Strategic Management: Formulation and Implementation

Strategic Decision Making Aids

The essence of strategy formulation is an assessment of whether an organization is doing the right things and how it can be more effective in what it does. Strategic analysis and choice largely involves making subjective decisions based on objective information.

There are some commonly accepted tools and concepts that can help strategists generate feasible alternatives, evaluating those alternatives, and choose a specific course of action. These tools and concepts may be viewed as strategic making aids.

A Manager's Guide For Evaluating Competitive Analysis Techniques

The efficient selection of appropriate techniques for a particular situation depends on a three-phase process of awareness and choice:

* First, what relevant techniques are available and how do they relate to one another?

* Second, what is the focus and scope of the competitive arena of interest?

* Third, what constraints on time and other resources limit the extent of analyses that can be undertaken?

In order to assist and apply competitive analysis techniques, John Prescott and John Grant developed a reference guide consisting in part of profiles describing various competitive analysis techniques.

The utilization profiles array a diverse set of 21 techniques and evaluate them along 11 important dimensions.

The techniques described below are sequenced beginning with broad industry-level techniques and moving to narrower functional area techniques.

Political and country risk analysis assesses the types (asset, operational, profitability, personnel) and extent of risks from operating in foreign countries.

Industry scenarios develop detailed, internally consistent descriptions of what various future structures of the industry may be like.

The economists' model of industry attractiveness analyzes the five basic forces (bargaining power of suppliers and customers, threat of substitute products, threat of entry, and industry rivalry) driving industry competition.

BCG industry matrix identifies the attractiveness of an industry based on the number of potential sources for achieving a competitive advantage and the size of the advantage that a leading business can achieve.

Industry segmentation identifies discrete pockets of competition within an industry. The bases of segment identification are often product variety, buyer characteristics, channels of distribution, and geography.

PIMS is an ongoing data base of the Strategic Planning Institute which collects data describing business unit's operating activities, their industries and competitors, their products and customers. The purpose is to assist planning efforts of the participating businesses.

A technological assessment develops an understanding of the technological relationships and changes occurring in an industry.

Multipoint competition analysis explores the implications of a situation in which diversified firms compete against each other in several markets.

Critical success factor analysis identifies the few areas in which a business must do adequately in order to buy successful.

A strategic group analysis identifies groups of business which follow similar strategies, have similar administrative systems, and tend to be affected by and respond to competitive moves and external events in similar ways.

A value chain analysis and field maps identify the costs, operating characteristics, and interrelationships of a business's primary activities (that is, inbound logistics, operations, outbound logistics, marketing and sales, service) and supporting activities (that is, firm infrastructure, human resource management, technological development, procurement).

Experience curves show the costs of producing a product (service) decrease in a regular manner as the experience of producing it increases. The decrease in costs occurs over the total life of a product.

Stakeholder analysis and assumption surfacing and testing identify and examine any individual or group goals that affect or are affected by the realization of the businesses' goals.

Market signaling is any action by a competitor that provides a direct or indirect indication of its intensions, motives, goals, or internal situation.

Portfolio analysis locates a corporation's businesses along dimensions of industry attractiveness and competitive position to help managers to make resource allocation decisions and to evaluate future cash flows and profitability potential.

Strengths and weaknesses analysis identifies advantages and deficiencies in resources, skills, and capabilities for a business relative to its competitors.

Synergy analysis examines tangible (raw material, production, distribution) and intangible (management know-how, reputation) benefits of shared activities among business units.

Financial statement analysis assesses both the short-term health and long-term financial resources of a firm.

Value-based planning evaluate strategies and strategic moves in the light of their probable stock market effects and financing implications. (It does not refer to managerial values in this usage).

Management profiles examine the goals, backgrounds, and personalities of the individuals making strategic decision in a competing firm or institution.

Reverse engineering is purchasing and dismantling a competitor's product to identify how it was designed and constructed so that costs and quality can be estimated.

This description of techniques, evaluation dimensions, and information types should provide managers with helpful guidance in making competitive analyses.

Detailed descriptions of the particular techniques can be found in Ball (1987), Bonoma and Shapiro (1983), Desta (1985), Freeman (1984) Fruhan (1979), Grant (1982), Hall and Howell (1985), Hax and Majluf (1984), Hayes and Wheelwright (1979a),Hayes and Wheelwright (1979b), Hofer and Haller (1980), Hofer and Schendel (1978), Kaiser (1984), Karnani and Wernerfelt (1985), Leidecker and Bruno (1984),McGee and Thomas (1986), Miller (1983), Pekar (1982), Petrov (1982), Porter(1980)and (1985), Prescott (1987), Ramanujam and Venkatraman (1984), Reimann (1986), Rockart (1979), Rowe, Mason and Dickel (1985), Schoeffler, Buzzell and Heany (1974), Stevenson (1985), Wack (1985a) and (1985b), Wagner (1984), Washington Researchers (1983).

In this chapter, I shall discuss a several portfolio techniques to help managers with one of the most challenging aspects of the strategic management process: sitting priorities and providing a basis for resource allocation.

However, basic to understanding the significance of portfolio approach is analysis of the concept of the product of life cycle, the experience curve and the Porter Curve.