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Modern tool for analysis of the

situation

Internal factors

External factors

INTERNAL

STRENGTHS (S)

INTERNAL

WEAKNESSES (W)

EXTERNAL

OPPORTUNITIES (O)

SO STRATEGY

MAXIMAXI

(successful strategy)

WO STRATEGY

MINI - MAXI

(Overcome weakness)

EXTERNAL

THREATS (T)

ST STRATEGY

MAXIMINI(Avoid threats)

WT STRATEGY

MINIMINI(Retrenchment

strategy)

TOWS MATRIX FOR STRATEGY FORMULATION

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FOUR ALTERNATIVE

STRATEGIES

WT strategy aims to minimise both

weaknesses and threats

WO strategy attempts to minimise the

weaknesses and maximises opportunities

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ST strategy based on organisations strengths

to deal with threats in the environment

SO strategydesirable situationuse

strengths to take advantage of opportunities

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Time dimensions and the TOWS

matrix

Internal and external environments are

dynamic

Strategic designer must prepare several

TOWS matrices at different points in time

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THE PORTFOLIO MATRIX

A tool for allocating resources

Developed by Boston Consulting Group (BCG)

Linkage between GROWTH RATE OF THE

BUSINESS AND COMPETITIVE POSITION

OF THE FIRM

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Question Marks

Weak market share, High growth rate

Require cash investment

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Stars

High growth, strongly competitive position

Have opportunities for growth, profit

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Cashcows

Strong competitive position, low growth rate

Makes product at low cost

Provide needed cash for operation

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Dogs

Low growth rate and weak market shareNot

profitable, generally disposed of

Developed for large corporations with several

divisions

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Major kinds of strategies and

policies

Growth

How much growth should occur?

How fast?

How should it occur?

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Finance

Clear strategy non business enterprise

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Organisation

How centralised or decentralised?

What kinds of departmental patterns?

How should staff positions be designed?

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Personnel

Human resources and relationships

Union relations, compensation, selection,

training, appraisal

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Public relations

Strategy designed closeness to the public

Fit all organisations and situations

Ex: Two major strategic areas

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Products or Services: Key questions

What is our business?

Who are our customers?

Customers wants?

Product leader?

Develop new products?

Potential competition

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Profits expected?

Basic form of strategy?

Advantages of serving customers

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Marketing

How do customers buy?

How is it best for us to sell?

Offer something that competitors do not?

Supply supporting services?

Best pricing strategy?

Best in serving customers?

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Industry Analysis and competitive

strategies by PORTER

Prof. Michael Porter at Harvard suggested

strategy formulation

Requires analysis of the industry

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Industry analysis

The competition among companies

The threat of new companies entering market

Possibility of using substitute products

Bargaining power of suppliers

Bargaining power of buyers

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Overall cost leadership strategy

Aims at reduction in cost

Based on experience

Close watch on costs in R & D

Objective is to have low cost structure

Ex: Lincoln Electric company produces arc

welding equipment and supplies

Low cost ivory soap sold in a broad market

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Differentiation strategy

Something unique in the industry

Ex: Caterpillar companyavailability of spare

parts

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Focused strategies

Concentrates on special groups of customers

Ex: Specific geographic region

Specific segment of market

Focused low cost strategy

Focused differentiation strategy

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Effective implementation of

strategies

Allocation of resources

Appropriate organisation structure

Effective management information system

(MIS)

Budgeting system

Reward systemsupports the strategy

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Strategic planning failures

Managers inadequately prepare

Information is insufficient

Goalstoo vague

Business units not identified clearly

Reviewnot done effectively

Link insufficient

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Successful implementation of

strategies

Communicating strategies to all key decision

making managers

Developing and communicating planning

premises Ensuring that action plans contribute to and

reflect major objectives and strategies

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Continuing to emphasize planning and

implementation strategy

Creating a company climate that forces

planning

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Premising and forecasting

Planning Premises

Defines as the anticipated environment in

which plans are expected to operate

Include assumptions of forecasts of the future

Forecast is a prerequisite of planning

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Environmental Forecasting

Managers compute the optimum method of

reaching their objective

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Environmental areas

Economic

Social

Political/legal

Technological

Frequently chosen for making forecasts

F ti ith th D l hi

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Forecasting with the Delphi

technique

Developed by Olaf Helmer and his colleagues

at the RAND corporation

Process:

A panel of experts selectedinside andoutside the organisation

Experts are asked to make forecast

Answers are compiled, results fedback topanel members

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Further estimates made

Process repeated

Convergence of opinion begins to evolve

acceptable forecast

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Effective premising

Selection of the premises that bear materially

on the programs

Development of alternative premises for

contingency planning Verification of the consistency of premises

Communication of the premises