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STRATEGY FORMULATION
SWOT Analysis
Definition
A strategic management tool evaluate the firm, which accomplished by identifying
its strengths and weak nesses and identifying its opportunities and threats.
Conducting A SWOT Analysis
Step 1; Identify internal environment by identifying its strengths & weaknesses.
Step 2; Identify external environment by identifying its opportunities & threats
Step 3; Cross match strengths with opportunities, weaknesses with threats,
strengths with threats & weaknesses with opportunities.
Developing Alternate Strategies
SO Strategies: Generate strategies here that use strengths to take advantage
of opportunities
ST Strategies: Generate strategies here that use strengths to avoid threats
WO Strategies: Generate strategies here that take advantage of opportunities
by overcoming weaknesses
WT Strategies: Generate strategies here that minimize weaknesses and avoid
threats
Strengths (S)
List 5-10 internal strengths
Weaknesses (W)
List 5-10 internal
weaknesses
Opportunities (O)
List 5-10 external
opportunities
SO Strategies
Generate strategies here
that use strengths to take
advantage of opportunities
WO Strategies
Generate strategies here
that take advantage of
opportunities by
overcoming weaknesses
Threats (T)
List 5-10 external threats
ST Strategies
Generate strategies here
that use strengths to avoid
threats
WT Strategies
Generate strategies here
that minimize weaknesses
and avoid threats
EXTERNAL FACTORS
Strengths
Opportunities
Economic integration of
European Community
Demographics of Europe and
America favor quality appliance
Economic development of Asia
Opening of Eastern Europe
Trend to Super Stores
Weaknesses
Threats
Increasing government
regulations
Strong US competition
Whirlpool and Electrolux strong
Globally
New product advances
Japanese appliance companies
Strengths (S)
Quality Maytag culture
Experienced top management
Vertical integration
Employee relations
Hoovers international
orientation
Weaknesses (W)
Process oriented R&D
Distribution channels
Financial position
Global positioning
Manufacturing facilities
Opportunities (O)
SO Strategies
Economic integration of
Use worldwide Hoover
European Community
distribution channels to sell
Demographics favor quality
both Hoover and Maytag
Economic development of Asia
major appliances.
Opening of Eastern Europe
Find joint venture partners in
Trend toward super stores
Eastern Europe and Asia
WO Strategies
Expand Hoovers presence in
continental Europe by
improving Hoover quality and
reducing manufacturing and
distribution costs.
Emphasize superstore channel
for all non-Maytag brands.
Threats (T)
Increasing government
regulation
Strong US competition
Whirlpool and Electrolux
positioned for global economy
New product advance
Japanese appliance companies
WT Strategies
Sell off Dixie-Narco Division to
reduce debt.
Emphasize cost reduction to
reduce break-even point.
Sell out to Raytheon or a
Japanese firm
ST Strategies
Acquire Raytheons appliance
business to increase US market
share
Merge with a Japanese major
home appliance company
Sell off all non-Maytag brands
and strongly defend Maytags
US share .
Growth Strategies
Integrative Strategies
Vertical Integration; involves growth by acquiring supplier (backward
integration) or distributor (forward integration).
Horizontal Integration; involves growth by acquiring competing firms.
Intensive Strategies
Market Development; developing new market segments for current products.
Market Penetration; increasing sales of current products to current markets.
Product Development; offering new products to current market segments.
Diversification; a growth strategy by offering new products to new markets.
Diversification: A growth strategy that involves the acquisition of organizations in
other industries or other line of businesses.
Concentric Diversification; once acquired firm has similar marketing,
products, distribution channel and markets similar to those of purchaser firm.
Conglomerate Diversification; when acquired firm is in a completely different
line of business.
Defensive Strategies
Retrenchment Strategies
Turnaround Strategy; strategy is employed when organization is performing
poorly but has not reached a critical stage. Entails getting rid of non-profitable
products, pruning workforce, reducing distribution outlets & selling assets.
Divestment Strategies: Involve in selling a particular business to improve its
financial position.
Harvest; a retrenchment strategy that involves minimizing investment and
maximizing short term profits while planning to sell or liquidate in long
term.
Liquidation Strategy; Business terminated assets sold off.
Bankrupted; organization seeks court protection to gain time and
opportunity to attempt a turnaround.
Mergers & Joint Ventures
Joint Venture; It occurs when two or more companies form a temporary
partnership for the purpose of capitalizing some opportunity.
Merger; A merger occurs when 2 or more organizations form an enterprise.
Once acquisition of merger in not desired by both parties, it is called a
takeover or hostile takeover.
REQUIREMENTS
RISKS
Underpriced competitors
can gain market share.
REQUIREMENTS
Develop product by
carefully checking the
preferences and buyers
need.
Production of a unique
product requires close
coordination between R &
D and Marketing Functions.
RISKS
REQUIREMENTS
RISKS
POSITION
CHARACTERISTIC /
REQUIREMENT
STRATEGY
QUESTION
MARK
New business in a
high growth, to
compete with
contemporaries.
Management has to
decide about future.
Build Market Share /
Divest
STAR
CASH COW
DOGS
Divest, or at times
management has a reason
to hold on dogs.
Merits of Growth-Share Matrix ; Its main contributions are; It encourages managers to view the formulation of organizational strategies in
terms of joint relationships among businesses and to take a long-range view.
The growth-share matrix acknowledges that businesses in different stages
have different cash requirements and make different contributions to
achieving organizational objectives.
The growth-share matrix is also a simple approach that provides an appealing
visual overview of an organizations business portfolio.
De-merits of Growth-Share Matrix; Variety of problems arises using this approach;
it should be used cautiously in strategy formulation. Salient problems are: The growth-share matrix focuses on balancing cash flows, whereas
organizations are more interested in the ROI that various businesses yield.
It is not always clear what share of what market is relevant in the analysis.
Many other factors besides market share and growth rate are critical in
strategy formulation.
The growth-share matrix does not provide direct assistance in comparing
different businesses in terms of investment opportunities.
Business
Strength
Market share
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive capacity
Productive efficiency
Unit costs
Material supplies
R&D performance
Managerial personnel
RATING
(1-5)
WEIGHT
0.20
0.20
0.15
0.15
0.15
0.05
0.05
0.05
Must
acceptable
0.10
0.15
0.10
0.10
0.05
0.05
0.05
0.05
0.15
0.05
0.10
0.05
1.00
VALUE
4
5
4
2
4
3
2
3
0.80
1.00
0.60
0.30
0.60
0.15
0.10
0.15
4
2
4
5
4
3
3
2
3
5
3
4
0.40
0.30
0.40
0.50
0.20
0.15
0.15
0.10
0.45
0.25
0.30
0.20
3.40
be
RECOMMENDED STRATEGIES
Protect Position
Build Selectively
Selectivity / Manage
Build Selectively
Invest To Build
Concentrate
investments
in
segments where profitability is
good and risks are relatively low
Minimize investment
Harvest
Look for ways to expand without
high risks otherwise minimize
investment
and
rationalize
operations
Divest
Sell at time that will maximize cash
value
Cut fixed costs and avoid
investment meanwhile