"Save for a few addons, these lecture noes ae entirely based on Ehlers & Lazenby (2010:241-255)"" Learning Outcomes After completing this Section you should be able t: ‘© Discuse the strategic analysis framework Implement the SWOT matrix Implement the SPACE matrix Implement the Grand Strategy matrix Implement the Quantitative Strategie Planning Matrix (QSPM) Introduction This Section deals with analysing the possible strategies an organisation can follow and then choosing the strategy or strategies that would best suit the situation. These choices are necessary because we are dealing with a very flexible and changing environment which makes many strategic decisions more qualitative than quantitative STRATEGY ANALYSIS FRAMEWORK Organisations face important question regarding the decision of strategy. In order to make this decision the strategists would have to use information obtained through the IFE Matrix and the EFE Matrix. The next step is to develop any of the following matrixes in order to narrow the possible strategies down to specific one. To do that organisation can choose from three matrixes. 1, SWOT matrix 2. SPACE matrix 3. Grand strategy matrix The final phase of the strategy analysis is to make a choice between specific strategies. The strategic manager has the option of choosing specific strategies by using a quantifiable method. The process is called Quantitative Strategic Planning Matrix (QSPM). This is illustrated belowPROCESS OF STRATEGIC ANALYSIS & CHOICE SWor a 4 GRAND STRATEGY: | MATRIX MATRIX, TEGY TOBE [PLEMENTED {All the people involved in compiling this matrix would need all the indentified threats, opportunities, strengths and weaknesses as analysed in the earlier stages of the strategic management process. SWOT MATRIX Steps in Constructing a SWOT Matrix STEP DESCRIPTION 1 ‘The SWOT Matrix is composed of nine cells, the top left of which is always left blank 2 The other two top cells represent first the strengths (S) and then the weaknesses (W) of the organisation. These are listed next to each other in their respective cells and would, of course, be the most important internal strengths and weaknesses as derived from the IFE 3 The other two cells on the left side of the matrix represent firstly the opportunities (O) and then the threats (T). These are listed below each other in their respective cell and would, of course, be the most important external opportunities and threats as derived from the EFE 4 Match the internal strengths with the extemal opportunities and record the outcomes (possible strategies) in the appropriates cell namely SO strategies. Write down what option the organisation has related to specific strengths and opportunities and specify these in brackets, for example: “open a new outlet in Port Elizabeth (SI, 03, 04) 3 | Match the internal weaknesses with the external opportunities and record the outcomes (possible strategies) in the appropriate cell namely WO strategies. Write done what option the organisation has related to specific weaknesses and opportunities and specify these in brackets, for example, “Go into a merger with Nu Metro (W1, W3, 02, 03)” 6 ‘Match the internal strengths with the external threats and record the outcomes (possible strategies) in the appropriate cell namely ST strategies. Write down what option the organisation has related to specific strengths and threats and specify these in brackets, for example, “Divesi/sell the children’s clothing section (SI, $3, 01, 04) 7 Match the intemal weaknesses with the external threats and record the outcomes (possible Strategies) in the appropriate cell, namely WT strategies. Write down what option the organisation has related to specific weaknesses and threats and specify theses in brackets, for example, for example “Liguidate all Western Cape Operations W1, T1, T2‘After completion of this matrix you end up with 4 sets of strategies, namely SO, WO, ST & WT strategies. Before writing them in their respective cells, itis important to apply good judgement and realise that there is no single perfect set of strategies. They should be carefully discusses and evaluated as alternative options. Always keep the following in mind: SO strategies use the organisation’s internal strengths to take advantage of the external opportunities that exist 2. WO strategies are trying to improve the organisation’s weaknesses by taking advantage of the extemal opportunities 3. ST strategies again use the organisation’s internal strengths to try to avoid the possible external threats 4, WT strategies are very defensive by nature and are supposed to try to reduce the internal weaknesses and also avoid the external threats to the organisation Each alternative strategy should be identified as a specific type of grand strategy. This gives the organisation an idea of what resources are going to be involved and what other implications there are. SO are commonly growth & development strategies, while WT strategies will commonly be defensive ones. The other strategies may differ from aggressive to defensive depending on the specific factors chosen. It is important to take note that the matrix does not give an indication of which strategy to use, but it helps managers to see that there are certain viable options available to the organisation. ‘STRENGTHS-S WEAKNESSES - W 1, Histech andio end video equipment | 1. Current ration of 0,25, 2. Positive eash Now 2. Expensive renting from landlords 3. Profitable in Gauteng and 3. Labour union problems KwaZulu-Natal 4. Losses in Westem Cape and Always leave blank 4. Positive employee morale Mpumalanga 5. Good advertising 5. No formal staff traning 6. Good internal Communication programme 6. Expense of purchasing international movies ‘Opportunities —O 30 Strategies WO Strategies 1, Opening economies in sub-Saharan | /. Introducing Aftica to movies (S2, | 1. Possible merger with African Aftica on movie threats and Afican Movies 2. Per capita income growth in SA | 2. Extensive marketing in new (4, 6, 01, 09 3. Possible mergers with food and complexes (55, 06) ‘entertainment chains 4, New SA movie producers 5. Use of technology such as IMAX 6, Entertainment complexes Threats—T ST Strategies WT Strategies 1. Seasonality of movie releases 1. Open video rental stores in all9 | 1. Divest Western Cape and 2. DSTV provinces (S1, $2, $5, 71, 12, T4, KwaZulu-Natal operations (77, 3. High erime leading to cocooning 16) WA, 74, 76) 4. Other entertainment 2. Construct 10 new multi 5. Ageing population «dimensional entertainment 6. High prices due to exchange rates complexes (S1, 71, 72, 74)‘THE SPACE MATRIX SPACE is an acronym for Strategic Position and Action Evaluation. This matrix consists of four quadrants as follows: 1. Aggressive 2. Conservative 3. Defensive 4, Competitive ‘The names of the respective quadrants give an indication of the kinds of strategy that the organizations should pursue, These four quadrants are made up by crossing two axes, The first two scales represent ‘two internal dimensions namely 1, Financial strengths (FS) 2. Competitive advantage (CA) The other two scales represent the extemal dimensions namely 1. Environmental stability (ES) 2. Industry strength (IS) ‘These four factors are seen as the most important determinants of an organization’s overall strategic position. Like the SWOT Matrix, the organisation should make use of the information gained from the IFE and EFE matrixes. The intemal and extemal factors identified in the SWOT analysis will be the main ones to consider when drawing up the SPACE Matrix. They should, however, be rearranged so that they fits in with the four dimensions of the SPACE Matrix, namely the Financial strengths (FS) of the organisation, its current competitive advantage (CA), the environmental stability (ES) within the industry in which it operates and the industry strength (IS) in which it competes. Not all these factors of the SWOT analysis will be used; only those that represented the four dimensions,COMPETITIVE ADVANTAGE (CA) THE SPACE MATRIX FINANCIAL STRENGTH (FS) 46 +5 4 8 #2 H Y Y a 2 8 MS 6 COMPETITIVE ui ENVIRONMENTAL STABILITY INDUSTRY STRENGTH (IS)Steps followed in developing a SPACE Mat Select all the variable that fit under the four dimensions, namely Financial strengths (FS) current competitive advantage (CA), environmental stability (ES) and industry strength (IS). These variables are typical products of the internal and external analysis done in the earlier stage of strategic ‘management process 1. Allocate a value ranging from 1 (worst) to 6 (best) to each of the variable that make up the FS and IS dimensions. Also allocate a value ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. 2. Calculates an average score for each of the dimensions by adding all the scores from that one dimension (for example FS) and dividing the total by the number of variables chosen for FS. Do this for all four dimensions (FS, CA, ES & IS) 3. Plot these average scores for each dimension (FS, CA, ES, and IS) on their specific axes on the SPACE Matrix 4, Now add the two scores on the x-axis and plot that point on the x-axis. Do the same for the y-axis. ‘Then plot the intersections of these two points (xy) on the SPACE Matrix 5. Now draw a straight line from the 0 point of the matrix through the new intersections point (xy point) This vector on the SPACE Matrix is the result that shows us what type of strategy would be most advisable for the organizations. It would be one of the following four 1. Aggressive 3. Defensive 2. Competitive 4. Conservative Itis important to note that these four quadrants only give an idea of which broader type of strategy it would be advisable to pursue. The organization should now evaluates the 14 different grand strategies and decide whether they are Aggressive, Competitive, Defensive or Conservative. The following categories might help management to narrow its option down ‘When SPACE Matix | Ta (oliowiog strategies ae E i ie ! ‘The following stratggies might be Feasib be ‘Concentration growth ‘Market penetration/development Product development Vertical integration Concentric diversification Conglomerate diversi Market penetration/development Product development Concentric diversification ‘Concentric diversification Divestiture Tumaround Liquidation Vertical integration Horizontal integration Market penetration/development Product development Any of the other corporate combinations (foint ventures/strategic alliances/consortia) Aggressive, Conservative DefensiveGRAND STRATEGY MIX This matrix offers the same result as the previous two matrixes and is the final one in this strategy ration analysis. The advantage of the Grand Strategy Matrix (GSM) is that an organization need not be position in this matrix in a certain quadrant only; if it has more than one division or unit, the other could also be plotted on this matrix, thus distinguishing between different business units in the same organisation. The GSM IS simple and easy to do, which is possibly why it is a very popular strategic management tool. It is based on only two specific dimensions namely 1. Competitive position 2. Market growth This matrix also consists of four quadrants, namely quadrant I, I, II & IV. The two axes represent the two dimensions respectively The x-axis represents the competitive position and is divided into two extremes on either side, namely ‘weak competitive position and strong competitive position (once again based on the internal analysis of the organisation) The y-axis represents the market growth and is divided into two extremes on either side, namely rapid market growth and slow market growth (based on the external analysis in its industry) In each quadrant are listed specific grand strategies as discussed in earlier chapters. These are the possible options/strategies to pursue when an organization finds itself in this quadrant. [tis a simple process. All that the organisation has to do is to measure whether it is in rapid_or slow market growth and plot on the matrix, and then analyze whether it is in a weak or strong position currently in its industry and also plot that. This will ensure that the organization ends up in one of the quadrants. Each quadrant can be explained as follows: QUADRANT 1 — This quadrant represent an excellent strategic position. Organizations in this position should not move away from their current competitive advantages unless they are too heavily involved with a single dominant product — when concentric diversification would be a good option. The other most feasible strategies to pursue would be product development and market development/penetration. If the organisation has the necessary resources, vertical and horizontal integration are also advisable. QUADRANT 2~ These organisation are competing in a strongly growing market but they do not have a particularly strong position compared with their competitors. Internal growth should be the first option. (product development and market development/penetration), but if the organization does not have any distinctive competencies, then horizontal integration would be advisable. Sometime defensive strategies such as divesting to provide funds for other strategies could be pursues as well.WEAK COMPETITIVE POSITION QUADRANT 3~ These organizations compete in a slow growth industry and also have a weak competitive position. Before liquidation is the only strategy available, divestiture such as asset reduction or retrenchment, might be a viable strategy; altematively, diversifying their product range could be an option QUADRANT 4 these organisation are in the unique situation of showing a strong competitive position but in a slow-growing market. They will immediately have to pursue any of the diversification strategic options or even opt for a partner in a corporate combination, such as a joint venture, The GRAND STRATEGY MATRIX RAPID MARKET GROWTH Y QUADRANT 2 QUADRANT 1 1. Concentrated Growth 1. Concentrated Growth 2. Market Development 2. Market development 3 Product Development 3. Product Development 4-Horizontal Integration 4, Forward vertical Integration 5. Divestiture 5. Backward Vertical Integration 6. Liquidation 6. Horizontal Integration 7. Concentric diversification x x QUADRANT 3 QUADRANT 4 1. Turnaround 1. Concentric diversification 2. Concentric diversification 2. Conglomerate diversification 3. Horizontal Integration 3. Joint ventures 4, Conglomerate Diversification 5. Divestiture 6. Liquidation Y SLOW MARKET GROWTH STRONG COMPETITIVE POSITIONFINAL STRATEGIC CHOICE/DECISION After completing the previous step, the organisation will have several optional strategies to choose from. ‘The strategies that have been identified could all be viable one to pursue in order to achieve the competitive edge. Managers should now evaluate these strategies qualitatively. Even though the ‘matrixes have shown the possibility of certain strategies, these might still not be viable for the organization for various reasons. Therefore the management team should try to narrow them down to three or four most feasible strategies. The next final stage of strategy analysis is thus the decision stage. Here we make use of Quantitative Strategic Planning Matrix (QSPM) to once again quantify our different strategic options and then finally choose the best strategy. Quantitative Strategic Planning Matrix (QSPM) ‘There is only one really analytical technique designed to evaluate and determine the vest strategy available to the organisation, that is the QSPM. It is a technique that can objectively indicate which strategy would be the best for the organization. All the information that was compiled through IFE and EFE matrixes and the three matrixes discussed in this handout (SWOT, SPACE, Grand Strategy) should bbe used to develop and draw up the QSPM. Even though the QSPM js a predominantly quantitative method, managers still need to show good intuitive judgment to get the best results. ‘When using the QSPM it is important to not that only strategies of the same type or group can be compared with one another. The same applies to the group of corporate combination strategies. This ‘means that growth strategies are not evaluated in the QSPM against, for example defensive strategies. The previous stage should be the indicator of which group of strategies is going to be evaluated during the QSPM phase. If the organisation ended up in an aggressive quadrant in the SPACE Matrix and has these growth strategies as options, the managers would consider all the possibilities and, for example, decide on three grand strategies, namely vertical integration, horizontal integration or concentric diversification. These three final grand strategies would then be evaluated in the QSPM to decide which ‘one would be the most feasible for the organisation. Step 1 SWOT analysis — From the information in the IFE and EFE Matrixes, the most important opportunities and threats from the external environment, as well as the most important strengths and weaknesses from the internal environment, are written on the left hand side of the matrix. It is advisable to have at least ten external and at least ten internal factors.Step 2 Weights assigned (W) - The next column from the left is the weights column. Weights are allocated to cach factor and should be more or less the same as those in the IFE and EFE Matrixes. Each environment is weighted separately; in other words, the total of the external factors should add up to 1,0 and the same for the internal environment, These weights represent the importance of each factor in relation to the organisation. Step 3 Alternative Strategies — from the previous stage’s matrices (SWOT, SPACE and Grand Strategy) the most feasible strategies that are being considered for implementation should be described in the top row of the QSPM, next to each other. ‘There could be any number between the two and four different strategies. Remember to choose strategies fiom the same strategic group only (growth or decline or corporate combination) Step 4 Attractiveness Scores (AS) - Each strategy is now individually evaluated against each individual factor. The question should be whether this factor would affect the choice of strategy. If the answer is “yes”, then a score from 1-4 should be allocated to each of the different strategies. The strategy that is the most attractive in relation this specific factor should get 4 (highly attractive) and the one that is least attractive should get 1 (not attractive). The other strategies should be evaluated in between as either 2 (somewhat attractive) or 3 (reasonably attractive). No strategy can score the same for the same factor. By clearly allocating different scores the organization will be able to distinguish between the possible strategies. If the answer is “no”, meaning that the particular factor has no influence or effect on the optional strategies, then no score should be given to any of the strategies. All the alternatives should just get hash. Step 5 Total attractiveness score (TAS) ~ The TAS is calculated by multiplying the weight (W) of the factor by the attractiveness score (AS) for each strategy: W x AS = TAS. ‘There would then be a TAS for each factor in each of the strategies. The higher the TAS, the more attractive the proposed strategy regarding that specific factor. Step 6 ‘Sum total attractiveness score (STAS) — Now all the TAS scores for each strategy are added up to give the sum total attractiveness score (STAS) for each strategy. This final STAS will show that the strategy with the high relevant extemal and intemal (SWOT) factors that could affect the different strategies available. The score is the best strategy to pursue. This answer has taken into consideration all the order of implementation or even the desirability is now clearly shown by means of the QSPM. In theexample below, itis quite clear that a joint venture with Namibia is a much better altemative than one with Zimbabwe. Itis clear that QSPM is a very good analytical tool that can help management to make a clear, calculated decision. It is however also clear that intuitive skills and management expertise are fundamental in deciding which weights fo allocate to the different factors, as well as which scores to allocate to each of these. An example of a QSPM for Nu-Kinekor ‘STRATEGIC ALTERNATIVES “Joint Venture | Joint venture with ‘with Zimbabwe- | Namibia-Kine Kine KEY FACTORS Weight | as [TAS [AST TAS. ‘Opportunities 1. Opening economies in sub-Saharan Africa 040 1 | og | 3 120 2. Per cepita income growth in SADC Countries | 0,20 1 | o20 | 4 0 3. Entertainment complexes. __ | 020 L_| oso | 2 040 Threats 1. Other entertainment oo | 2 | 020} 1 010 2. High prices du to exchange oi | # in # i 1,00. Strengths: 1. Positive cash flow ois 1 | os | ois | 04s 2. Positive employee morale 0,05 1 | o0s | os | o20 3. Good Advertsing 0,10 1 | o10 | 910 | 020 4. Good intersal Communication oto | _# 4 x io ‘Weaknesses 1. Current ration 020 | 3 | oo | 4 | 00 2. Expensive renting from landlords onto 1 | a0 | 3 030 3, Labour union problems ois | 4 | ogo | 2 030 4 Expense of purchasing intemational movies| 1s | 2 | o30 | 4 0,50 Sum total attractiveness score 1,00. 3330 35_|