Strategic Management II - Portfolio Analysis and Strategic Choice

Strategic Management –II
(MS 404)
Portfolio Analysis and Strategy Choice
Arup Kumar Baksi

Associate Professor
Dept. of Management & Business Administration
Aliah University, Kolkata, West Bengal
Email: [email protected]
Strategic Analysis & Choice
 Re-visit the Mission
 Revise, create, or maintain mission
 Set Long-Term Objectives
 Generate feasible alternatives
 Evaluate alternatives
 Choose courses of action
The Strategy Formulation Analytical
Framework
Stage 1: The Input Stage

External Analysis Internal Analysis
SWOT Analysis
Stage 2: The Matching Stage

Re-visit Mission and Set Long Term Objectives
Generate feasible alternative Corporate Strategies
Stage 3: The Decision Stage

Evaluate and Choose Corporate Strategies
Create, Revise Mission Statement
 Statement of the purpose of the organization
 Describes the organization in terms of:
 Customers
 Products or services
 Markets
 Basic
beliefs about growth, public image,
employees
 Remember Hershey’s evolving Mission Statement
 Purpose of Mission:
 Communication Tool
 Decision-Making Tool
Quantitative Areas
 Profitability
 Net profit margin; ROI; ROE
 Productivity
 Lower costs (% of sales CGS, S&A)
 Activity ratios
 Growth
 Increases in sales, assets, net income
 Competitive Position
 Market Share
continued ……..
 Technological Leadership
 Shareholder Wealth
EPS; Dividends; Shareholder
Value (stock)
 Industry specific metrics

Qualitative Areas
 Employee Relations
 Social Responsibility
 Reputation
 These areas have long term objectives

that can be measured.
Corporate Strategies
THE OVERALL MANAGERIAL GAME PLAN.
HOW MANAGEMENT PLANS TO ACHIEVE MISSION

AND OBJECTIVES.
Alternatives for Growth
Market Penetration
Market Development
Product Development
Expansion
of existing
Businesses Vertical
Integration -
Alternatives Forward & Backward
for Growth
Related
Diversification
into new
Businesses
Unrelated
Modes of Growth
 Internal development
 Acquiring firms/businesses
 Collaborative arrangements
 Strategic Alliances
 Joint Ventures
 Licensing
Repositioning Strategies
 Retrenchment
 Assets and/or costs
 Divestiture
 Spin-offs
Termination Strategies
 Liquidation
 Merger
 Being acquired
and Choosing
Corporate
Strategies
1. PORTFOLIO ANALYSIS
The BCG Matrix
Relative Market Share Position in the Industry

High Medium Low
1.0 .50 0.0
High +20
Stars (II) Question Marks (I)
Industry
Sales
Growth ?
Rate Medium 0
(Percent) Cash Cows (III) Dogs (IV)
Low -20
GE Competitive Position (1. Market Share; 2. Technological
MATRIX Know-How; 3. Product Quality; 4. Service Network;
1. Market growth; 2. market size; 3. Capital
5. Price Competitiveness; 6. Operating Costs
requirements; 4. Competitive Intensity
Good Medium Poor
Industry Attractiveness
High Winner Winner ???????
Medium Winner Average Loser

Business
Profit
Low Loser
Producer Loser
PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX
Competitive Position Strong Average Weak
Development B1
Growth
Stage B4
of
Industry Shakeout
Maturity/ B2
Saturation
B3
B3
Decline
Advantages of Portfolio Analyses
 Encourages top management to evaluate each

business individually; to set objectives; and
consider resources.
 It stimulates use of external data to supplement
management’s judgment.
 Its graphic representation makes interpretation
and communication easier.
Limitations of Portfolio Analyses
 Defining product/market segments isn’t easy.

 Using standard strategies may miss opportunities or
be impractical.
 Providing an illusion of scientific rigor masks the
reality that positions are based on subjective
judgments.
 Determining what makes an industry attractive isn’t
always possible.
More Tools
 2. Past Performance
% increase in sales
 Contribution Margin
Sales or profit (gross, operating, net)
 Continue to do what doing
 3. Mission and Long Term Objectives
More Tools
4. MATRICES
SWOT or TOWS Matrix
Internal Analysis External Analysis
SO Strategies
Strengths Opportunities
ST Strategies WO Strategies
WT Strategies
Weaknesses Threats
Matching Key External and Internal Factors to
Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
Excess working 20% annual growth in the

Acquire
capacity (an internal + cablevision industry (an =
Visioncable
strength) external opportunity)
Exit of two major foreign Buy competitors’

Insufficient capacity
+ competitors from the = facilities
(an internal
industry (an external
weakness)
opportunity
Decreasing numbers of Develop new
Strong R & D
+ young adults (an external products for older
expertise (an =
threat) adults
internal strength)
Poor employee Strong union activity (an Develop a new

+ =
morale (an internal external threat) employee-benefits
weakness) package
The TOWS Matrix
STRENGTHS - S WEAKNESSES - W
List strengths List weaknesses
OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES
Use strengths to take Overcome weaknesses

List opportunities advantage of by taking advantage of
opportunities opportunities
THREATS - T ST STRATEGIES WT STRATEGIES
List threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Other Portfolio Matrices
 Internal Factor Evaluation (IFE)

 External Factor Evaluation (EFE)
 Competitive Profile Matrix (CPM)
 Strategic Position and Action Evaluation
(SPACE)
 Internal-External
 Grand Strategy
Other Tools (continued…)
 5. Economic Value Added (EVA)
 6. Scenario Analysis
 7. Game Theory
 8. Quantitative Decision Techniques
 Linear Programming, etc.
 9. Computer Assisted
 Decision Support Systems (DSS)
 Artificial Intelligence (AI)
Behavioral Aspects/Tools
 Propensity for risk
 Personal Agendas
 Personalities
 Time Pressures
 Reputation/Integrity
 Imagination/Conceptualizations
 Support/Coalitions
Core
Competencies
Core Competencies of the
Corporation
 Real sources of advantage - not based on
businesses.
 Core competencies are collective learning in the
organization, especially:
 how to coordinate diverse production skills by
integrating multiple streams of technologies.
Tests to identify core
competencies
 Provide potential access to a wide variety of
markets/products/services.
 Are difficult to imitate.
 Are driven by knowledge and learning.

examples
Core Competencies Products/businesses
 Engines  Cars; motorcycles;
lawn mowers;
 Powertrains
generators
 Optics
 Copiers; laser printers;
 Imaging cameras; image
 Microprocessor scanners; medical
controls imaging
More kinds of core
competencies:
 Systems Integration
 Virtual reality
 Bioengineering
 Delighting the customer
Strategic
Analysis and
Choice
Summary
MAKING SUBJECTIVE DECISIONS BASED ON OBJECTIVE
INFORMATION, AND SUBJECTIVE INTERPRETATION

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What is the strategic analysis and choice framework?

What is the strategic analysis and choice framework?

What are some tools used for portfolio analysis?

What are some tools used for portfolio analysis?

Strategic Management –II

Portfolio Analysis and Strategy Choice

Arup Kumar Baksi

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

 Industry specific metrics

 These areas have long term objectives

THE OVERALL MANAGERIAL GAME PLAN.

HOW MANAGEMENT PLANS TO ACHIEVE MISSION

Relative Market Share Position in the Industry

High Winner Winner ???????

Medium Winner Average Loser

 Encourages top management to evaluate each

 Defining product/market segments isn’t easy.

Internal Analysis External Analysis

Key Internal Factor Key External Factor Resultant Strategy

Excess working 20% annual growth in the

Exit of two major foreign Buy competitors’

Poor employee Strong union activity (an Develop a new

List strengths List weaknesses

OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES

Use strengths to take Overcome weaknesses

THREATS - T ST STRATEGIES WT STRATEGIES

List threats Use strengths to avoid Minimize weaknesses

 Internal Factor Evaluation (IFE)

 Are difficult to imitate.

 Are driven by knowledge and learning.

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