the firm’s strategies and its culture

Consistency between the firm’s strategies and its structure

Relative position in the industry

9-4 Physical Resources

Issues to Consider

Currency of technology

Quality and sophistication of distribution network

Production capacity

Reliable access to cost-effective sources of supplies

Favorable location(s)

Figure 9-1 VRIO Framework

Resource Characteristic	Definition	Implication
Valuable	Can be employed to exploit an opportunity or neutralize a threat	If only valuable, then there is only parity with rivals. There is no competitive advantage.
Rare	Controlled by one or a few entities	If only valuable and rare, competitive advantage exists but is likely to be temporary.
Inimitable	Costly for rivals to duplicate	If valuable, rare, and inimitable, the firm has the potential for long-term competitive advantage.
Organization	The first possesses the appropriate capabilities to leverage the resource	If valuable, rare and inimitable, and if the firm has the appropriate capabilities, then sustainable competitive advantage can be achieved

9-5 Opportunities and Threats

Whereas strengths and weaknesses are internal, opportunities and threats are external.

Source #1: Application of macroenvironmental forces to the organization.

Source #2: Application of industry analysis (Porter’s five-force model) to the organization

Opportunities and Threats: Pitfall #1 to Avoid

Don’t confuse external opportunities with internal strengths and weaknesses. Factors associated with the firm such as a poor financial position, an ineffective marketing strategy, or a strong brand image are internal factors and therefore must be classified as strengths or weaknesses. In contrast, factors outside the firm such as demographic changes, competitive threats, or recent legislation are external factors and therefore must be classified as opportunities or threats.

Opportunities and Threats: Pitfall #2 to Avoid

Distinguish between opportunities and alternatives. These words are often interchanged in everyday speech, but they are not synonymous.

Opportunities represent the application of macroenvironmental forces to a specific organization. Alternatives emanate from the SW/OT matrix (discussed in Section 9-6) and represent specific courses of action that the organization may choose to pursue.

Case Analysis Steps 16–19: SWOT Analysis

Strengths and weaknesses come from the analysis of the firm’s resources.

Opportunities and threats must be rooted in earlier macroenvironmental or industry analyses.

Do not confuse internal (S&W) and external (O&T) factors.

Do not confuse opportunities with alternatives. Opportunities are external factors that are applied to the firm. Alternatives are specific courses of action the firm can consider and are developed in the next step of the analysis.

9-6 The SW/OT Matrix

The SW/OT matrix utilizes the SWOT analysis to develop strategic alternatives.

Look for combinations of internal and external factors that might lead to an alternative.

Alternatives are evaluated in the subsequent step.

SW/OT Matrix: 4 Categories of Alternatives

Strength–Opportunity: “Offensive” alternatives, utilize a strength to address an opportunity.

Weaknesses–Threat: “Defensive” alternatives, eliminate or minimize a weakness in order to minimize the effect of a threat.

Strength–Threat: Utilize a strength to minimize the effect of a threat.

Weakness–Opportunity: Shore up a weakness to enable the organization to take advantage of an opportunity.

SW/OT Matrix: Hypothetical Example for McDonald’s

SLSC Matrix: Hypothetical Example for McDonald’s

9-7 Issues in Strategy Formulation

Strategic change: Do the benefits outweigh the costs?

Social responsibility and ethics: Is the strategy compatible?

What effect does the change in strategy have on existing resources?

How will competitors respond when the change is implemented?

Blue Ocean Strategy

A growth strategy contingent on inventing or discovering a new industry or industry segment that creates new demand.

Examples include Starbucks, eBay, and Cirque Du Soleil in the coffee house, auction, and circus industries.

Success is not highly dependent on competitive responses, but effective blue ocean strategies require research, creativity, and a lot of savvy.

Case Analysis Steps 20–22: Strategic Alternatives

Use the SW/OT matrix to develop alternatives. Note the specific combination of internal and external factors associated with each alternative. “No strategic change” should also be considered an alternative.

Use the SLSC matrix to evaluate the alternatives.

Evaluate the pros and cons of each alternative.

Select one or more alternatives to implement and explain the rationale in detail, including why others were rejected.