Strategic Guide 18

Strategic Management Guide
Prof. Dr. Ashraf Labib
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The aim of this guide is to equip my AAST&MT MBA students with strategic management
basic information. However, MBA students are required to deeply investigate each topic (Books
and Published Papers). Subjects mentioned on this guide were collected from different sources
namely; Prof. Labib published papers; national and international journal papers, websites and
MBA students’ previous projects. Students are not allowed to distribute this guide by any means.
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Contents
Section 1: Mission, Vision and Generic Strategies ........................................................................................ 7
1. Strategic Management....................................................................................................................... 8
1.1 Generic strategies ................................................................................................................................ 9
1.2 Organization Mission ........................................................................................................................ 12
1.3 Organization Vision .......................................................................................................................... 13
1.4 Board of directors ............................................................................................................................. 14
1.5 Corporate Governance ...................................................................................................................... 14
Section 2: External Environment Analysis .................................................................................................. 17
2. Situational Analysis ........................................................................................................................ 18
2.1 Remote/ Societal Environment ......................................................................................................... 18
2.1.1 Issue Priority Matrix .................................................................................................................. 21
2.2 Industry/ Task Environments ............................................................................................................ 23
2.3 Operating Environment ..................................................................................................................... 26
2.4 Competitive Intelligence ................................................................................................................... 28
Industry Competitive Structure .............................................................................................................. 30
2.4.1 Strategic Group Map .................................................................................................................. 30
2.4.2 Strategic Type............................................................................................................................. 32
2.4.3 Industry Matrix .......................................................................................................................... 33
2.4.4 Four Corner Analyses ................................................................................................................ 34
2.4.5 Value Discipline Triad ............................................................................................................... 37
2.5 Portfolio Analysis .............................................................................................................................. 40
2.5.1 BCG Matrix Model (or growth-share matrix)............................................................................ 40
2.5.2 Industry Attractiveness Matrix................................................................................................... 43
2.6 Issue Priority Matrix .......................................................................................................................... 50
2.7 EFAS Matrix ....................................................................................................................................... 51
Section 3: Internal Environment Analysis ................................................................................................... 53
3 Internal Environment Analysis ....................................................................................................... 54
3.1 Value Chain analysis......................................................................................................................... 54
3.1.1 Financial Ratios .......................................................................................................................... 60
3.2 IFAS Matrix ........................................................................................................................................ 63
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Section 4: Strategic Factors Analysis........................................................................................................... 65

4. Strategic Factors Analysis.................................................................................................................... 66
4.1 VRIO (Value, Rareness, Imitability, Organization) Matrix ................................................................. 66
4.2 SFAS Matrix ....................................................................................................................................... 68
4.3.3 SPACE Matrix Strategic Management Method ......................................................................... 70
4.4 TOWS Analysis................................................................................................................................... 74
4.5 Grand Strategies ................................................................................................................................ 76
4.5.1 Stability Grand Strategies .......................................................................................................... 77
4.5.2 Retrenchment Strategy ............................................................................................................... 78
4.5.3 Combination Strategy ................................................................................................................ 79
4.5.4 Expansion (Growth) Strategies .................................................................................................. 80
4.6 Grand Strategy Matrix....................................................................................................................... 84
Section Five: Strategic Alternatives and Recommended Strategy.............................................................. 85
5. Strategic Alternatives and Recommended Strategy ........................................................................... 86
5.1 Quantitative Strategic Planning Matrix (QSPM) ............................................................................... 86
5.2 Strategic Objectives .......................................................................................................................... 88
Section 6: Implementation & Control ......................................................................................................... 89
6.1 Balanced Scorecard ........................................................................................................................... 90
6.2 Lagging and Leading Measures ......................................................................................................... 92
6.2 Strategy Map ..................................................................................................................................... 93
6.4 Mapping Initiatives to Objectives ..................................................................................................... 94
6.4.1 Marketing Expansion Strategies ................................................................................................ 96
6.5 Stakeholders Matrix (Importance/influence Matrix) ........................................................................ 97
6.6 Initiatives Implementation (Short Term) .......................................................................................... 99
6.7 Organization Structure .................................................................................................................... 100
6.8 Implementation & Control Action Plan........................................................................................... 104
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Table of Tables
Table 1: Remote Environment Outputs ...................................................................................................... 20

Table 2: Issue Priority Matrix ..................................................................................................................... 21
Table 3: Example for Remote Analysis using Issue Priority Matrix .......................................................... 22
Table 4: Example for Industry Analysis using Issue Proiorty Matrix......................................................... 25
Table 5: Operating Environmemts Outputs ................................................................................................ 26
Table 6: Example for Operating Analysis using Issue Priority Matrix ....................................................... 27
Table 7: Industry Success Factors ............................................................................................................... 33
Table 8: BCG Example ............................................................................................................................... 42
Table 9: Industry Attractiveness ................................................................................................................. 44
Table 10: Competitive Strengths................................................................................................................. 46
Table 11: Investment Implications.............................................................................................................. 48
Table 12: Future Direction .......................................................................................................................... 49
Table 13: EFAS Example ........................................................................................................................... 52
Table 14: Value Chain Analysis Activities ................................................................................................. 55
Table 15: Proposed Factors for assessing primary activities ...................................................................... 56
Table 16: Proposed Factors for assessing Support activities ...................................................................... 57
Table 17: Example: Internal Environment Analysis Using VCA ............................................................... 58
Table 18: Internal Environment Priority Rating ......................................................................................... 59
Table 19: Liquidity Ratios .......................................................................................................................... 60
Table 20: Profitability Ratios ...................................................................................................................... 61
Table 21: Leverage Ratios .......................................................................................................................... 62
Table 22: IFAS Example ............................................................................................................................ 64
Table 23: SFAS Matrix ............................................................................................................................... 69
Table 24: SPACE Matrix ............................................................................................................................ 70
Table 25: TOWS Analysis .......................................................................................................................... 75
Table 26: Grand Strategies.......................................................................................................................... 76
Table 27: Quantitative Strategic Planning Matrix (QSPM) ........................................................................ 87
Table 28: Lagging and Leading Measures .................................................................................................. 92
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Table of Figures
Figure 1: Strategic Management Model........................................................................................................ 8

Figure 2: Porter's Generic Strategies........................................................................................................... 12
Figure 3: Competitive Analysis Porter's Five Forces Analysis................................................................... 23
Figure 4: Strategic Group Map ................................................................................................................... 31
Figure 5: Four Corners Analysis ................................................................................................................. 34
Figure 6: Four Corner Analysis Example ................................................................................................... 36
Figure 7: Value Discipline Model ............................................................................................................... 37
Figure 8: Value Discipline Triad Example ................................................................................................. 39
Figure 9: BCG Matrix ................................................................................................................................. 40
Figure 10: BCG Example............................................................................................................................ 42
Figure 11: Industry Attractiveness .............................................................................................................. 43
Figure 12: Competitive Strengt Matrix ....................................................................................................... 47
Figure 13: VRIO ......................................................................................................................................... 67
Figure 14: SPACE Matrix ........................................................................................................................... 71
Figure 15: Global Integration Verses National Responsiveness ................................................................. 83
Figure 16: Grand Strategy Matrix ............................................................................................................... 84
Figure 17: Rational For BSC ...................................................................................................................... 90
Figure 18: Vision and Strategy ................................................................................................................... 91
Figure 19: Strategy Map ............................................................................................................................. 93
Figure 20: Strategy Map for a Fictitious Distribution Company ................................................................. 94
Figure 21: Mapping Initiatives to Objectives ............................................................................................. 94
Figure 22: Stakeholders Matrix................................................................................................................... 97
Figure 23: Functional Structure ................................................................................................................ 100
Figure 24: Divisional Structure .................................................................................................................. 101
Figure 25: Hybrid Matrix .......................................................................................................................... 102
Figure 26: Hybrid Structure ...................................................................................................................... 103
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Section 1: Mission, Vision and Generic

Strategies
 Generic Strategies (Competitive Strategies)
 Mission
 Vision
 Board of Directors
 Corporate Governance
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1. Strategic Management
Strategic Management can be defined as a Set of Decisions and Actions that result in the
Formulation and Implementation of plans designed to achieve a company Objectives. In
addition, strategic Management has several dimensions namely:
 Require top management decision (Broad Implication);
 Consume Large amount of firm resources;
 Affect the firm LT success;
 Future oriented (Based on Forecast To Proactive Change);
 Multifunctional/Business Consequences (SBUs);
 Consider External Environment.
Strategic Management has a significant influence on organization performance as Mangers at All

Levels are involved in Planning and Implementation. Therefore, it Prevent Problems; ensure that
Decisions drawn from best alternatives; Motivate Employees; and reduce resistance to.
Consequently, a level of formality is required. Formality is degree to which participants,
responsibilities, authority in decision making are specified. Forces determine formalities are:
 Organization Size
 Management style
 Complexity of environment, production, problem.
External
Analysis
Long Generate, Strategy
Develop Strategy
Evaluate, Monitor
Mission & Term Implement
and Select and
Vision ation
Objectives Strategies control
Internal
Analysis
Figure 1: Strategic Management Model
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Organization Competitive Advantage; Mission and Vision

Organizations within same environment have to differentiate themselves in order to accomplish
advantage over competitors with the ultimate goal to compete and survive. Therefore,
organization founders and board of directors should continuously ensure the alignment between
existing organization objectives and its stakeholders (customers, employees, suppliers,
distributors, stockholders, society,…etc.) requirements. In addition, clear competitive advantage
should be maintained and communicated to all stakeholders. Answering the mentioned below
questions could support decision maker to ensure the alignment between organization policies
and objectives and its stakeholders requirements.
 Who is our customer?

 Who are our stakeholders?
 What are our Stakeholders needs?
 What does Future Expectations mean?
 Which criteria are controlled / uncontrolled?
 What about Sustainability?
 Why continuous improvement?
1.1 Generic strategies

Organization resources have been defined as the structural and infrastructural elements that
support organizations to implement their strategies in order to enhance their efficiency,
effectiveness and competitive advantage (Pablos, 2002). Organizations within same environment
have to differentiate themselves in order to accomplish advantage over competitors with the
ultimate goal to compete and survive (Langley et al., 2007). It is clear that those organizations
that do not build up appropriate competitive strategies that enable them to adapt to the dynamic
environments risk fail to survive (Langley et al., 2007).
Much of our understanding of competitive strategy can be traced to Porter’s (Parnell, 2006).
Although many other business strategy typologies have been developed, Porter’s model has
arguably had the greatest influence on strategy models (Swink and Hegarty, 1998; Powers and
Hahn, 2004; Hlavacka et al., 2001; Nandakumar et al., 2010; Allen and Helms, 2006). Porter’s
generic business strategy provides the hub for the majority of the strategy research studies
(Nandakumar et al., 2010). The generic strategies comprise four postures namely; cost
leadership, differentiation, integrated and focus (Baack and Boggs, 2008; Swink and Hegarty,
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1998; Powers and Hahn, 2004; Hlavacka et al., 2001; Nandakumar et al., 2010; Allen and
Helms, 2006).
Literature illustrated that organizations that do not follow one of these strategies, will be stuck-
in-the-middle and will experience lower performance when compared to those that pursue a
generic strategy (Powers and Hahn, 2004; Hlavacka et al., 2001; Nandakumar et al., 2010; Allen
and Helms, 2006). This was confirmed by Collins and Winrow (2010) who illustrated that
according to Porter, organizations should focus its resources toward one of these strategies.
Moreover, they confirmed that preferred strategy is determined upon the industry’s cumulative
competitiveness (Collins and Winrow, 2010).
A number of studies that discussed generic strategies agreed that in Differentiation strategy,
organizations focus their effort on providing a unique product or service and positioning their
offerings apart from competitors (Allen et al., 2008; Akan et al., 2006). Organizations that adopt
this strategy recognize that consumers are not buying a homogeneous product only, but a value
which includes the product and services at a given price (Collins and Winrow, 2010). This was
confirmed by Allen and Helms (2006) whom showed in their research that differentiated
organizations achieve their customer loyalty through delivering a unique purchase value.
However, it could be argued that as the differentiation depends on the development of unique
features and attributes, development, production, and other costs may increase (Collins and
Winrow, 2010).
In contrast, in Cost leadership strategy, costs should be kept at minimum (Collins and Winrow,
2010). Gaining competitive advantage by having the lowest cost should be the main goal
(Pecotich et al., 2003). Organizations should be willing to discontinue any activities that do not
have a cost advantage (Allen et al., 2008; Allen and Helms, 2006). Cost leaders may execute a
number of cost saving actions that may include; building efficient scale facilities, firmly
controlling production overhead costs, and monitoring costs to build their standardized products
that offer acceptable features to the organization customers at the lowest competitive price (Akan
et al., 2006).
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In a focus strategy, organizations target a specific market segment through focusing on a selected
product range, customer group, service line, or geographical area (Allen and Helms, 2006).
Focus is also based on adopting a narrow competitive scope within an industry. As focus strategy
aims at enhancing market share through operating in a niche market or in markets either not
attractive to or overlooked by larger competitors (Allen and Helms, 2006). This can be done
through focusing the marketing mix on narrow defined target markets, aiming at increasing
brand loyalty and customer satisfaction (Collins and Winrow, 2010). A successful focus strategy
requires large enough market segment in order to have growth potential (Akan et al., 2006). The
distinguishing feature of the focus strategy is that the firm specializes in serving only a portion of
the total market (Pheng and Sirpal, 1995) which allows the firm to direct its resources to precise
value chain activities to achieve its competitive advantage (Allen et al., 2008).
However, an integrated strategy combines both cost leadership and differentiation elements of
Porter’s framework (Collins and Winrow, 2010). According to Porter, lower cost and
differentiation are directly linked with profitability (Allen and Helms, 2006). Empirical evidence
suggests that pursuance of an integrated strategy by combining both cost leadership and
differentiation is helpful in earning above-average returns (Nandakumar et al., 2010). Integrated
overall low cost and differentiation strategy enable organizations to provide unique value to
customers at low price (Phongpetra and Johri, 2011). Firms that fail to position themselves to
one of the previously mentioned strategic postures, stuck-in-the-middle, are expected to have a
naïve position and scarify their competitiveness and survival (Nichols and Jones, 1994).
Stuck-in-the-middle organizations are defined as those organizations that do not give emphasis
to either cost leadership or differentiation strategies (Nandakumar et al., 2010). When a business
stuck-in-the-middle, it is at risk of becoming unable to differentiate organization’s product or
service from its competitors and losing its competitive advantage which, in turn, results in poor
financial performance (Collins and Winrow, 2010). Figure 1 highlights Porter Generic Strategies.
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Competitive Advantage
Lower Cost Differentiation
Broad Target
Competitive Scope
Cost Differentiation
Narrow
Leadership
Target
Cost Focus Differentiation

Focus
Figure 2: Porter's Generic Strategies
Generic Strategies
 Firm attempt to seek a competitive advantage based on one of four generic
strategies:
 Low-Cost Leadership (unique capabilities)
 Differentiation
 Focus (specific segment)
o Cost leadership & Focus
o Differentiation & Focus
1.2 Organization Mission

The mission statement is a Message designed to be Inclusive of the Expectation of all
stakeholders for the company’s performance over the long run. It aims at identifying; basic Goals
that will shape company strategic position; set the firm apart from other firms of its type and
identify the company scope of its operations in Product and Market terms.
Mission statement should be, broad objectives; attitude & outlook, considering all stakeholders
expectations, and designed for the long term. At the same vein, it should not be specific
objectives, involves measurable targets, tackle special bodies' expectation and designed for short
term objectives. Before formulating your firm Mission you should answer the following
questions?
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 Why is the firm in business?

 What are our economic goals?
 What is our operating philosophy (quality, and image)?
 What are our competitive advantages?
 What customer can we serve?
 How do we review our responsibilities to stakeholders?
Organization mission should reflect both; values of the firm strategic decision maker and
priorities of the firm strategic decision maker. It is a statement describes the firm:
 Basic types of Products/service to be offered

 Primary Market/customer group to be served
 Technology to be used in Manu. or delivery
 Concerns for survival (growth & profitability)
 Company philosophy
 Public image the firm seek
Organization Mission Your mission may involve the following criteria:

1. Customers: who are the firm customers?
2. Major Products/service to be offered
3. Primary Market/customer group to be served
4. Technology to be used in Manu. or delivery
5. Concerns for survival (growth & profitability)
6. Company philosophy: believes and values
7. Public image the firm seek
8. Self-concept : distinctive competitive advantages
9. Concern of employees
1.3 Organization Vision

Mission express an answer to the question “what business are we in?”. Vision presents “the firm
strategic target that focuses the recourses of the company to achieve desirable future”. Most
often mission and vision are combined in single statement; if separate the vision is often a single
statement, designer to be memorable.
Organization Vision
“The firm strategic target that focus the recourses of the company to achieve desirable future”
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1.4 Board of directors

Board of Directors is those who operate as the representative of the firm stockholders, Elected by
stockholders. The board has seven major responsibilities:
 Establish and update the company mission if required

 Elect the company top officers
 Establish compensation level of top officers.
 Determine amount and time of the dividends paid to stakeholders.
 Set broad company policy
 Set company objectives and authorize mangers to implement.
 Set company compliancy with legal requirements
Agency theory: whenever owners delegate decision making authority to others, an agency
relationship exists between the two parties. Relationship may be efficient if mangers make
investment decision consistent with stockholder’s interest (stock value maximization).
Relationship may be inefficient if: managers prefer strategies that increase their personnel pay
off. Agency problem occurs if:
 Agency cost: differing self-interest between stockholders and mangers.

 Moral hazard problem: executives are often free to pursue their own interest due to
stockholders lack of information.
 Adverse selection: limited ability of stockholders to precisely determine competence
and priorities of executives at the time they are hired.
1.5 Corporate Governance

Estella Ng (Executive Director, Hang Lung Properties Limited) illustrated that corporate
governance can be defines as the system by which business corporations are directed and
controlled. In addition, he declared that it specifies the distribution of rights and responsibilities
among different participants in the corporation, such as the board, managers, shareholders and
other stakeholders. Moreover, it spells out the rules and procedures for making decisions on
corporate affairs. Finally, it provides the structure through which the company objectives are set,
and the means of attaining those objectives and monitoring performance.
The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s accountability to the company
and the shareholders. The OECD Principles of Corporate Governance are as follows:
 Ensuring the basis for an effective corporate governance framework

 The rights of shareholders and key ownership functions
 The equitable treatment of shareholders
 The role of stakeholders in corporate governance
 Disclosure and transparency
 The responsibilities of the board
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This can be done through establishing the following roles:
 Board of Directors: Assume responsibility of leadership and control of the corporate, Direct
and supervise the corporate’s affairs, Make decisions in the interests of the corporate,
Regular meetings, Active participation, Freedom to include items in agenda, Sufficient
notice for board meetings, Access to advice and services of company secretary and
independent professional advice, Full record of board/committee minutes, and available for
inspection, Independent non-executive directors should be present at board meetings to
discuss matter involving conflict of interest, Abstain from voting if conflict of interest
exists, Insurance coverage in respect of legal action against directors
 Chairman and CEO: Segregation of the management of the board and the day-to-day
management of the corporate’s business, Balance of power at board level to avoid
concentration of power in a single individual, Separation of Chairman and CEO, Division of
responsibilities between Chairman and CEO clearly laid down in writing
 Chairman: Encourage full and active contribution to the board’s affair, ensure effective
communication between board and the shareholders, hold annual meetings with non-
executive directors, Ensure constructive relationships between executive and non-
executive directors
 Board Composition: Balance of skills and experiences, Balanced composition of executive
and non-executive directors, Non-executive directors should be of sufficient caliber,
Independent non-executive directors should be expressly identified, List of directors
updated and their respective role and function identified
 Appointment, re-election and removal of directors: Formal and transparent procedure for
appointment, Succession plan, Re-election at regular intervals, Proper explanation for
resignation/removal of directors, Specific term for non-executive directors, all directors
subject to retirement by rotation at regular interval, Nomination committee formed to
make recommendation on appointment of directors and succession planning for
directors, chairman and CEO
 Responsibilities of directors: Keep abreast of the responsibilities as a director, Exercise duties
of care, skill, integrity and diligence expected, ensure proper understanding of the
operation, business and the regulatory requirement, contribute sufficient time and
resources to serve the corporate
 Non-executive directors: Active participation in board meetings, bring in independent
judgment, Take lead if conflict of interest arise, Serve on committees, Monitor the
corporate’s performance in achieving pre-set goals
 Information access by directors: Directors should be provided with accurate and appropriate
information in order to make informed decision and to discharge their responsibilities. Agenda
and board papers should be sent in full in a timely manner to directors, Information supplied
must be complete and reliable, Directors should have access to the senior management
for information, Information supplied should be of form and quality to facilitate informed
decision
 Remuneration of directors and senior management: Transparency of directors’ remuneration
policy, Remuneration should be sufficient but not excessive, each director not to involve in
deciding his/her own remuneration
 Remuneration Committee: Remuneration committee to be formed, mainly from non-executive
directors, Consult Chairman/CEO if needed, Access to professional advice, market
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comparable information, Make recommendation on policy and structure of remuneration,

Determine specific remuneration packages of all executive directors and senior
management, Review and approve performance-based remuneration, Review and approve
compensation arrangement in connection with loss or termination of office, dismissal or
removal of directors for misconduct
 Accountability and Audit / Financial Reporting: Management provide explanation and
information to the board to enable them to make informed assessment of financial and other
information, The board should present comprehensive assessment of the corporate’s
performance, position and prospects in annual and interim reports, price-sensitive
announcements and other financial disclosures, Ensure the maintenance of sound and
effective internal controls to safeguard assets, Conduct regular reviews of the effectiveness of
the internal control system, covering financial, operational, compliance and risk
management control functions, Prevent fraud, corruption, and malpractices
 Audit Committee: Have clear terms of reference, A formal and transparent arrangement to
apply the financial reporting and internal control principles and maintain appropriate
relationship with external auditors, Full minutes of audit committee to be kept, Provided with
sufficient resources to discharge its duties, Independent from external auditors, Make
recommendation for appointment and removal of external auditors, Monitor the effectiveness
of the audit process, ensuring auditor’s independence and objectivity, Monitor the
integrity of the financial disclosures, Oversight of the financial reporting and internal
control procedures
 Delegation by the Board: Formal schedule of matters specifically reserved to the board for
decision, Clear directions to management as to matters requiring board approval before
decision made, Clear directions to the delegation of the management and administration
functions as well as the powers of management, Review the arrangement for segregation of
duties between board and management regularly, Board Committee to be formed, with
specific terms of reference, as needed
 Communication with Shareholders: Maintain on-going dialogue with shareholders and make
use of annual general meetings or other general meetings to communicate with shareholders,
Transparency in corporate governance practices and business performances through
proper and adequate disclosures, Encourage shareholders’ participation, Separate
resolution for each separate issue, Chairman of the board and chairman of each board
committees be present in general meetings to answer questions at any general meeting,
Chairman of independent board committee be present to answer any questions in any
general meeting to approve transaction requiring independent shareholders’ approval,
Inform shareholders about procedure for voting by poll, Ensure proper compliance to
regulatory requirement about voting by poll
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Section 2: External Environment Analysis

 Situational Analysis
 Remote / Societal Environment (PESTEL)
 Industry / Task Analysis (Five Forces Analysis)
o Issue Priority Matrix
 Competitive Intelligence & Industry Competitive
Structure
o Strategic Group Map
o Strategic Type
o Industry Matrix
o Four Corners Analysis
o Value Discipline Triad
 Portfolio Analysis
o BCG
o Industry Attractiveness Matrix
 EFAS
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2. Situational Analysis
Any planning activity includes prediction about the future. The main concern of strategic
management is not on predicting the future, but instead on making proper decisions. Future
cannot be known with certainty. Managers must have assumptions about what the future will
hold. Major part of the strategic process is to understand and state key assumptions about what
the future may hold. Manager must find a fit between business environment and organization
available resources. In addition they should recognize organization needs and what the
environment can provide. Strategic planning requires managers to think about the future, they
should have information about both external environment and internal characteristics of the
business. This phase provides information for the development and evaluation of alternatives.
The external environmental scan will focus on: 1) the Remote / Societal environment and 2) the
industry / Task environment and 3) the Operating environment.
2.1 Remote/ Societal Environment

The remote environment (Table 1) comprises factors that beyond and usually irrespective of any
single firm operating situation. However remote environment is beyond firm's control it is a
critical criterion for any organization as it affects organizations, policy, resources allocation,
production style, profitability, society perspectives, and sustainability. Remote environment
comprises:
 Political factors
 Economic factors
 Social factors
 Technological factors
 Legal
 Ecological factors
Political factors define the legal and regulatory parameters within which firms must operate.
The direction and stability of political factors are a major consideration for mangers on
formulating company strategy
Economic factors have direct effect on organization nature and direction as it affects,
availability of credit, tendency of people to spend, interest rates, inflation rate and economic
growth.
 Availability of credit refers to the amount of money that can be borrowed at a given time;
it may affect organization ability to meet its liabilities, expenses, investment, and R & D
projects.
 Interest rate refers to cost of borrowing money as firms are affected by higher interest
expenses, lower return on investment and lower degree of expansion
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 Inflation rate refers to increase in the general level of prices of products and services over
a specific period of time. Firms are affected by higher cost of operation, higher wages
paid to employees, and higher revenue.
 Economic growth refers to total production, level of products and services, total amount
of expenditure in the economy and unemployment level
Social factors involve beliefs, attitudes, opinions and lifestyles.It is developed from culture,
demographic, religious, education and ethical conditions. As social attitudes changes demand for
various types of products changes. “Social attitudes are dynamics, as customers continuously
trying to satisfy their needs and desires”. One of the most profound social changes in the recent
years has been: “ the entry of large numbers in women into the labor market as its effect created
wide range of products and services; e.g. convenience food, microwave ovens, and day care
centers
Technological Factors refers to the Firms awareness of technological changes that might
influence its industry. Creative technological adaptation can suggest possibilities for new
products, possibilities for improving existing products, possibilities for improving manufacturing
techniques and possibilities for improving marketing techniques. Technological breakthrough
can have sudden and dramatic effect on the firm environment thus firms have to, strive to
understand existing technological and strive to understand probable future advances that can
affect its products or services. Technological forecast can help protect and improve the
profitability of the firm in growing industry.
Environmental / ecological factors refer to the relationships among human beings and the
living things, air, soil, water that support them. As a major contribution to ecological pollution,
business now is being held responsibilities for eliminating the toxic by-products of its current
manufacturing process. Managers are being required by the governments to incorporate
ecological concerns into their decisions making. This could be achieved by reformulating
products, modifying process, redesign production equipment's, and recycling by-products.
Legal Factors could be place of firm, tax program, minimum wages legislation and pollution
and pricing. As laws and regulations commonly restricted, they tend to reduce the potential
profits of firms.
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Table 1: Remote Environment Outputs
Description Factors that may consider to perform your

(PESTEL PESTEL Analysis
Analysis)
 P (Political) Political policy, Stability of government,
Governmental attitude towards foreign firms,
Foreign policy
Level of economic development, Population,

 E (Economic) income, Literacy level, Social infrastructure,
Natural resources, Climate, Monetary and fiscal
policies, Wage and salary levels, Inflation and
interest rates, Taxation system
 S (Social) Customs, norms, values, beliefs, Language,

Attitudes, Motivations, Social institutions, Status
symbols, Religious beliefs
 T (Technological) Possibilities for new products, possibilities for

improving existing products, possibilities for
improving manufacturing techniques,
possibilities for improving marketing techniques
 E Environmental) Reformulating products, Modifying process,

Redesign production equipment’s, Recycling by-
products
 L (Legal) Legal tradition, Effectiveness of legal system,

Treaties with foreign nations, Patent trademark
laws, Laws affecting business firms.
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2.1.1 Issue Priority Matrix
In order to perform organization External Environment analysis, you are required to prepare
Issue Priority Matrix.
Issue Priority Matrix
 Issue priority matrix aims at identifying the importance of each element based on
two main variables namely probability of occurrence and probability impact on
organization
 Factor mentioned in cells no 1,2 and 3 are the most important ones.
 Factor mentioned in cells no 4,5 and 6 are the Moderate important
 Factor mentioned in cells no 7,8 and 9 are the less important
 Next step EFAS analysis will only consider most important factors. In case most
important factors are less than 5 opportunities and 5 threats. Consider Moderate
important factors in the next section (EFAS matrix)
Table 2: Issue Priority Matrix

Probability Impact on Corporation
High Medium Low

High
Probability 1 2 5
Medium
Of
Occurrence
3 4 7
Low
6 8 9
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Example for Remote Analysis using Issue Priority Matrix
Table 3: Example for Remote Analysis using Issue Priority Matrix

Threats
S.N Factor High Medium Low
High High High Medium
Priority Priority Priority Probability
E1 Inflation may reduce sales 3% Medium High Medium Low Of
Priority Priority Priority Occurrence
Low Medium Low Low
Priority Priority Priority

Threats
E2 Increase in Interest rate may affect Medium High Medium Low Of
expansion strategy Priority Priority Priority Occurrence
Low Medium Low Low

Threats
T1 Possibilities for improving Medium High Medium Low Of
manufacturing techniques Priority Priority Priority Occurrence
Low Medium Low Low
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2.2 Industry/ Task Environments

The main aim of this environmental analysis is to identify industry attractiveness in order to
predict industry profitability. Porter (Figure 2) illustrated that there are five core forces that
determine the underlying structure of an industry namely; (1) determinants of rivalry (rivalry
between existing players); (2) determinants of buyer power (the bargaining power of buyers), (3)
determinants of supplier power (the bargaining power of suppliers); (4) determinants of entry
(the threat of new entrants) and (5) determinants of substitutes (the threat of substitute products).
Each variable / force could affect the organization either positively or negatively. Analyzing each
Variable / force and the balance between them, it is likely to determine the overall level of
competition and attractiveness of the industry.
Figure 2: Competitive Analysis Porter's Five Forces Analysis
Figure 3: Competitive Analysis Porter's Five Forces Analysis
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Rivalry is related to the presence of a number of factors namely, competitors are numerous or
equal in size and power, industry growth is slow (fighting for market share), products or cost
lack differentiation or switching cost, fixed cost are high, and exit parries are high. Rivals have
different ideas about how to compete
Bargaining power of buyers refers to Customers abilities to force down prices. Customers can
force for higher quality or more services. A buyer group is powerful if, it purchase large
volumes, alternative suppliers are available due to un differentiated products, the product is core
and significant in its cost, it earns low profit (great intensive to lower its purchase cost), product
quality is less important, and the buyers pose a credible threat of integrating backwards
Bargaining power of suppliers refers to supplier's power through, raising prices, reducing
quality of purchased goods/service, powerful suppliers can squeeze industry profitability, and
supplier's power depends on the relative important of their sales to the industry. A supplier group
is powerful if, suppliers inputs are more dominated by a few companies, supplier's products are
unique or differentiated, organization production lines are connected to suppliers manufacturing
facilities, industry is not an important customer to the suppliers group and it is not obliged to
connect with other products for sale to the industry
Threat of new entrant refers to new entrants who have desire to gain market share. Threats of
entry depends on, barriers present and reaction from existing competitors. Six major sources for
barriers to entry are, economics of scale, product/brand differentiation, capital requirements, cost
disadvantages independent of size (experience), access to distribution channels and government
policy.
 Economics of scale could be due to obstacles in production, research, marketing, service,

distribution.
 Product/brand differentiation obstacles could be due to heavily expenses to overcome
customer loyalty and differentiate their products
 Capital requirements obstacles could be due to the need to invest large financial resources
 Cost disadvantages obstacles could be due to the learning curve (technology, distributors,
suppliers, location)
 Access to distribution channels obstacles could be due to limited wholesale or retail
channels; the more the existing competitors have these tied up, the tougher the entry into
the industry.
 Government policy obstacles could be due to government control (license, limits on
access to raw materials, taxes, air and water pollution standards)
Substitute products that deserve most attention are those that are subject to improve their price
performance, subject to improve their product quality and produced by industries earning high
profit
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Example for Industry Analysis using Issue Priority Matrix

Table 4: Example for Industry Analysis using Issue Proiorty Matrix

Opportunities
Product differences High High High Medium
DR1 Medium High
Priority
Medium
Priority
Low
Priority
Of
Occurrence
Low Medium Low Low

Opportunities
Brand Loyalty High High High Medium
DR2 Medium High
Priority
Medium
Priority
Low
Priority
Of
Occurrence
Low Medium Low Low

Threat
DB1 Price Sensitivity Medium High Medium Low Of
Low Medium Low Low
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2.3 Operating Environment

Operating forces (Table 2) highlights and shape organization competitive position. It affects the
organization directly. It aims at analyzing organization forces namely customers, suppliers,
creditors, labor market and competitors. The aim is to benchmark organization activities related
to the mentioned above forces with organization competitors and best of class organizations.
Table 2: Operating Environments Outputs
Table 5: Operating Environmemts Outputs
Description Factors that may be used to Analyze your Operating

Environment
 Competitors Market share, Product lines, Sales distributions, Price,
Advertising, promotion, Location, Capacity, Raw
material, Financial position, Product quality, R & D,
Personnel, Customer, Patent, Technology, community
 Customers Geographic; Demographic (sex, age, income,

occupation); Psychographic (personality, life style);
buyer behavior (usage rate, benefits, brand loyalty)
 Creditors creditors ability to extent the necessary lines or credits
Strategic Relation Ship, Supply Chain Effectiveness,

 Suppliers Competitive prices, competitive Suppliers production
standards, competitive shipping cost, suppliers’
competitive ability and reputation, Payment conditions
 Labor Reputation (society accepted, competitive, concerned

with employees’ welfare), Employment rate (vary
according to community growth), Availability (high
skills), Labor union strengths
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Example for Operating Analysis using Issue Priority Matrix

Table 6: Example for Operating Analysis using Issue Priority Matrix
Opportunity
Strong Financial Position High High High Medium
CO1 Medium High
Priority
Medium
Priority
Low
Priority
Of
Occurrence
Low Medium Low Low

Opportunity
CO2 Product Quality Medium High Medium Low Of
Low Medium Low Low

Opportunity
CU1 Brand Loyalty Medium High Medium Low Of
Low Medium Low Low

Opportunity
SU1 Strategic Relationship with Medium High Medium Low Of
suppliers Low Medium Low Low

Labor union Strength High High High Medium
LA1 Medium High
Priority
Medium
Priority
Low
Priority
Of
Occurrence
Low Medium Low Low
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2.4 Competitive Intelligence

The goal of a competitor analysis is to develop a profile of the nature of strategy changes each
competitor might make, each competitor's possible response to the range of likely strategic
moves other firms could make, and each competitor's likely reaction to industry changes and
environmental shifts that might take place. Competitive intelligence should have a single-minded
objective -- to develop the strategies and tactics necessary to transfer market share profitably and
consistently from specific competitors to the company.
A firm which does not rigorously monitor and analyze key competitors is poorly-equipped to
compose and deploy effective competitive strategy and this approach leaves the firm and its
markets vulnerable to attack. The basis for CI revolves around decisions made by managers
about the positioning of a business to maximize the value of the capabilities that distinguish it
from its competitors. Failure to collect, analyze and act upon competitive information in an
organized fashion can lead to the failure of the firm itself.
CI describes the intelligence cycle as "the process by which raw information is acquired,
gathered, transmitted, evaluated, analyzed and made available as finished intelligence for
policymakers to use in decision-making and action." There are five steps which constitute this
cycle:
 planning and direction

 collection and research
 processing and storage
 analysis and production
 dissemination and delivery
There are seven questions to be answered prior to making investment decisions in CI:
 what do we need to know?

 what do we already know?
 why do we need to know it?
 when do we need to know it?
 what will we do with the intelligence once we have it?
 what will it cost to get it?
 what could it cost not to get it?
Strategic intelligence is concerned mainly with competitor analysis or gaining an understanding
of a competitor's future goals, current strategy, assumptions held about itself and the industry,
and capabilities -- diagnostic components. Intelligence about the firm's major customers,
suppliers and partners (in marketing or research and development alliances) is often also of
strategic value.
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Tactical intelligence is generally operational and on a smaller-scale, not so centered on being

predictive. Tactical issues include competitors' terms of sale, their price policies and the plans
they have for changing the way in which they differentiate one or more of their products from
yours. Middle-level marketing and sales managers number among some of the main users of
tactical intelligence. They want to know how to win the day, today.
Counter intelligence is defending company secrets. Every firm has competitors as interested in
knowing your plans as you are in knowing theirs, maybe even more so. Often, this area of
endeavor will involve security and information technology, but others are often overlooked, such
as hiring and firing strategies, to contain competitor opportunities within the firm.
Competitive intelligence is the determination of solutions to these principle factors and

determinants of ongoing competitive advantage:
 What is the basis of competition?

 Where the firm competes?
 Who does the competitor compete against?
 How does the firm compete?
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Industry Competitive Structure

2.4.1 Strategic Group Map
Strategic group map is used for the purpose of displaying the competitive positions that rival
firm occupy in the industry. Analyzing the industry competitive structure and identify the
strategic group (cluster of industry rivals that have similar competitive approaches and market
position) is vital for organization successful strategic planning process. Therefore, strategic
group is defined as a concept used in strategic management that groups companies within an
industry that have similar business models or similar combinations of strategies. there can be
numerous criteria over which firms can be measured...
 Extent of product (or service) diversity.

 Extent of geographic coverage.
 Number of market segments served.
 Distribution channels used.
 Extent of branding.
 Marketing effort.
 Degree of vertical integration.
 Product (or service) quality.
 Pricing policy.
Strategic Group Analysis is useful in several ways:
 Helps identify who the most direct competitors are and on what basis they compete.
 Raises the question of how likely or possible it is for another organization to move from one
strategic group to another.
 Strategic Group mapping might also be used to identify opportunities.
 Can also help identify strategic problems
The procedure for constructing a strategic group map and deciding which firms belong in which
strategic group is straightforward:
1. Analyze the overall industry and identify those competitive characteristics that differentiate
firm in the industry. Variables selected as axes for the map could be identified during the
process of industry analysis. State the competitive characteristics that differentiate firms in
your industry such as:
o Price/quality range (high, medium, low);
o Geographic coverage (local, regional, national, global);
o Degree of vertical integration (none, partial, full);
o Product-line breadth (wide, narrow);
o Use of distribution channels (one, some, all); and
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o Degree of service offered (no-frills, limited, and full).

2. Plot the firms on a two-variable map using these differentiating characteristics.
3. Assign firms that fall in about the same strategy space to the same strategic group.
4. Draw circles around each strategic group making the circles proportional to the size of the
group’s respective share of total industry sales revenues.
Note: The size of the circle should correspond to the proportion of the business revenue. For
example, ‘Business unit 1’ generates 20% revenue and ‘Business unit 2’ generates 40% revenue
for the company. The size of a circle for ‘Business unit 1’ will be half the size of a circle for
‘Business unit 2’.
Figure 4: Strategic Group Map
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2.4.2 Strategic Type
 Prospectors are pro-active, and pursue an offensive strategy, aggressively pursuing new
market opportunities with a willingness to take risks. They maintain an entrepreneurial
attitude, and explore their competitive environments with the aim of developing new
product and market opportunities. Prospectors are companies with fairly broad product
lines that focus on product innovation and market opportunities. This sales orientation
makes them somewhat inefficient. They tend to emphasize creativity over efficiency.
 Defenders are less pro-active, and can be seen as being protection oriented, seeking
stability by maintaining current market positions and defending against encroachment by
other firms. Defenders, unlike prospectors, engage in little or no new product or market
development. Their strategic actions seek to preserve market share by minimizing the
impact of competitor's initiatives. Defenders are companies with a limited product line
that focus on improving the efficiency of their existing operations. This cost orientation
makes them unlikely to innovate in new areas.
 Analyzers, are somewhere between prospectors and defenders, balancing the opportunity-
seeking nature of prospectors against the risk aversion of defenders. Analyzers seek to
maintain their position in the marketplace, waiting for the market's reaction to new
product or new entrants into the marketplace. Once the market's reaction is analyzed, they
pursue the opportunity, having identified the key success factors. Thus, like prospectors,
analyzers seek to exploit new market opportunities, but they will also tend to draw most
of their revenue from a stable portfolio of products. Analyzers are corporations that
operate in at least two different product-market areas, one stable and one variable. In the
stable areas, efficiency is emphasized. In the variable areas, innovation is emphasized.
Strategies of prospectors, defenders, and analyzers are all to some extent proactive.
 Reactors is characterized by inconsistencies and a reactionary response to

environmental change. Reactors do not have a distinct strategy - they merely react to
environmental changes. Thus, the reactor strategy is not considered a viable one, and
firms pursuing such a strategy would either have to adopt one of the other three types of
strategy or face eventual decline. Reactors are corporations that lack a consistent
strategy-structure-culture relationship. Their (often ineffective) responses to
environmental pressures tend to be piecemeal strategic changes.
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2.4.3 Industry Matrix
Industry key success factors comprises of several factors that collectively define the competition
level. Industry Matrix involves 5 steps as follows:
 Identify key success factors that are the most appropriate to your industries.
 Assign weights. A number from 0.01 (not important) to 1.0 (very important) should be
assigned to each factor. The sum of all weights should equal to 1.0.
 Rate the factors. Choose the values between ‘1-5’, where ‘1’ indicates poor and 5
indicates outstanding. Each rating is a judgment based on how well that company is
specifically dealing with each key success factors.
 Calculate the total scores. Total score is the sum of all weighted scores for each business
unit. Weighted scores are calculated by multiplying weights and ratings. Total scores
allow comparing industry key success factor for each business unit.
 Check to ensure that the total weighted score truly reflects the company current
performance in terms of profitability and market share.
Table 7: Industry Success Factors

Your Company Company B Company C
Rate Weighted Rate Weighted Rate Weighted
Weight Score Score Score
Industry Success Factors
Economics of Scale 0.3 3 0.9 3 0.9 3 0.9
Access to distribution
Channels 4 3
0.14 0.56 0.42 2 0.28
Differentiation in inputs 0.1 2 0.2 3 0.3 3 0.3
Product Differentiation 0.27 4 1.08 4 1.08 4 1.08
Brand Loyalty 0.19 4 0.76 3 0.57 4 0.76
Sum Weight 1
Sum Total Attractiveness Score 3.5 3.27 3.32
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2.4.4 Four Corner Analyses

The Four Corners Analysis, developed Michael Porter. It is designed to support firms to assess a
competitor's intent and objectives, and the strengths it is using to achieve them. It is a useful
technique to evaluate competitors and generate insights concerning likely competitor strategy
changes and determine competitor reaction to environmental changes and industry shifts. By
examining a competitor's current strategy, future goals, assumptions about the market, and core
capabilities, the Four Corners Model helps analysts address four core questions:
 Motivation - What drives the competitor? Look for drivers at various levels and
dimensions so you can gain insights into future goals.
 Current Strategy - What is the competitor doing and what is the competitor capable of
doing?
 Capabilities - What are the strengths and weaknesses of the competitor?
 Management Assumptions - What assumptions are made by the competitor's
management team?
Figure 5: Four Corners Analysis
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Advantage of Porter's Four Corners Analysis. Porter's Four Corners tool has been around for a
long time and it's earned a place for itself as a useful and respected management tool. The real
advantage of this approach is:
 Try to get inside the mind of the opposition

 Explore the beliefs and assumptions of your competitors.
 Use past behavior to predict future action, but actively tries to see if there is likely to be a
shift in their strategy.
The four corners refer to the four elements that are critical in analyzing a market rival, including
independently and collectively assessing its: drivers / future goals, management assumptions,
strategy and capabilities. Unlike the other static models (i.e. SWOT Analysis) that they don't
actually help the analyst understand what would motivate a competitor to take particular actions,
the four corners method was developed to capture insights about what competitors plan to do
from the present forward. Now, let's take a look of the four component of the analysis:
Drivers: Analyzing a competitor's goals assists in understanding whether they are satisfied with
their current performance and market position. This helps predict how they might react to
external forces and how likely it is that they will change strategy. We may brainstorm by
considering the following points:
 What is it that drives them forwards?

 What is it that drives them to compete?
 How does this motivate and shape their strategy?
Management Assumptions: The perceptions and assumptions that a competitor has about itself,
the industry and other companies will influence its strategic decisions. Analyzing these
assumptions can help identify the competitor's biases and blind spots. We may brainstorm by
considering the following points:
 What do they believe about themselves and the world in which they operate?
 What assumptions have they made about their own strengths and weaknesses in relation
to their competitors?
 Is this likely to make their strategy proactive or reactive? Aggressive, or defensive?
Current Strategy: A company's strategy determines how a competitor competes in the market.
However, there can be a difference between 'intended strategy' (the strategy as stated in annual
reports, interviews and public statements) and the 'realized strategy' (the strategy that the
company is following in practice, as evidenced by acquisitions, capital expenditure and new
product development). Where the current strategy is yielding satisfactory results, it is reasonable
to assume that an organization will continue to compete in the same way as it currently does. We
may brainstorm by considering the following points:
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 How do your competitors actually act and are they happy will they be with the efficacy of
their actions?
 Is there a gap between intended strategy and realized strategy?
 Is there likely to be a sea-change in their strategy due to current lack of success or are
they likely to keep moving in the same direction?
Capabilities: The drivers, assumptions and strategy of an organization will determine the nature,
likelihood and timing of a competitor's actions. However, an organization’s capabilities will
determine its ability to initiate or respond to external forces. We may brainstorm by considering
the following points:
 What are their best options for responding to competition from their rivals? For example:
 Are they more likely to respond with a price drop?
 Or through aggressively targeting its distribution network?
Four Corner Analysis Example
Figure 6: Four Corner Analysis Example
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2.4.5 Value Discipline Triad

Value Discipline Triad was developed by Treacy & Wiersema. It looks at three different areas or
in which an enterprise can focus. These areas namely Operating Excellence; Product Leadership;
and Customer Intimacy. Each one results in customers valuing the enterprise in a different way.
Value Discipline Triad identifies that in order to be competitive, firm must be competent in all
three disciplines. In addition, Treacy-Wiersema illustrated that in order to be a market leader,
firm must excel in just one discipline.
Figure 7: Value Discipline Model

Product Leadership is characterized by products that are the best in their market and highly
valued by customers. Product leadership firms are characterized by:
 Encouragement of innovation – a culture that fosters experimentation and innovation and

rewards product or service improvement;
 Risk-oriented management style – management that allows the enterprise to take risks
and reap the rewards of new ventures;
 Recognition that the enterprise’s current success and future prospects lie in its talented
design people and those who support them; and
 Recognition of the need to educate and lead the market in the use and benefits of new
products or services.
The dimensions of Product Leadership are:
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 Capability maturity – maintaining the level of capability to deliver products or services

and the continuous improvement of those capabilities;
 Intellectual leverage – developing and using intellectual assets for improved product and
service delivery; and
 Responsiveness – minimizing the response and turnaround times for product and service
design and delivery.
Operational Excellence is characterized by low or lowest price and hassle free service. The
principles of an operationally excellent enterprise are:
 Efficient management of people – employees trained in the most efficient and lowest cost
ways of doing things;
 Management of efficient transactions – maximizing the efficiency of all parts of a
transaction, including the full supply chain;
 Dedication to measurement systems – ensuring rigorous quality and cost control, with
measurement targeted at finding ways to reduce costs; and
 Management of customer expectations – provision of a limited variety of products and/or
services and managing customer expectations accordingly.
The dimensions of Operational Excellence are:
 Enterprise performance – efficiency through improved processes and automation for

speed and hassle-free delivery;
 Quality – detecting, understanding and removing problems in processes, products and
services that have efficiency impacts both before and after delivery; and
 Cost – analyzing and adjusting processes and products to facilitate the most cost-
effective delivery.
Customer Intimacy is characterized by occupying only one (or a few) high-value customer
niches and being obsessive about understanding the individual customers in detail. Excel in
customer attention and customer service. The principles of a customer intimate enterprise are:
 Having a full range of services available to serve the customers on demand – may involve
having a wide range of services available from other suppliers at very short notice
through contract arrangements; and
 A corporate philosophy and resulting business practices that encourage deep customer
insight and breakthrough thinking about how to improve the customer’s situation or
business.
The dimensions of Customer Intimacy are:
 Reach and range – location of service access points, number of channels through which
the product or service can be accessed, level of self-service available;
 Cycle time – time between awareness of customer need and delivery, and product or
service development time; and
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 Product identification – ability to identify new products or services required by

customers.
Value Discipline Triad Example
Figure 8: Value Discipline Triad Example
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2.5 Portfolio Analysis

2.5.1 BCG Matrix Model (or growth-share matrix)
BCG is a tool created by Boston Consulting Group to assess the strategic position of each brand
portfolio and its potential. Relative market share (horizontal axis) and speed of market growth
(vertical axis) are used to evaluate potentiality of each brand portfolio and suggest matching
strategies. It categorize business portfolio into four categories based on industry attractiveness
(growth rate of that industry) and competitive position (relative market share). These two
dimensions reveal likely profitability of the business portfolio. The general purpose of the
analysis is to identify brands the firm should invest in and brands that should be divested.
Relative market share: Higher market share usually results in higher cash returns. This is due to
the assumption that a firm that produces more, benefits from higher economies of scale and
experience curve, which consequently results in higher profits.
Market growth rate: High market growth rate means higher earnings and sometimes profits but
it also consumes lots of cash, which is used as investment to stimulate further growth. Therefore,
business units that operate in rapid growth industries are cash users.
High Medium Low
High Stars ?
Industry Sales Growth Rate

Substantial investment to Decision to strengthen
maintain or strengthen (intensive strategies) or divest
dominant position (integration selling part of the organization
Medium strategies, intensive strategies a defensive strategy
Cash Cow Dogs
Maintain strong position as Defensive strategy:
long as possible (Product Liquidation, divestiture,
development, Related retrenchment
diversification) If weakens—
Low retrenchment or divestiture
Relative Market Share Position
Figure 9: BCG Matrix
Dogs refer to low market share compared to competitors and operate in a slowly growing market.
These brands are not worth investing in as they generate low or cash returns. However, you
should notice that this is not always the truth. Some dogs may be profitable for long period of
time. Therefore, it is vital to perform deep investigation of each brand before elimination.
Corresponding strategic choices are retrenchment, divestiture, or liquidation.
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Cash cows refer to the most profitable brands. The cash gained can be invested into stars.
Organizations should not invest into cash cows to persuade growth. They are required only to
support these brands in order to maintain their current market share. Corresponding strategies are
product development, diversification, divestiture, and retrenchment
Stars refer to high growth industries and high market share. Stars are both cash generators and
cash consumption. They present major brands that companies should invest its money.
Corresponding strategic choices are vertical integration, horizontal integration, market
penetration, market development, product development.
Question marks refers to brands that hold low market share in fast growing markets and
consuming large amount of cash or suffering losses. However, these brands has potential to
increase its market share and become a star. Question marks do not always succeed and even
after large amount of investments they struggle to gain market share and eventually become
dogs. Therefore, they require very close consideration to decide if they are worth investing in or
not. Corresponding strategic choices are market penetration, market development, product
development, and divestiture.
BCG Development Steps
Step 1: Choose the unit. It is essential to define the unit for which you’ll do the analysis.
Step 2: Define the market. It is important to clearly define the market to better understand firm’s
portfolio position.
Step 3: Calculate relative market share. Relative market share can be calculated in terms of
revenues or market share. It is calculated by dividing your own brand’s market share (revenues)
by the market share (or revenues) of your largest competitor in that industry.
Step 4: Find out market growth rate. The industry growth rate can be found in industry reports. It
can also be calculated by looking at average revenue growth of the leading industry firms.
Market growth rate is measured in percentage terms. The midpoint of the y-axis is usually set at
10% growth rate, but this can vary. Some industries grow for years but at average rate of 1 or 2%
per year. Therefore, when doing the analysis you should find out what growth rate is seen as
significant (midpoint) to separate cash cows from stars and question marks from dogs.
Step 5: Draw the circles on a matrix. After calculating all the measures, you should be able to
plot your brands on the matrix. You should do this by drawing a circle for each brand. The size
of the circle should correspond to the proportion of business revenue generated by that brand.
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BCG Example
Table 8: BCG Example
Revenues % of Largest Firm Relative Market
Corporate Competitors Market Market Growth
Revenues Market Share Share Rate
Share
Brand 1 1000000 48% 30% 25% 0.84 4%
Brand 2 680000 39% 35% 7% 0.2 14%
Brand 2 55000 3% 45% 32% 0.72 13%
High Medium Low
High
Stars ?
Industry Sales Growth Rate

Medium
Cash Cow Dogs
Low
Relative Market Share Position
Figure 10: BCG Example
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2.5.2 Industry Attractiveness Matrix
Firms manage complex business portfolios with 60 to 100 products/services. Products or

business units differ in their functionality and future prospects. Therefore, it is hard to take a
decision regarding main products that companies should invest. The tool is designed to compare
firm business units and classify them to the groups that deserve investing in other group of
products that should be harvested or divested.
Industry attractiveness indicates degree of attractiveness for a firm to compete in the market
and earn profits. The more profitable the industry is the more attractive it becomes. Firm
decision makers should consider long run rather than short term aspects. Industry attractiveness
comprises of several factors that collectively define the competition level. These factors are;
Long run growth rate; industry size, trend of prices, availability of labor, market segmentation,
Porter’s Five Forces analysis, changes in demand, PESTEL, Seasonality, product life cycle
changes and market segmentation
Competitive strength highlights whether a business unit has a sustainable competitive

advantage or not. If the company has acceptable competitive advantage, the next step is to
measure to what extents (Time) this competitive advantage will be sustained. Factors determine
the competitive strength are; total market share; customer loyalty; level of product
differentiation; profitability of the company, brand strength; market share growth compared to
rivals; production flexibility; Value Chain Analysis.
High
Invest / Invest / Selectivity /

Grow Grow Earnings
Industry Attractiveness
Invest / Selectivity Divest/

Medium
Grow / Earnings Harvest
Selectivity / Divest/ Divest/

Low Earnings Harvest Harvest
High Medium Low
Competitive Strengthens
Figure 11: Industry Attractiveness

Industry Attractiveness Matrix involves 6 steps as follows:
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Step 1: Identify industry attractiveness
 Identify main factors that are the most appropriate to your industries.
 Assign weights. A number from 0.01 (not important) to 1.0 (very important) should be
assigned to each factor. The sum of all weights should equal to 1.0.
 Rate the factors. Choose the values between ‘1-5’, where ‘1’ indicates the low industry
attractiveness and ‘5’ or ‘10’ high industry attractiveness.
 Calculate the total scores. Total score is the sum of all weighted scores for each business
unit. Weighted scores are calculated by multiplying weights and ratings. Total scores
allow comparing industry attractiveness for each business unit.
Table 9: Industry Attractiveness
Business Unit 1 Business Unit 2
Weight Attractiveness Total Weight Attractivenes Total
Attractiveness s Attractiveness
Industry profitability 0.3 3 0.9 0.3 3 0.9
Trend of prices 0.14 4 0.56 0.14 3 0.42
Market segmentation 0.1 2 0.2 0.1 3 0.3
Industry size 0.27 4 1.08 0.27 4 1.08
Industry growth rate 0.19 4 0.76 0.19 3 0.57
Sum Weight 1 1
Sum Total Attractiveness Score 3.5 3.27
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Weight Attractiveness Total Weight Attractivene Total
Attractiveness ss Attractiveness
Industry profitability 0.3 3 0.9 0.3 3 0.9
Trend of prices 0.14 3 0.42 0.14 3 0.42
Market segmentation 0.1 3 0.3 0.1 3 0.3
Industry size 0.27 4 1.08 0.27 4 1.08
Industry growth rate 0.19 4 0.76 0.19 2 0.38
Sum Weight 1 1
Step 2: Identify the competitive strength
 Make a list of factors. Choose the competitive strength factors

 Assign weights. Weights indicate how important a factor is in achieving sustainable
competitive advantage. A number from 0.01 (not important) to 1.0 (very important)
should be assigned to each factor. The sum of all weights should equal to 1.0.
 Rate the factors. Rate each factor for each of your product or business unit. Choose the
values between ‘1-5’ or ‘1-10’, where ‘1’ indicates the weak strength and ‘5’ or ‘10’
powerful strength.
 Calculate the total scores. See ‘Step 1’.
45 | P a g e
Table 10: Competitive Strengths
Competitive Strengths
Brand value 0.18 3 0.54 0.18 2 0.36
Company’s profitability 0.28 4 1.12 0.28 2 0.56
Relative growth rate 0.18 3 0.54 0.18 3 0.54
Market share 0.16 3 0.48 0.16 2 0.32
Production Flexibility 0.2 4 0.8 0.2 2 0.4
Sum Weight 1 1
Competitive Strengths
Weight Attractiveness Total Weight Attractivene Total
Attractiveness ss Attractiveness
Brand value 0.18 2 0.36 0.18 3 0.54
Company’s profitability 0.28 3 0.84 0.28 4 1.12
Relative growth rate 0.18 3 0.54 0.18 4 0.72
Market share 0.16 3 0.48 0.16 3 0.48
Production Flexibility 0.2 2 0.4 0.2 3 0.6
Sum Weight 1 1
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Step 3: Plot the business units on a matrix

High
Medium
Low
High Medium Low
Figure 12: Competitive Strengt Matrix
The size of the circle should correspond to the proportion of the business revenue. For example,
‘Business unit 1’ generates 20% revenue and ‘Business unit 2’ generates 40% revenue for the
company. The size of a circle for ‘Business unit 1’ will be half the size of a circle for ‘Business
unit 2’.
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Step 4: Analyze the information

High
Invest / Invest /
Industry Attractiveness Grow Grow
Invest / Selectivity
Medium
Grow / Earnings
Low
High Medium Low
There are different investment implications you should follow, depending on which boxes your
business units have been plotted. There are 3 groups of boxes: investment/grow,
selectivity/earnings and harvest/divest boxes. Each group of boxes indicates what you should do
with your investments.
Table 11: Investment Implications
Investment Implications
Invest / Grow Sensitivity / Earnings Harvest / Divest
Definitely Invest Invest if there’s enough Invest just enough to keep the
liquidity and the business business unit operating or
unit can be improved divest
Invest/Grow box. Companies should invest into the business units. These business units will
require a lot of cash because they’ll be operating in growing industries and will have to maintain
or grow their market share. Provide as much resources as possible. The investments should be
provided for R&D, advertising, acquisitions and to increase the production capacity to meet the
demand in the future.
Selectivity/Earnings box. You should invest only if you have enough liquidity left over the
investments in invest/grow business units. In addition the firm should believe that these units
48 | P a g e
will generate cash in the future. These business units are often considered last. In general, The
firm should invest in business units which serve huge markets and there are not many dominant
players in the market.
Harvest/Divest box. The business units in unattractive industries and don’t have sustainable
competitive advantages or are incapable of achieving it and are performing relatively poorly fall
into harvest/divest boxes.
First, if the business unit generates surplus cash, companies should treat them the same as the
business units that fall into ‘cash cows’ box in the BCG matrix. Consequently, the firm should
invest to keep them operating. In other words, its worth to invest into such business as long as
investments into it don't exceed the cash generated from it.
Second, the business units that only make losses should be divested. If that’s impossible and
there’s no way to turn the losses into profits, the company should liquidate the business unit.
Step 5: Identify the future direction of each business unit
Further analysis may reveal that investments into some of the business units can considerably
improve their competitive positions or that the industry may experience major growth in the
future. The company should determine whether the industry attractiveness will grow, stay the
same or decrease in the future. You should also identify if the competitive strength will increase
or decrease in the near future. When all the information is collected you should include it to your
existing matrix, by adding the arrows to the circles. The arrows should point to the future
position of a business unit.
Table 12: Future Direction
Future Direction
Business Unit Business Unit Business Unit Business

1 2 3 Unit 4
Industry Increase Stay the same Increase Stay the same
Attractiveness
Competitive Decrease Increase Increase Decrease
Strengths
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High
Medium
Low
High Medium Low
Step 6: Prioritize your investments
The last step is to decide where and how to invest the company’s money. The decision should be
based on; expected returns from investing into some business units and its relevant cost.
2.6 Issue Priority Matrix

High Medium Low
High High High Medium Priority

Priority Priority
Probability
Of
Medium High Medium Priority Low Occurrence
Priority Priority
Low Low Low

Medium Priority Priority Priority
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2.7 EFAS Matrix

Notes: How to Prepare EFAS Matrix
1. List opportunities and threats that your firm faces (5 for each one) in the external factors columns.
2. Weight each factor from 1.0 (most important) to 0.0 (not important) in the weight column based
on that factor That factor probable effect on the firm’s strategic position. The total weights for all
the items must sum to 1.00.
3. Rate each factor from 5 (outstanding) to 1 (poor) in the rating column based on how well your
firm is positioned to take advantage of the opportunity or to deflect the threat.
4. Multiple each factor’s weight times its rating to obtain each factor’s weighted score in the
weighted score column.
5. Use the comment column for rational used for each factor.
6. Add the weighted scores to obtain the total weighted score in the weighted score column. This
tells how well the firm is responding generally to the factors in its external environment. The
better positioned your firm resources are, the higher the rating will be, A 3 will indicate neither
well or poorly positioned, just average. A number higher than 3 would mean that the business is
doing well. A business with an overall rating of five would be responding to the respective
environment in an outstanding way. Note that your business does not benefit from doing an
activity well or having skills or resources if that activity/skill/resources are not important.
You should have rational for numbers written in both weight and rating. The rational
should be written as comments.
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EFAS Example
Table 13: EFAS Example
S.N Factor Weight Rating Weighted Comment

Score
Opportunities
Economics of Scale may affect 0.05 3 0.15 Weight:
Rating:
competitors negatively
Product differences 0.10 4 0.4 Weight:
Rating:
Brand Loyalty 0.07 4 0.28 Weight:
Rating:
Strong Financial Position 0.12 5 0.6 Weight:
Rating:
Product Quality 0.06 3 0.18 Weight:
Rating:
Brand Loyalty 0.09 3 0.27 Weight:
Rating:
Strategic Relationship with 0.02 2 0.04 Weight:
Rating:
suppliers
Sub Total 0.51 1.88
Threats
Inflation may reduce sales 3% 0.15 4 0.6 Weight:
Rating:
Increase in Interest rate may affect 0.08 5 0.4 Weight:
Rating:
expansion strategy
Possibilities for improving 0.1 2 0.2 Weight:
Rating:
manufacturing techniques
Patent trademark 0.06 2 0.12 Weight:
Rating:
Price sensitivity 0.06 3 0.18 Weight:
Rating:
Labor union Strength 0.04 2 0.08 Weight:
Rating:
Sub Total 0.49 1.58
Total 1 3.46
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Section 3: Internal Environment Analysis
 Internal Environment
 Value Chain Analysis
o Financial Ratios
 IFAS Matrix
53 | P a g e
3 Internal Environment Analysis
Each firm has strengths or weaknesses depending on how its function is being managed. The
joint performance of these functions will have a direct bearing on the firm’s performance in
terms of superior product design and quality, superior customer service, and superior speed.
The firm can be evaluated on the basis of the organizational profile of strengths and weaknesses
in light of what it has or has not done, or what it has or has not achieved. Similarly, the role of
the board of directions should also be analyzed. An organization’s culture (shared values) should
have a good fit with its strategy and other factors such as structure, systems, management style,
and human resources (staff and their skills).
3.1 Value Chain analysis
VCA describes the way of looking at the business as a chain of activities that transfer input into
outputs that customer value. It divides the business into sets of activities start from input and
finish with after sale service. It looks at cost of each activity, business performance to determine
low cost advantages or cost disadvantages and attributes of each activity to help in
differentiation.
VCA attempts to understand how a business creates customer value by examining the
contribution of different activities within the business to that value. It is derived from three basic
sources namely, activities that differentiate the product, activities that lower the cost and
activities that meet the customer needs quickly. Internal activities are divided into two broad
categories (table 3) as follows:
 Primary activities (line functions, Table 4), activities involved in the physical creation
of the product, marketing, transfer to buyers, and after sales support.
 Support activities (staff function, Table 5), assist the firm as a whole by providing
infrastructure or inputs that allow the primarily activities to take place
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Table 3: Value Chain Analysis Activities
Table 14: Value Chain Analysis Activities
Criteria Factors that may be used to Analyze your VCA
Primary
Activities
 Inbound
Logistics Activities, cost and assets associated with obtaining fuel, energy, raw
materials, merchandising, inputs, inspection and inventory.
 Operations Activities, cost and assets associated with converting inputs into final
outputs (production, assembly, packing, equipment’s, operation, QA)
 Outbound
Activities, cost and assets dealing with physical distribution of the
Logistics
product to the buyer (finished goods, orders, packing, shipping and
delivery)
 Marketing
Activities, cost and assets related to sales effort (advertising,
promotion, distribution, and market research)
 Services Activities, cost and assets associated with providing assistance to
buyers (buyer inquiries and complaints, maintenance, spare parts,
Support repair)
Activities
 General
Activities, cost and assets related to management, accounting, finance,
Admin.
safety, security, IS
 Human Resources activities, cost and assets associated with recruitment, hiring, personnel
compensation, training development
 Research & Tech Activities, cost and assets related to R&D, design, software, database
 Procurement Activities, cost and assets associated with purchasing, providing raw
materials, supplies, services.
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Table 4: Proposed Factors for assessing primary activities

Table 15: Proposed Factors for assessing primary activities
Inbound logistic Operations Outbound Marketing Service

logistic
Soundness of Productivity of Timeliness and Effectiveness of Means to solicit

material and equipment efficiency of market research to customer input for
inventory control compared to that of delivery of finished identify customer product
systems key competitors goods and services segments and needs improvement
Efficiency of raw Appropriate Efficiency of Innovation in sales Promptness of

material automation of finished goods promoting and attention to
warehousing production warehousing advertising customer
activities processes activities complaints
Evaluation of
Effectiveness of alternate Appropriateness of
production control distribution warranty and
systems to improve channels guarantee policies
reality and reduce
costs Motivation and Quality of customer
competence of sales education and
Efficiency of plant force training
layout and
workflow design Development of an Ability to provide
image of quality replacement parts
and a favorable and repair services
reputation
Extent of brand
loyalty among
customers
Extent of market
dominance within
the market segment
or overall market
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Table 5: Proposed Factors for assessing Support activities

Table 16: Proposed Factors for assessing Support activities
General Human Resource Technology Procurement

Administration
Capability to identify Effectiveness of Success of research and Development of alternate

new-product market procedures for development activities in sources for inputs to minimize
opportunities and recruiting, training, and leading to product and dependence on a single
potential promoting all levels of process innovations supplier
environmental employees
threats. Quality of working Procurement of raw materials
Appropriateness of relationships between (1) on a timely basis, (2) at
Quality of the reward systems for R&D personnel and lowest possible cost, (3) at
strategic planning motivating and other departments acceptable levels of quality
system to achieve challenging employees
corporate objectives Timeliness of technology Procedures for procurement
A work environment development activities in of plant, machinery, and
Coordination and that minimizes meeting critical buildings
integration of all absenteeism and keeps deadlines
value chain activities turnover at desirable Development of criteria for
among organization levels Quality of laboratories lease-versus-purchase
subunits and other facilities decisions
Relations with trade
Ability to obtain unions Qualification and Good, long-term relationships
relatively low-cost experience of laboratory with reliable suppliers
funds for capital Active participation by technicians and
expenditures and managers and technical scientists
working capital personnel in
professional Ability of work
Level of information organizations environment to
systems support in encourage creativity and
making strategic and Levels of employee innovation
routine decisions motivation and job
satisfaction
Timely and accurate
management
information on
general and
competitive
environments
Relationships with
public policymakers
and interest groups
Public image and

corporate citizenship
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Table 7: Example: Internal Environment Analysis Using VCA

Table 17: Example: Internal Environment Analysis Using VCA
Financial Non-Financial
Competitor Associated Activity Customer Actual
Cost Cost Priority Status
Inbound Logistics
35% 35%  Efficiency of raw material warehousing activities
1 S
Outbound logistics
3% 4%  Productivity of equipment compared to that of 2 S
key competitors
 Appropriate automation of production processes 3
Process
15% 16%  Efficiency of finished goods warehousing 7 W
activities
Marketing & Sales
 Development of an image of quality and a 2 S
favorable reputation
 Extent of brand loyalty among customers 2
S
 Innovation in sales promoting and advertising 3
After Sale service
 Appropriateness of warranty and guarantee 2 S
11% 10% policies
 Quality of customer education and training 9
W
General Admin
 Quality of the strategic planning system to 3
13% 15% achieve corporate objectives
 Coordination and integration of all value chain 3
activities among organization subunits
Research & Technology
 Qualification and experience of laboratory 2 S
14% 8% technicians and scientists
 Ability of work environment to encourage 3
creativity and innovation
Human Resources
 work environment that minimizes absenteeism 7 W
2% 2% and keeps turnover at desirable levels 2
 Relations with trade unions S
Procurements
 Procedures for procurement of plant, machinery, 7 W
3% 7% and buildings
 Development of criteria for lease-versus-purchase 4
decisions
100% 100%
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Notes:
 Customer Priority (Table 7): in order to identify customer priority; you are required to
o Identify the priority of each activity. Priority can be identified based on (1)
activity impact based on customer perception; and (2) identify wither activity
exists on the organization only {Strength +} or activity is performed by the
competitors and does not performed by your organization {Weakness -}.
o Rates (See Table 6) 1 and 2 illustrates that your organization have a clear
strength that your organization should benefit from it. Rates 9, 8 and 7 highlight
weaknesses that our organization should overcome.
Table 6: Internal Environment Priority Rating

Table 18: Internal Environment Priority Rating
Excellence
High Medium Low
High (1) (5) (9)
 High Priority  High Priority  High Priority
From customer point of From customer point From customer point
view of view of view
 Distinguished services  Acceptable  Weak services
are offered by our org. services are are offered by
offered by our our org.
org.
Strength Priority 1 Neutral Weakness Priority 1

Medium (2) (4) (8)
 Medium Priority  Medium  Medium
From customer point of Piriority Priority
Impact view From customer point From customer point
 Distinguished of view of view
on services are  Acceptable  Weak services
Customer offered by our org. services are are offered by
offered by our our org.
org.
Strength Priority 2 Neutral Weakness Priority 2

Low (7) (3) (6)
 Low Priority  Low Priority
From customer point of From customer point
view of view
 Distinguished  Acceptable
services are services are Neglect
offered by our org. offered by our
org.
Weakness
Priority 3 Neutral
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 Cost Allocation (Table 7): in order to allocate cost; you are required to:
o Identify organization total cost.
o Identify cost (Fixed + Variable) associated with primary (inbound, outbound,
process, marketing & sales and after sale services) and support activities (General
admin., research & technology, human resources and procurements) as a
percentage of the total cost.
o Activities associated with high cost should be analyzed. The aim is to eliminate
non added value activities in order to enhance process efficiency.
3.1.1 Financial Ratios
Liquidity Ratios
Table 19: Liquidity Ratios
Ratio Formula Year 2016 Comments

2016 2015 2014 Index
Decreased Trend:
If the result is less than industry average or
if last year shows a decreased trend, This
means that the firm has a great risk to
fulfill its short term obligations. This
shows indication for creditors &
shareholders.
Current Current Assets/ Current Increased Trend :

Ratio Liabilities If the result is higher than industry average,
this indicated that the firm has a lot of
money tied up in non-productive assets
(Shareholders point of view). Creditors
point of view, highlights firm ability to
cover short term obligations
Average
Current ratio = 1 – 1.4 …… Bad
Current ratio = 1.5 – 2 …… Slightly bad to
Good
Current ratio > 2 …….. Strong situation
Quick (Current Assets –
Ratio Inventory) / Current
Liabilities
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Profitability Ratios
Table 20: Profitability Ratios

2016 2015 2014 Index
Gross Profit /Total Decreased Trend:
Sales A need to minimize cost of suppliers, raw
Gross profit = materials, production process and logistics.
Gross Profit Sales-COGS (cost (Cost Leadership Strategy is a must and
Margin of goods sold) optional integration strategy).
Increased Trend:
Total sales= Net Efficient performance of production &
revenue logistics
Operating EBIT / Total Sales Decreased Trend:
Income EBIT=Earnings poor operation management and needs some
Margin OR before interest & advancement.(Retrenchment strategy)
EBIT tax =revenues- Increased Trend:
Margin COGS (Cost of Efficient operation management performance.
Goods Sold)-
operating expenses
Net Income / Total Decreased Trend:
Sales The company is using more debt to finance
operations which leads to increased interest
Income From rates.
Operations = Gross The company is not efficient in its operations.
Net Profit profit or margin - Tax rates might be high.
Margin NOI Operating  The firm should change its financial
Expenses strategy to depend more on equity rather
than debt.
Net Income =  Firm should change its marketing strategy
Income From to increase sales in less operations cost to
Operations + Non increase its net income.
Operating Income – Increased Trend:
Taxes High combined performance of liquidity,
assets and debt management on operating
results
Decreased Trend:
 Poor management performance due to
utilizing its assets in an inadequate way.
Return on Net Profit (Income) Also means that the firm is paying more
Assets(ROA) / Total Assets interest expenses which decrease the net
(ROI) income . Avoid inadequate inventory or
insufficient production capacity.
 The firm should change its financial
strategy to be more effective in managing
its assets
*Increased Trend:-
High performance in managing Assets that
facilitates planning for expansion.
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Leverage Ratios
Table 21: Leverage Ratios

2016 2015 2014 Index
Debt to Total Liabilities (Debt) Overall Decreased Trend:
Asset Ratio /Total assets Creditors prefer low debt ratios because
(Total Debt the lower the ratio, the greater the cushion
Ratio) against creditors' losses in the event of
liquidity. Stockholders, on the other hand,
may want more leverage because it
magnifies expected earnings.
Note : total debt = Overall Increased Trend:
total assets – total According to the ratio value > 30%,
equity Financial department needs to re-
configure company "Finance Plan"
depends more on "Equity"
Note:-
If the ratio = 30% , it means that 30% of
the company assets are financed by
"Debt" and the other 70% comes from
"Equity"
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3.2 IFAS Matrix

Notes: How to Prepare IFAS Matrix
1. List strengths and weakness that your firm faces (5 for each one) in the internal factors columns.
2. Weight each factor from 1.0 (most important) to 0.0 (not important) in the weight column based
on that factor that factor probable effect on the firm’s strategic position. The total weights for all
the items must sum to 1.00.
3. Rate each factor from 5 (outstanding) to 1 (poor) in the rating column based on how well your
firm is positioned to take advantage of the strength or to compensate for the weakness.
4. Multiple each factor’s weight times its rating to obtain each factor’s weighted score in the
weighted score column.
6. Add the weighted scores to obtain the total weighted score in the weighted score column. This
tells how well the firm is responding generally to the factors in its internal environment. The
better positioned your firm resources are, the higher the rating will be, A 3 will indicate neither
well or poorly positioned, just average. A number higher than 3 would mean that the business is
doing well. A business with an overall rating of five would be responding to the respective
environment in an outstanding way. Note that your business does not benefit from doing an
activity well or having skills or resources if that activity/skill/resources are not important.
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IFAS Example
Table 22: IFAS Example

S.N Factor Weight Rating Weighted Comment
Score
Strengths
Efficiency of raw material warehousing 0.1 5 0.5 Weight:
activities Rating:
Productivity of equipment compared to 0.2 4 0.8 Weight:
that of key competitors Rating:
Development of an image of quality and a 0.15 5 0.6 Weight:
favorable reputation Rating:
Qualification and experience of 0.12 5 0.6 Weight:
laboratory technicians and scientists Rating:
Relations with trade unions 0.11 1 0.11 Weight:
Rating:
Sub Total 0.68 2.61
Weaknesses
Efficiency of finished goods warehousing 0.16 5 0.8 Weight:
activities Rating:
work environment that minimizes 0.1 4 0.4 Weight:
absenteeism and keeps turnover at Rating:
desirable levels
Procedures for procurement of plant, 0.06 3 0.18 Weight:
machinery, and buildings Rating:
Sub Total 0.32 1.38
Total 1 3.99
You should have rational for numbers written in both weight and rating. The rational
should be written as comments.
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Section 4: Strategic Factors Analysis

 VRIO Matrix
 SPACE Matrix
 TOWS Analysis
 Grand Strategies (Directional Strategies)
o Expansion (Growth)
o Stability
o Retrenchment
o Combination
 Grand Strategy Matrix
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4. Strategic Factors Analysis

4.1 VRIO (Value, Rareness, Imitability, Organization) Matrix
VRIO Analysis is an analytical technique that evaluate firms resources and its competitive
advantage. VRIO Analysis was developed by Jay B. Barney as a way of evaluating the resources
of an organization (company’s micro-environment) which are as follows:
 Financial resources
 Human resources
 Material resources
 Non-material resources (information, knowledge)
The Technique is perfect for evaluating the firm resources. One you know your resources you
can better understand your competitive advantages or weaknesses. The VRIO considers for each
type of the resource the following questions (called evaluation dimension) both for your
company and for your competitors. The dimensions of VRIO are:
 Value - How expensive is the resource and how easy is it to obtain on the market
(purchase, lease, rent…etc.)?
 Rareness - How rare or limited is the resource?
 Imitability - How difficult is it to imitate the resource?
 Organization, respectively arrangement - Is the resource supported by any existing
arrangements and can the organization use it properly?
VRIO analysis is a complement to a PESTEL analysis (which assesses macro-environment).

VRIO is used to assess the situation inside the organization (enterprise) - its resources, their
competitive implication and possible potential for improvement in the given area or for a given
resource. Such an assessment is then used for example in the strategic management of
development in various areas or for decision making about the advantage of an external or
internal process and the securing service (e.g. outsourcing decision).
 If the resource is not valuable it should be outsourced because it brings no value to us

 If the resource is valuable but not rare the company is in competitive conformity. It
means we are not worse than our competition,
 If the resource is valuable and rare but it is not expensive to imitate it, we have a
temporary competitive advantage. Other companies will try to imitate it in the near
future, then we lost our competitive advantage.
 If the resource is valuable, rare and is expensive to imitate it but we are not able to
organize our company, the resource become expensive for us (unused incurred costs)
 if we can manage the advantage and we are able to organize our company and temporary
competitive advantage, it becomes as permanent competitive advantage
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Figure 13: VRIO
VRIO Example
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4.2 SFAS Matrix

Notes: How to Prepare SFAS Matrix
1. Identify Opportunities and Threats associated with highest weighted score in your EFAS
matrix
2. Identify Strengths and Weakness associated with highest weighted score in your IFAS
matrix.
3. Design SFAS matrix by listing mentioned above opportunities, threats, strengths and
weaknesses.
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Table 23: SFAS Matrix
Factor Weight Rating Weighted Short Intermediate Long Comment

Score Duration Duration Duration
Strengths
Efficiency of raw 0.1 4 0.4 Weight:
Rating:
material warehousing X
activities
Productivity of 0.2 4 0.8 Weight:
equipment compared to Rating:
that of key competitors X
Development of an 0.15 5 0.6 Weight:
image of quality and a Rating:
favorable reputation X
Weaknesses
Efficiency of finished 0.16 5 0.8 X Weight:
goods warehousing Rating:
activities
work environment that 0.1 4 0.4 Weight:
minimizes absenteeism Rating:
and keeps turnover at X
desirable levels
Opportunities
Product 0.10 4 0.4 X Weight:
Rating:
differences
Brand Loyalty 0.07 4 0.28 X Weight:
Rating:
Threats
Inflation may 0.15 4 0.6 X Weight:
Rating:
reduce sales 3%
Increase in 0.08 5 0.4 Weight:
Rating:
Interest rate may X
affect expansion
strategy
Possibilities for 0.1 2 0.2 Weight:
Rating:
improving X
manufacturing
techniques
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4.3.3 SPACE Matrix Strategic Management Method

SPACE Matrix stands for Strategic Position & ACtion Evaluation matrix. The SPACE matrix is
a strategic tool that can be used to analyze organizations. The aim is to identify most appropriate
strategy that should be undertaken. SPACE matrix consists of four quadrants namely;
Aggressive, Conservative, Defensive and Competitive. The SPACE matrix is based mainly on
two parts of analysis namely Internal strategic dimensions (Financial strength (FS), Competitive
advantage (CA)); and External strategic dimensions (Environmental stability (ES), Industry
strength (IS)).
Internal strategic dimension
 The Financial Strength factors (FS values range from +1 to +7). Return on investment,
leverage, turnover, liquidity, working capital, cash flow, and others.
 Competitive advantage factors (CA values can range from -1 to -7): speed of innovation
by the company, market niche position, customer loyalty, product quality, market share,
product life cycle, and others (Operating Environment, VCA analysis).
External strategic dimension
 Environment Stability (ES values can be rating between -1 and -7): economic condition,
GDP growth, inflation, (PESTEL Analysis)
 Industry strength (IS values can take +1 to +7): price elasticity, technology, barriers to
entry, competitive pressures, industry growth potential, etc…. (Five Forces Analysis).
SPACE matrix Step by Step:
SPACE matrix can be designed through plotting values of (CA), (IS) on the X axis. The Y axis is
based on (ES) and (FS). The SPACE matrix can be designed as follows:
 Identify main factors that should be used to measure your organization competitive
advantage (CA), industry strength (IS), environmental stability (ES), and financial
strength (FS).
Table 24: SPACE Matrix
Competitive advantage Industry strength
 Product differences  Technology

 Product Quality  Price elasticity
 Customer Loyalty
Environmental stability Financial strength
 Inflation  Inventory turnover

 Technology  Liquidity
 Quick cash flow
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 Identify a rate for each individual factor using the following rating system. Rate competitive
advantage (+1 to +6) and environmental stability (6 (worst) to -1 (best)). Rate industry strength
(+1 to +6) and financial strength ( +1 (worst) to +6 (best)).

Rate Competitive advantage Rate Industry strength
-1  Product differences 5  Technology

-3  Product Quality 4
 Price elasticity
-2  Customer Loyalty
-2  Inflation 5  Inventory turnover

-4  Technology 5  Liquidity
5  Quick cash flow
 Calculate the average scores for (CA), (IS), (ES), and (FS) independently.

Average = (-1+(-3)+(-2)/3)= -2 Average = (5+4)/2= 4.5

Average = (-2-4)/2=- 3 Average =( (5+5+5)/3)= 5
 Plot values on the appropriate axis.

Financial Strengths
Conservative Aggressive
Competitive Advantages
Industry Strengths
Defensive Competitive
Environment Stability
Figure 14: SPACE Matrix
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 Add the average score for CA and IS (CA + IS). The result presents your point on axis X. Add
the average score for ES and FS (ES +FS). The result presents your point on axis Y.

Average = (-1+(-3)+(-2)/3)= -2 Average = (5+4)/2= 4.5
Total X score = -2+4.5= 2.5

Average = (5+4+)/2= 3 Average = ((5+5+5)/3)= 5
Total Y score = -1.67+3.66= 2
 Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to
your point.
Financial Strengths
Competitive Advantages
Industry Strengths
Environment Stability
Note: SPACE matrix illustrated that your organization should adopt an aggressive strategy.
Organization needs to use its internal strengths to enhance its market development strategy. This
can be achieved through various grand strategies. It may include product development,
integration with other companies, acquisition of competitors, etc….
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Market Penetration Backward, Forward, Horizontal Integration
Market Development Market Penetration
Product Development Market Development
Related Diversification Product Development
Related or unrelated Diversification
Retrenchment Backward, Forward, Horizontal Integration
Divestiture Market Penetration
liquidation Market Development
Product Development
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4.4 TOWS Analysis

The TOWS Matrix is aa strategic tool that highlights on the external opportunities and threats
while analyzing the internal strengths and weaknesses of an organization. The marketers find a
strategic alternative to assist the company to facilitate the external environment in
correspondence to the company’s existing internal Strengths and Weaknesses. TOWS MATRIX
does not only provide a list of strengths ,weaknesses ,threats and opportunities but as a
mechanism that match internal and external factors to highlight better solutions in the current
scenario of an organization.
TOWS Matrix Involves eight steps as follow:
 List the organization key external opportunities (see EFAS matrix)

 List the organization key external threats (see EFAS matrix)
 List the organization key internal strengths (see IFAS matrix)
 List the organization key internal weaknesses (see IFAS matrix)
 Match external opportunities with internal strengths (SO)
 Match external opportunities with internal weaknesses (WO)
 Match external threats with internal strengths (ST)
 Match external threats with internal weaknesses (WT)
 Consider the interrelationships among the key internal and external factors as they may
be important in devising strategies.
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Table 25: TOWS Analysis
TOWS Analysis
Internal Strengths Weaknesses

Factors Threats
External
Factors
Opportunities
Strategies to make use of Strategies to make use of
opportunities through our opportunities minimize
strengths Weaknesses
Threats Strategies to minimize the

Strategies to prevent Threat potential danger lying in
through our strengths sectors where our
weaknesses meet threats
Example: TOWS Analysis
Internal Strengths Weaknesses

Factors  Efficiency of raw material  Efficiency of finished goods
warehousing activities warehousing activities
 Productivity of equipment  work environment that
compared to that of key minimizes absenteeism and
External competitors keeps turnover at desirable
Factors  An image of quality and a levels
favorable reputation
Opportunities
 Product differences. Our  Develop new products
customers’ seek the
 Acquire existing
development of new products
that we do not offer. producer for the new
 Brand Loyalty products
Threats
 Inflation may reduce sales 3%
 Increase in Interest rate may
affect expansion strategy
 Possibilities for improving
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4.5 Grand Strategies

Grand Strategies are the corporate level strategies and are also called as Master Strategies or
Corporate Strategies. It is designed to illustrate the organization strategic choice with respect to
its mission and the direction it follows in order to achieve its objectives. Grand strategies can be
classified into four categories namely; Stability, Retrenchment, Expansion and Combination.
Table 26: Grand Strategies
Stability Retrenchments
 No change  Turnaround
 Profit Strategy  Divestment
 Pause/Processed with caution  Liquidation
Grand
Strategies
Expansion Combination
 Concentration  Integration Large and complex organizations with several

o Market Penetration o Horizontal strategic Business Units
o Market o Vertical Forward
Development o Vertical
o Product Backward
Development  Cooperation
 Internationalization o Merge
o International o Acquisition
Strategy o Joint Venture
o Multi domestic o Strategic
Strategy Alliance
o Global Strategy  Diversification
o Transnational o Concentric
Strategy o conglomerate
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4.5.1 Stability Grand Strategies

Stability Strategy is adopted by organization aiming at maintaining its current position and
concentrates only on the incremental improvement through simply changing one or more of its
operations in the perspective of technology, customer groups and customer functions. Stability
strategy is usually adopted by:
 Small scale businesses firms,

 Risk avoidance firms,
 Medium/large firms that face unfavorable market conditions,
 Firms satisfied with their performance,
 and Firms that are not seeking any significant changes in its business operations.
Stability strategy could be of three types namely, No Change Strategy, Profit Strategy, and Pause
or proceed with caution Strategy.
No Change Strategy is usually adopted when an organization aims at maintaining the present
business. Stable environment may encourage some organizations to continue with its present
position. Stability could be due to:
 No threats from the competitors,
 No economic disturbances,
 No change in the strengths and weaknesses,
There should be a clear dissimilarity between inactive organizations (do not want to make changes in
their strategies) and organizations which decide to continue with their existing business through
examining both the internal and external conditions. Small or mid-sized firms pay huge effort to
fulfill the needs of a niche market. They rely on the no-change strategy as there is no new threats
emerge in the market, and the firm feels that there is no need to alter its present position.
Profit Strategy is adopted when an organization aims to maintain its profit. The profit strategy can
be followed when:
 The problems are temporary or short-lived and will go away with time.
 The problems could be the economic recession or inflation, industry downturn, worst market
conditions, competitive pressure, government policies and the like.
Here no new investment is made; the same technology is followed, at least partially with new
technological domains. In addition the firm may cut costs, raise prices, increase productivity (toll
manufacturing) or adopt any methods to overcome the temporary difficulties.
Pause/Proceed with Caution Strategy is a stability strategy followed when

 An organization waits and looks at the market conditions.
 History of successful expansion strategy does exist. This may encourage some
organizations to wait till the time the new strategies seeps down the organizational levels
and look at the changes in the organizational structure before taking the next step
Pause/Proceed with Caution strategy is a temporary strategy. Profit strategy focuses on
sustaining profitability until the temporary difficulties or the conditions become more hospitable.
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Whereas the Pause/Proceed with caution strategy is a deliberate action taken by the firm to
postpone the strategic action till the best opportunity knocks at the door.
The pause/proceed with caution strategy is often followed by the manufacturing companies who
study the market conditions thoroughly and then launch their new products into the market.
4.5.2 Retrenchment Strategy
Retrenchment Strategy is adopted when an organization aims at reducing its one or more
business operations with the view to cut expenses and reach to a more stable financial position.
The strategy is followed, when a firm decides to eliminate its activities through a considerable
reduction in its business operations, in the perspective of customer groups, customer functions
and technology alternatives. The firm can either restructure its business operations or discontinue
it, so as to refresh its financial position. There are three types of Retrenchment Strategies:
Turnaround Strategy In other words, the strategy followed, when a firm decides to eliminate its
activities through a considerable reduction in its business operations, in the perspective of
customer groups, customer functions and technology alternatives, either individually or
collectively is called as Retrenchment Strategy.
Simply, turnaround strategy aims at transforming the organization from a loss making company
to a profit making company. Indicators which make it mandatory for a firm to adopt this strategy
are:
 Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services
 Changes in the external environment,
 Change in the government policies, saturated demand for the product,
 A threat from the substitute products,
 Changes in the tastes and preferences of the customers, etc.
Divestment Strategy is another form of retrenchment that includes the downsizing of the scope
of the business. The firm is said to have followed the divestment strategy, when it sells or
liquidates a portion of a business or one or more of its strategic business units or a major
division, with the objective to revive its financial position.
Firms follow the divestment strategy to shut down its less profitable division and allocate its
resources to a more profitable one.An organization adopts the divestment strategy only when the
turnaround strategy proved to be unsatisfactory or was ignored by the firm. Following are the
indicators that mandate the firm to adopt this strategy:
 Continuous negative cash flows from a particular division
 Unable to meet the competition
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 Huge divisional losses

 Difficulty in integrating the business within the company
 Better alternatives of investment
 Lack of integration between the divisions
 Lack of technological up gradations due to non-affordability
 Market share is too small
 Legal pressures
Liquidation Strategy is the most unpleasant strategy adopted by the organization that includes
selling off its assets and the final closure or winding up of the business operations. It is the most
crucial and the last resort to retrenchment since it involves serious consequences such as a sense
of failure, loss of future opportunities, spoiled market image, loss of employment for employees,
etc. The firm adopting the liquidation strategy may find it difficult to sell its assets because of the
non-availability of buyers and also may not get adequate compensation for most of its assets. The
following are the indicators that necessitate a firm to follow this strategy:
 Failure of corporate strategy
 Continuous losses
 Obsolete technology
 Outdated products/processes
 Business becoming unprofitable
 Poor management
 Lack of integration between the divisions
4.5.3 Combination Strategy

Combination Strategy means making the use of other grand strategies (stability, expansion or
retrenchment) simultaneously. Simply, the combination of any grand strategy used by an
organization in different businesses at the same time or in the same business at different times
with an aim to improve its efficiency is called as a combination strategy.
Such strategy is followed when an organization is large and complex and consists of several
businesses that lie in different industries, serving different purposes. The strategist has to be very
careful while selecting the combination strategy because it includes the scrutiny of the
environment and the challenges each business operation faces. The Combination strategy can be
followed either simultaneously or in the sequence
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4.5.4 Expansion (Growth) Strategies

Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as
compared to its past achievements. In other words, when a firm aims to grow considerably by
broadening the scope of one of its business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually or jointly, then it follows the
Expansion Strategy. The reasons for the expansion could be:
 survival,
 higher profits,
 increased prestige,
 economies of scale,
 larger market share,
 social benefits, etc.
The expansion strategy should be based on organization capability to align its strengths with
market opportunities in one hand, and overcome market threats on the other hand. In
addition, those organizations who have managers with a high degree of achievement and
recognition usually adopt expansion strategies. The organization can follow either of the five
expansion strategies as follows
Expansion through Concentration is the first level form of Expansion Grand strategy that
involves the investment of resources in the product line, catering to the needs of the identified
market with the help of proven and tested technology. Simply, the strategy followed when an
organization coincides its resources into one or more of its businesses in the context of customer
needs, functions and technology alternatives, either individually or collectively, is called as
expansion through concentration.
The organization may follow any of the ways to practice Expansion through concentration:
 Market penetration strategy: The firm focusing intensely on the existing market with its
present product.
 Market Development type of concentration: Attracting new customers for the existing
product.
 Product Development type of Concentration: Introducing new products in the existing
market.
The firms prefer expansion through concentration because they are required to do things what
they are already doing. Due to the familiarity with the industry the firm likes to invest in the
known businesses rather than a new one. Also, through concentration strategy, no major changes
are made in the organizational structure, and expertise is gained due to an in-depth knowledge
about one or more businesses.
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However, the expansion through concentration is risky since these strategies are highly
dependent on the industry, so any adverse conditions in the industry can affect the business
drastically. Also, the huge investments made in a particular business may suffer losses due the
invention of new technology, market fickleness, and product obsolescence
Expansion through Diversification is followed when an organization aims at changing the

business definition, i.e. either developing a new product or expanding into a new market, either
individually or jointly. A firm adopts the expansion through diversification strategy, to prepare
itself to overcome the economic downturns.
Generally, the diversification is made to set off the losses of one business with the profits of the
other; that may have got affected due to the adverse market conditions. There are mainly two
types of diversification strategies undertaken by the organization:
1. Concentric Diversification: When an organization acquires or develops a new product or

service that are closely related to the organization’s existing range of products and services is
called as a concentric diversification. For example, the shoe manufacturing company may
acquire the leather manufacturing company with a view to entering into the new consumer
markets and escalate sales.
2. Conglomerate Diversification: When an organization expands itself into different areas,
whether related or unrelated to its core business is called as a conglomerate diversification.
Simply, conglomerate diversification is when the firm acquires or develops the product and
services that may or may not be related to the existing range of product and services.
Generally, the firm follows this type of diversification through a merger or takeover or if the
company wants to expand to cover the distinct market segments.
Expansion through Integration means combining one or more present operation of the
business with no change in the customer groups. This combination can be done through a value
chain. The value chain comprises of interlinked activities performed by an organization right
from the procurement of raw materials to the marketing of finished goods. Thus, a firm may
move up or down the value chain to focus more comprehensively on the needs of the existing
customers. The expansion through integration widens the scope of the business and thus
considered as the grand expansion strategy. There are two ways of integration
Vertical integration: The vertical integration is of two types: forward and backward. When an
organization moves close to the ultimate customers, i.e. facilitate the sale of the finished goods is
said to have made a forward integration. Whereas, if the organization retreats to the source of
raw materials, is said to have made a backward integration. Example, the shoe company
manufactures its own raw material such as leather through its subsidiary firm.
Horizontal Integration: A firm is said to have made a horizontal integration when it takes over
the same kind of product with similar marketing and production levels. Example, the
pharmaceutical company takes over its rival pharmaceutical company.
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Expansion through Cooperation is a strategy followed when an organization enters into a

mutual agreement with the competitor to carry out the business operations and compete with one
another at the same time, with the objective to expand the market potential
1. Merger: The merger is the combination of two or more firms wherein one acquires the assets
and liabilities of the other in the exchange of cash or shares, or both the organizations get
dissolved, and a new organization came into the existence.
The firm that acquires another is said to have made an acquisition, whereas, for the other firm
that gets acquired, it is a merger.
2. Takeover: Takeover strategy is the other method of expansion through cooperation. In this, one
firm acquires the other in such a way, that it becomes responsible for all the acquired firm’s
operations. The takeovers can either be friendly or hostile. In the former, both the companies
agree for a takeover and feels it is beneficial for both. However, in the case of a hostile takeover,
a firm tries to take on the operations of the other firm forcefully either known or unknown to the
target firm.
3. Joint Venture: Under the joint venture, both the successful firms agree to combine and carry out
the business operations jointly (building a third company, working on an outside project or
marketing synergistic services). The joint venture is generally done, to capitalize the strengths of
both the firms. The joint ventures are usually temporary; that lasts till the particular task is
accomplished. Note: both companies remain separate.
4. Strategic Alliance: Under this strategy of expansion through cooperation, the firms unite or
combine to perform a set of business operations, but function independently and pursue the
individualized goals. Generally, the strategic alliance is formed to capitalize on the expertise in
technology or manpower of either of the firm.
Thus, a firm can adopt either of the cooperation strategies depending on the nature of business
line it deals in and the pursued objectives
Expansion through Internationalization is the strategy followed by an organization when it

aims to expand beyond the national market. The need for the Expansion through
Internationalization arises when an organization has explored all the potential to expand
domestically and look for the expansion opportunities beyond the national boundaries
But however, going global is not an easy task; the organization has to comply with the stringent
benchmarks of price, quality and timely delivery of goods and services, that may vary from
country to country.
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The expansion through internationalization could be done by adopting either of the following
strategies:
Global Integration Verses National Responsiveness
High
Global Strategy Transnational

Strategy
Global Integration
International Multi-domestic
Strategy Strategy
Low
Low High
National Responsiveness
Figure 15: Global Integration Verses National Responsiveness
1. International Strategy: The firms adopt an international strategy to create value by offering
those products and services to the foreign markets where these are not available. This can be
done, by practicing a tight control over the operations in the overseas and providing the
standardized products with little or no differentiation.
2. Multi-domestic Strategy: Under this strategy, the multi-domestic firms offer the customized
products and services that match the local conditions operating in the foreign markets.
Obviously, this could be a costly affair because the research and development, production and
marketing are to be done keeping in mind the local conditions prevailing in different countries.
3. Global Strategy: The global firms rely on low-cost structure and offer those products and
services to the selected foreign markets in which they have the expertise. Thus, a standardized
product or service is offered to the selected countries around the world.
4. Transnational Strategy: Under this strategy, the firms adopt the combined approach of multi-
domestic and global strategy. The firms rely on both the low-cost structure and the local
responsiveness i.e. according to the local conditions. Thus, a firm offers its standardized products
and services and at the same time makes sure that it is in line with the local conditions prevailing
in the country, where it is operating.
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So, in order to globalize, the firm should assess the international environment first, and then
should evaluate its own capabilities and plan the strategies accordingly to enter into the foreign
markets
4.6 Grand Strategy Matrix

Grand Strategy Matrix is a tool for formulating alternative strategies based on two dimensions
namely; competitive position and market growth.
 Quadrant 1: Excellent strategic position, concentration on current markets / products, and

take risks aggressively when necessary.
 Quadrant 2: Evaluate present approach, identify how to improve competitiveness, and
rapid market growth requires intensive strategy.
 Quadrant 3: Compete in slow-growth industries, weak competitive position, drastic
changes quickly, and cost & asset reduction (retrenchment),
 Quadrant 4: Strong competitive position, slow-growth industry, diversification to more
promising growth areas.
Grand Strategy Matrix
Rapid Market Growth
Quadrant 2 Quadrant 1
o Market Penetration o Market Penetration
Strong Competitive Position

Weak Competitive Position
o Market Development o Market Development

o Product Development o Product Development
o Horizontal Integration o Horizontal Integration
o Divestiture o Vertical Forward
o Liquidation o Vertical Backward
o Related Diversification
Quadrant 3 Quadrant 4
o Retrenchment o Related Diversification
o Related Diversification o Unrelated Diversification
o Unrelated Diversification o Joint Venture
o Divestiture
o Liquidation
Slow Market Growth
Figure 16: Grand Strategy Matrix
Based on IFAS, EFAS, BGC and SFAS matrix outcome, an organization can
illustrate its proper quadrant in the Grand Strategy Matrix.
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Section Five: Strategic Alternatives and

Recommended Strategy
 Quantitative Strategic Planning Matrix
 Recommended Strategic Objectives
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5. Strategic Alternatives and Recommended Strategy

5.1 Quantitative Strategic Planning Matrix (QSPM)
QSPM is a high-level strategic technique that is used for evaluating possible strategies. It
provides clear method for comparing suggested alternative actions. Organizations have limited
resources; therefore, they usually have a priority list. The critical part here is to have a technique
that supports organization strategic level managers to prioritize suggested feasible alternative
actions. The QSPM method provides support into this approach in order to make it a little more
objective technique. In order to apply this technique several steps have to be performed as
follows:
 Step 1: identify key strategic factor. EFAS and IFAS can be adopted to identify key
strategic factors.
 Stage 2: SWOT analysis (or TOWS), SPACE matrix analysis, BCG matrix model, or the
SFAS matrix model can be adopted.
 Stage 3: Based on the analysis, possible strategies can be formulated.
 Stage 4: QSPM method allows organizations to evaluate alternative strategies objectively
based on relative attractiveness of various strategies and key external and internal critical
success factors are capitalized upon or improved. The relative attractiveness of each
strategy is computed by determining the cumulative impact of each external and internal
critical success factor
An Example:
Based on strategies in the step 1 and 2, organization should adopt an aggressive strategy aimed
at penetration of the market. Two main strategies were suggested (Market Development or
acquiring existing Competitor). The target is to identify which alternative is a the better one.
They also identified that this strategy can be executed in two ways. One strategy is acquiring a
competing company. The other strategy is to expand internally. They are now asking which
option is the better one.
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Table 27: Quantitative Strategic Planning Matrix (QSPM)
Alternative 1 Alternative 2
Key Factors Market Development Acquiring a Competitor

Strengths
Efficiency of raw material 0.07 4 0.28 0.15 5 0.75
warehousing activities
Productivity of equipment 0.14 4 0.56 0.07 4 0.28

compared to that of key competitors
Development of an image of quality 0.11 5 0.55 0.08 5 0.4

and a favorable reputation
Weaknesses
Efficiency of finished goods 0.11 5 0.55 0.09 3 0.27
warehousing activities
work environment that minimizes 0.08 4 0.32 0.09 2 0.18

absenteeism and keeps turnover at
desirable levels
Opportunities
Product differences 0.10 2 0.20 0.03 2 0.06
Brand Loyalty 0.11 5 0.55 0.12 4 0.48
Threats
Inflation may reduce sales 3% 0.11 4 0.44 0.12 3 0.48
Increase in Interest rate may affect 0.08 5 0.4 0.09 4 0.36

expansion strategy
Possibilities for improving 0.09 2 0.18 0.15 4 0.6

Sum Weight 1 1
(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 =

most acceptable; 0 = not relevant)
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Attractiveness Scores (AS) in the QSPM indicates how each factor is important or attractive to
each alternative strategy. Attractiveness Scores are determined by examining each key
external and internal factor separately, one at a time, and asking the following question:
Does this factor make a difference in our decision about which strategy to pursue?
If the answer to this question is yes, then the strategies should be compared relative to that key
factor. The range for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 =
reasonably attractive, and 4 = highly attractive. If the answer to the above question is no, then
the respective key factor has no effect on our decision. If the key factor does not affect the choice
being made at all, then the Attractiveness Score would be 0.
Calculations declared that the Sum Total Attractiveness Score for The Market development
strategy is higher score than the Acquisition strategy. The acquisition strategy has a score of
3.536 in the while the market development strategy has score of 3.75.
5.2 Strategic Objectives

 Qualities of strategic Objectives. There are several criteria to be followed in preparing
strategic objectives:
o Acceptable (internal, external)
o Flexible (adjustment in level rather than nature)
o Measurable (what & when)
o Motivating (not so high or so low, tailor to specific groups)
o Suitable (suit mission, aim, goals)
o Understandable (clear, meaningful)
o Achievable
SO Acceptable Flexible Measurable Motivating Suitable Understand Achievable
       
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Section 6: Implementation & Control

 Lagging & Leading Measures
 Balanced Score Card
 Strategy Map
 Organization Structure
 Stakeholders Matrix
 Short Term Actions
o Product Market Expansion Matrix
 Implementation Action Plan
 Strategy Control
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6.1 Balanced Scorecard

The Balanced Scorecard is a carefully selected set of quantifiable measures derived from an
organization’s strategy. BSC translates an organizational mission and strategy into
comprehensive set of performance measures that provides the frame work for strategic
measurement and Management system.
Rational For BSC
Implementing
strategy
New
Prioritizing
leadership
initiatives
Setting the New

management organizational
agenda strategy
FINANCIAL CUSTOMER INTERNAL EMPLOYEE
PROCESSES LEARNING
AND
GROWTH
Business
crisis Aligning employee
goals
Communication
and education
Figure 17: Rational For BSC
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The balanced scorecard suggests that we view the organization from four perspectives, and to
develop metrics, collect data and analyze it relative to each of these perspectives:
 The Learning and Growth Perspective

 The Business Process Perspective
 The Customer Perspective
 The Financial Perspective
Figure 18: Vision and Strategy
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6.2 Lagging and Leading Measures

The Balanced Scorecard should contain a mix of leading and lagging indicators. Without
performance drivers, lagging indicators cannot inform us of how we hope to achieve our results.
Leading indicators don’t reveal whether these improvements are leading to improved customer
and financial results.
Table 28: Lagging and Leading Measures
Lagging Leading
• • Measures that “drive”
Definition Measures focusing on results
at the end of a time period or lead to the
• Normally characterizes performance of lag
historical performance measures
• Normally measures
intermediate processes
and activities
• •
Examples •
Market share
Sales
Hours spent with
customers
• Employee satisfaction • Proposals written
• Absenteeism
• •
Advantages Normally easy to identify and
capture
Predictive in nature, and
allows the organization
to make adjustments
based on results
• •
Issues •
Historical in nature
Does not reflect current
May prove difficult to
identify and capture
activities • Often new measures
• Lacks predictive power with no history at the
organization
Example
FINANCIAL PERSPECTIVE
Objectives
Goal Measures
Lag Lead
Selling entirely new Revenue from new
products and services products
Revenue growth to the market
Deepening Tracking market share
Enhancing relationships with
shareholder value existing customers
Reducing costs Cost versus budget
Expenses as a
Enhancing percentage of sales
productivity Improving the Asset utilization
utilization of assets
currently in place
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6.2 Strategy Map

Strategy maps aims at linking the objectives together in patterns of cause and effect. Therefore,
you should begin by considering what must be done prior to creating the Map, including the
question of whether the four perspectives are right for you, gathering background materials, and
interviewing your executive team for their critical insights. At that point each of the four
perspectives will be examined, with advice on how you can determine which objectives are right
for you. Finally, tips and tools will be shared to ensure your Strategy Mapping workshop is run
with maximum efficiency and effectiveness.
Figure 19: Strategy Map
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Figure 20: Strategy Map for a Fictitious Distribution Company
6.4 Mapping Initiatives to Objectives

This table displays a template that will assist you in identifying which initiatives map to specific
objectives
Figure 21: Mapping Initiatives to Objectives
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Example: Strategy Map
Productivity Profitability
Profit Growth
Financial
Customers Average Price Share of Customers
Process Superior Products
Learning Staff Training

& Growth
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Example: Balanced Scored Card Cascading

Strategic Time Time
Target KPI 1 2 3 4
Objectives Target KPI 1 2 3 4
Objectives
.5 .5 1 1
Actual
Profit Profit /
Financial 3%
Growth Target
Profit
average
Actual
price
Price / 95% 90%
compared to 90%
Penetrate Target
Sohag
key
Price
Market competitors
through
product X Customer
increase Actual Actual
and Y in Penetrate new Market
order to
org. sales / Demographic MS /
Profit Target .5 .5 1 1 Share
increase market Target
3% Sales 19%
organization MS
Profit 3%
New number 1 1 1
Superior features of new
Process Product offered features
Functionality 3 offered
Increase
Learning operational
& 4 Target / 60 120
staff
Growth programs Actual
Training
Programs
6.4.1 Marketing Expansion Strategies

Product/ Market Expansion Matrix
Existing Product New Product
Existing Market Market Penetration Product Development
Market Development Diversification

New Market
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6.5 Stakeholders Matrix (Importance/influence Matrix)

It generates insights on the importance and influence of each stakeholder. With this information,
it becomes possible to develop a specific approach and strategy for the identified stakeholders.
Importance: The priority given to satisfying the needs and interests of each stakeholder.
Influence: The extent to which the stakeholder is able to persuade or coerce others into making
decisions, and following a certain course on action.
Figure 22: Stakeholders Matrix
Stakeholders Matrix (Importance versus Influence Matrix) adopt several steps as follows:
1. Identify the most important stakeholders in the MSP

2. Identify Interests of Each Stakeholder
3. Identify required contribution of each Stakeholder to guarantee successful outcome
4. Assess the importance that each stakeholder attaches to the MSP issue
5. Assess the influence of each stakeholder on the MSP issue
6. Position the stakeholders on the identified quadrant and validate with participants
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Stakeholders Interest of Contribution to Decision Making Importance

Stakeholders successful outcome (Influential or of
(Knowledge, money, not) Stakeholders
time…etc)
(2)
(1) (3) (5) (4)
1
2
3
Variables affecting stakeholders’ relative importance and influence: Within and between formal
organizations:
 Legal hierarchy (command & control, budget holders)

 Authority of leadership (formal, informal, charisma, political, familial or cadre connections)
 Control of strategic resources
 Possession of specialist knowledge & skills
 Negotiating position (strength in relation to other stakeholders)
For informal interest groups and primary stakeholders:
 Social, economic and political status - degree of organisation, consensus and leadership in
the group
 Degree of control of strategic resources
 Informal influence through links with other stakeholders
 Degree of dependence on other stakeholders
After the Importance versus Influence Matrix is completed, it becomes clear that ideal
stakeholders will have both a strong influence over and high interest in the objectives of the
MSP. However, it is rarely so clear cut. By classifying stakeholders in this way, one can
determine cases where:
 Significant awareness-raising is required to turn a highly-influential but low-interest

stakeholder into an interest potential stakeholder
 Significant capacity development is required to turn a stakeholder with high interest but low
influence into a stronger potential stakeholder.
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6.6 Initiatives Implementation (Short Term)

 They are measurable outcomes achievable or intended to be achieved in one year or less.
 Short-term objectives are usually accompanied by action plans which enhance these
objectives in 3 ways:
 Action plans usually identify functional tactics and activities that will be undertaken in
the next period of the business’s effort to build competitive advantage.
 Action plan is a clear time frame for completion.
Time Time
Objectives Target KPI Tactics Target KPI
1 2 3 4 Q1 Q2 Q3 Q4
Financial Increase 0.5 0.75 0.75

2%
Profit Margin
Customer Increase CS 90% 80% 83% 87% 90%
Minor
Actual
Penetrate Modifications X
Actual 95% /
new Market in Products X and
MS / Target
Demographic Share and Y y
Target Reduce Actual
market 19%
MS Machines 20 mins / 20
Process setup time Target mins
Develop Actual
Reduce
efficient / X X X X
COGS 5%
Supply Chain Target
Marketing
TV ADS X X X X
Activities
Learning
Actual
& SMED 50 X
/
Growth courses employees
Target
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6.7 Organization Structure

Organization design is a process in which managers develop or change their organization’s
structure.
Functional Structure
Figure 23: Functional Structure
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Divisional Structure
Figure 24: Divisional Structure
Functional: Groups employees based on work performed (e.g., engineering, accounting

information systems, human resources)
Product: groups employees based on major product areas in the corporation (e.g., women’s
footwear, men’s footwear, and apparel and accessories)
Customer: groups employees based on customers’ problem and needs (e.g., wholesale, retail,
government)
Geographic: groups employees based on location served (e.g., North, South, Midwest, East)
Process: groups employees based on the basis of work or customer flow (e.g., testing, payment)
Matrix Structure
This type of departmentalization superimposes horizontal set of divisional reporting relationships

on hierarchical functional structure. It is also known as grid organization or project or product
management organization. It is a combination of both functional and a divisional organization at
the same time. Therefore, it enjoys two chains of command—vertical and horizontal.
Decentralized decision making, better project or product coordination, improved environment

monitoring and resultant response to change, flexible utilization of manpower and other
resources (including support services) are some of the advantages of matrix structure. On the
other hand, this structure requires high administrative costs, creates confusion over authority and
responsibility, enhances interpersonal conflicts and overemphasizes group decision making.
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Despite potential disadvantages, the matrix structure is now widely used to cope up with the
increased environmental pressure and to develop competitive strategies. Unless the whole
process is efficiently managed, it is not likely to benefit an organization
Figure 25: Hybrid Matrix
Hybrid Matrix
This structure is a form of departmentalization, which combines both functional and divisional structure.
Particularly large organizations adopt this structure to gain the advantages of both functional and
divisional structures.
Hybrid structure gives the benefit of specialized expertise and economies of scale in prime
functional areas. It facilitates adaptability and flexibility in handling diverse product or service
lines, territories, differing needs of customers, alignment of divisional and corporate goals, etc.,
because of the partial divisional nature.
However, this structure requires hiring of huge staff members both at the corporate level and
functional (operational level). Control is also difficult because of the huge organizational
structure and it also leads to conflict. Coordination between a division and a corporate functional
department is time consuming, which further creates organizational imbalance
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Figure 26: Hybrid Structure
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6.8 Implementation & Control Action Plan

Action plans contain identification of who is responsible for each action in the plan
Implementation
 They are measurable outcomes achievable or intended to be achieved in one year or less.
 Short-term objectives are usually accompanied by action plans which enhance these
objectives in 3 ways:
 Action plans usually identify functional tactics and activities that will be undertaken in
the next period of the business’s effort to build competitive advantage.
 Action plan is a clear time frame for completion.
 Action plans contain identification of who is responsible for each action in the plan
Recommended
Time frame Responsibility Control Potential failure
Initiatives Target KPIs Action
Q Q Q Q
1 2 3 4
Financial Dept.
Marketing
Marketing Marketing Activities
Manager
Dept.
Sales Dept.
Minor Modifications Production

Production in Products X and Y Manager
Dept.
Develop efficient Logistics

Logistics Dept. Supply Chain Manager
Reduce Machines Maintenance

Maintenance setup time Manager
Dept.
Training
HR Dept. SMED courses
Manager
IT Dept.
Customer Increase CS 90% CS Manager

Service Dept.
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Control
 Basic types of strategic controls:
1. Premise control (concerned with environmental and industry factors)
2. Strategic surveillance (an ongoing, broad-based vigilance in all daily operations)
3. Special alert control (Sudden, unexpected event)
4. Implementation control (Milestones review)
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Strategic Management Guide

Prof. Dr. Ashraf Labib

Strategic Management Guide

Prof. Dr. Ashraf Labib

Section 4: Strategic Factors Analysis........................................................................................................... 65

Table 1: Remote Environment Outputs ...................................................................................................... 20

Figure 1: Strategic Management Model........................................................................................................ 8

Section 1: Mission, Vision and Generic

Strategic Management has a significant influence on organization performance as Mangers at All

Figure 1: Strategic Management Model

Organization Competitive Advantage; Mission and Vision

 Who is our customer?

1.1 Generic strategies

Lower Cost Differentiation

Cost Focus Differentiation

Figure 2: Porter's Generic Strategies

1.2 Organization Mission

 Why is the firm in business?

 Basic types of Products/service to be offered

Organization Mission Your mission may involve the following criteria:

1.3 Organization Vision

1.4 Board of directors

 Establish and update the company mission if required

 Agency cost: differing self-interest between stockholders and mangers.

1.5 Corporate Governance

 Ensuring the basis for an effective corporate governance framework

This can be done through establishing the following roles:

comparable information, Make recommendation on policy and structure of remuneration,

Section 2: External Environment Analysis

2.1 Remote/ Societal Environment

Table 1: Remote Environment Outputs

Description Factors that may consider to perform your

Level of economic development, Population,

 S (Social) Customs, norms, values, beliefs, Language,

 T (Technological) Possibilities for new products, possibilities for

 E Environmental) Reformulating products, Modifying process,

 L (Legal) Legal tradition, Effectiveness of legal system,

2.1.1 Issue Priority Matrix

Issue Priority Matrix

Table 2: Issue Priority Matrix

High Medium Low

Example for Remote Analysis using Issue Priority Matrix

Table 3: Example for Remote Analysis using Issue Priority Matrix

Probability Impact on Corporation

Probability Impact on Corporation

Probability Impact on Corporation

2.2 Industry/ Task Environments

Figure 2: Competitive Analysis Porter's Five Forces Analysis

Figure 3: Competitive Analysis Porter's Five Forces Analysis

 Economics of scale could be due to obstacles in production, research, marketing, service,

Example for Industry Analysis using Issue Priority Matrix

Probability Impact on Corporation

Probability Impact on Corporation

Probability Impact on Corporation

2.3 Operating Environment

Table 2: Operating Environments Outputs

Table 5: Operating Environmemts Outputs

Description Factors that may be used to Analyze your Operating

 Customers Geographic; Demographic (sex, age, income,