Very Short Question Answer
1. What do you mean by suitability of strategic alternatives?
Suitability emphasizes the strategic fit with the environmental factors. It assesses how the identified strategic alternative would sustain or improve the competitive position of the organization. It can be referred as consistency test.
2. What do you mean by feasibility of strategic alternative?
Feasibility is concerned with availability of resource and competencies to deliver a strategic option. Feasibility assessment examines whether the strategic option can be implemented successfully or not. Thus, it determines an option’s implementation and workability in practice.
3. What do you mean by acceptability of strategic alternative?
Acceptability is related to the stakeholders’ expectations. It is concerned with the expected performance outcome of a strategic option. The acceptability of the identified strategies can be assessed in three broad ways: return, risk, and stakeholders’ expectation.
4. What do you mean by portfolio analysis?
Portfolio analysis refers to the analysis of investment held by an organization in different business or units. It enables an organization to revise and refresh the portfolio by closing down the unprofitable business units or products and adding new investment in the profitable way. The aim of this analysis is to achieve the highest overall return on investment.
5. Write about BCG matrix.
The BCG/Growth-share matrix is the simplest way to portray a portfolio of investment. It was developed by Boston Consulting Group. In BCG matrix, each of the corporation’s product lines or business units is corporation’s plotted according to market growth rate (percentage growth in sales) and relative competitive position (market share).
Short Question Answer
1. Explain the process of strategy formulation.
Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. It includes the following steps:
1. Review of strategic elements: Review of strategic elements such as mission, objectives, strategies and policies is the starting point of strategy formulation.
- Mission is the basic reason for the organization’s existence. It provides the basic philosophy of what the organization is all about
- Objectives are the end results of planned activities. They state what is to be accomplished by the organization.
- Strategies are the comprehensive master plan stating how the organization will achieve its mission and objectives.
- Policies are the broad guidelines for actions and decision that links formulation of strategies with their implementation.
- Before formulating strategies, above stated strategic elements should be reviewed. They should be restated or redefined, if necessary.
2. SWOT analysis: It is also called Situation Analysis. The situation is analysed bn through SWOT analysis. The SWOT analysis is the process of finding a ug strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. It is conducted to understand the external and internal environment of the organization. External environment consists of political-legal, economic, socio-cultural, and technological forces. These forces provide opportunities and pose threats to the organization. Internal environment consist of resource and competencies within the organization. It provides strengths and weaknesses to the organization.
3. Identification of strategic options: After situational analysis, the executives should generate strategic alternatives. There are basically three generic strategies. According to Porter, they are low cost leadership, product differentiation and focused on niches. There are four alternative directions for strategic development. They are protect/build, product development, market development, and diversification. Likewise, the methods of strategy development also provide various strategic options such as, internal, development, mergers and acquisitions, joint development and strategic allies.
4. Evaluation of strategic options: In the fourth stage, the generated strategies are evaluated. They are evaluated on the basis of three elements: suitability, acceptability and feasibility. The generated strategic options should be suitable to environment, acceptable in terms of risk, return and shareholders’ expectations; and feasible in terms of resources and competencies of the organization.
5. Selection of best strategies: At the final stage of strategy formulation, the best option of strategy or strategies are selected. Strategic choice is the decision to select the best strategy from the various alternatives which will meet the organization’s objectives.
2. What is BCG matrix? How does it help to develop strategic alternatives? Write.
The BCG/Growth-share matrix depicted in the figure is the simplest way to portray a corporation’s portfolio of investment. It was developed by Boston Consulting Group. In BCG matrix, each of the corporation’s product lines or business units is plotted according to market growth rate (percentage growth in sales) and relative competitive position (market share).
|Stars||? Question marks|
Fig. BCG Matrix
The four cells of BCG matrix are:
Stars are those business units which have rapidly growing markets with large market share. Stars represent the best long run opportunities i.e. growth and profitability in the firm’s portfolio. They are usually able to generate enough cash to maintain their high share of the market. When their market growth rate slows, stars become cash cows.
Question marks sometimes called “problem children” are the business units or products with the potential for success, but they need a lot of cash for development. They require a high investment for advertisement, product reformulation and distribution. They have uncertain future, so they suggest either develop or stop the business.
Cash cows are hose business its which have high market share but low market growth rate. They generate high cash than needed to maintain their market share. They have low costs relative to competitors. They do not require further investment because of stable growth and therefore requires stability strategy..
Dogs are the business units with low market share and low growth rate. They need more cash to survive. They pose very low competitive position because of high costs, low quality, low profit etc. They show no more future prospects. So, they should be either sold off or managed carefully.
In this way BCG matrix/Growth-share matrix enhance to analyze the portfolio of investment. The matrix assumes that key to success of business is market, and thus it should be expanded. The matrix is quantifiable and easy to use. It is important for a business unit seeking to dominate market. It provides a balance mix in portfolio selecting the better strategic business units.
3. Differentiate BCG and GE matrix.
The differences between BCG and GE matrix are as follows.
|Base||BCG Matrix||GE Matrix|
|Number of cells||BCG matrix consists of four cells||GE matrix consists of nine cells|
|Rating||The rating is based on relative market share and industry growth rate||The rating is based on business strength and industry attractiveness|
|Measures||It uses single measure to assess growth and market share||It uses multiple measures to assess business strength and industry attractiveness|
|Classification||It uses two types of classification i.e. high and low||It uses three types of classification i.e.
high/medium/low and strong/average/weak
|Limitations||It has more limitations than the GE matrix.||It has comparatively lesser limitations.|
Long Question Answer
1. What are the different criteria of evaluating strategic alternatives? Write about them with suitable examples.
There are different criteria of evaluating strategy. Some of them are quantitative like feasibility. It is quantitative criteria of strategy evaluation since it adopts quantitative methods. On the other hands, suitability and acceptability are qualitative criteria of evaluating a strategic alternative.
1. Suitability: Suitability is concerned with environmental fit of the strategic option. This criteria assesses how the identified strategic alternative would sustain or improve the competitive position of the organization. An organization is environment specific. The identified strategic alternative should address the circumstances in which the organization is operating. It should match with the future trend and changes in the environment. In order to evaluate whether the strategic options would fit the environment, suitability is tested. The suitability test can be referred as consistency test. The strategic options should be suitable from the following point of views.
- Exploiting the available opportunities and avoiding the threats.
- Enhancing the strengths and avoiding the weaknesses
- Fulfillment of the stakeholders’ expectation.
2. Acceptability: Acceptability is related to the stakeholders’ expectations. It is concerned with the expected performance outcome of a strategic option. The acceptability of the identified strategies can be assessed in three broad ways: return, risk, and stakeholders’ expectation. The following questions need to be addressed for acceptability test:
- The changes in liquidity.
- The appropriateness of any proposed change to general expectations within the organization.
- The change in the function of any department, group or individual.
3. Feasibility: It is concerned with availability of resource and competencies to deliver a strategic option. Feasibility assessment examines whether the strategic option can be implemented successfully or not. Thus, it determines an option’s implementability and workability in practice. The following issues need to be addressed while assessing feasibility:
- The capability of the organization to perform the required level of who activities.
- The achievement of necessary market position and availability of marketing skills.
- The capacity to cope up the competitive reactions. The capacity to obtain the necessary materials and services.
- The available technology to compete effectively. The fund needed to implement the strategy successfully.
- The available skills at both managerial and operative level.