Chapter 6: A Framework for Examining Business Strategy

Week Three Assignment – Sept 2022

TOWS Matrix

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Develop a TOWS Matrix for your selected case study following the guidance in Chapter 6.

  • Helpful Hint: be creative! Try to mix and match multiple factors in your analysis; Include the codes in your suggested strategies so that you remember the linkage.
  • Sample TOWS Matrix using Harvard University as the firm in question.

 

Chapter 6: A Framework for Examining Business Strategy

6-1. Utilize the SFAS matrix and a SWOT diagram to examine business strategy.

Strategy Formulation, often referred to as strategic planning or long-range planning, is concerned with developing a corporation’s mission, objectives, strategies, and policies. It begins with situation analysis: the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. As shown in the Strategic Decision-Making Process in Figure 1–5, step 5(a) is analyzing strategic factors in light of the current situation. As was discussed in Chapter 5, the VRIO framework is extraordinarily effective in not only analyzing potential competitive advantages to determine which are true competitive advantages, but also in examining whether the company is organized to take advantage of those strengths.

Many executives prefer to present their analysis using a SWOT chart. SWOT is an acronym used to describe the four quadrants of Strengths, Weaknesses, Opportunities, and Threats for a specific company.

It can be said that the essence of strategy is opportunity divided by capacity.1 An opportunity by itself has no real value unless a company has the capacity (i.e., resources) to take advantage of that opportunity. By itself, a distinctive competency in a key resource or capability is no guarantee of competitive advantage. Weaknesses in other resource areas can prevent a strategy from being successful. SWOT, as a conceptual tool can be used to take a broader view of strategy through the formula SA = O/(S–W)—that is, (Strategic Alternative equals Opportunity divided by Strengths minus Weaknesses). This reflects an important issue strategic managers face: Should we invest more in our strengths to make them even stronger (a distinctive competence) or should we invest in our weaknesses to at least make them competitive?

Populating a SWOT chart, by itself, is just the start of a strategic analysis. Some of the primary criticisms of SWOT are:

  • It is simply the opinions of those filling out the boxes

 

  • Virtually everything that is a strength is also a weakness

 

  • Virtually everything that is an opportunity is also a threat

 

  • Adding layers of effort does not improve the validity of the list

 

  • It uses a single point in time approach

 

  • There is no tie to the view from the customer

 

  • There is no validated evaluation approach.

Originally developed in the 1970s, SWOT was one of the original approaches as the field moved from business policy (looking at examples and inferring long-range plans) to strategy. In the intervening years, many techniques have developed that provide strategists with keener insights into the elements of SWOT. However, as strategists, we need to understand our strengths, calculate the impact of weaknesses (whether they are real or perceived), take advantage of opportunities that match our strengths and minimize the impact of outside threats to the success of the organization. Thus, SWOT as a means of conceptualizing the organization is quite effective.

Generating a Strategic Factors Analysis Summary (SFAS) Matrix

The EFAS and IFAS Tables plus the SFAS Matrix were developed to deal with some of the criticisms of SWOT analysis and have been very effective. The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organization’s strategic factors by combining the external factors from the EFAS Table with the internal factors from the IFAS Table. The EFAS and IFAS examples given of Maytag Corporation (as it was in 1995) in Table 4–5 and Table 5–2 list a total of 20 internal and external factors. These are too many factors for most people to use in strategy formulation. The SFAS Matrix requires a strategic decision maker to condense these strengths, weaknesses, opportunities, and threats into fewer than 10 strategic factors. This is done with a management team review and then by revising the weight given each factor. The revised weights reflect the priority of each factor as a determinant of the company’s future success. The highest-weighted EFAS and IFAS factors should appear in the SFAS Matrix.

 

As shown in Figure 6–1, you can create an SFAS Matrix by following these steps:

 

 

 

 

 

FIGURE 6–1

Strategic Factor Analysis Summary (SFAS) Matrix

*The most important external and internal factors are identified in the EFAS and IFAS Tables as shown here by shading these factors.

Source: Thomas L. Wheelen, copyright © 1982, 1985, 1987, 1988, 1989, 1990, 1991, 1992, and every year after that. Kathryn E. Wheelen solely owns all of (Dr.) Thomas L. Wheelen’s copyright materials. Kathryn E. Wheelen requires written reprint permission for each book that this material is to be printed in. Thomas L. Wheelen and J. David Hunger, copyright © 1991—first year “Strategic Factor Analysis Summary” (SFAS) appeared in this text (4th edition). Reprinted by permission of the copyright holders.

 

 

  • In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After each factor, indicate whether it is a Strength (S), Weakness (W), an Opportunity (O), or a Threat (T).
  • In Column 2 (Weight), assign weights for all of the internal and external strategic factors. As with the EFAS and IFAS Tables presented earlier, the weight column must total 1.00. This means that the weights calculated earlier for EFAS and IFAS will probably have to be adjusted.
  • In Column 3 (Rating) assign a rating of how the company’s management is responding to each of the strategic factors. These ratings will probably (but not always) be the same as those listed in the EFAS and IFAS Tables.
  • In Column 4 (Weighted Score) multiply the weight in Column 2 for each factor by its rating in Column 3 to obtain the factor’s rated score.
  • In Column 5 (Duration), depicted in Figure 6–1, indicate short-term (less than one year), intermediate-term (one to three years), or long-term (three years and beyond).
  • In Column 6 (Comments), repeat or revise your comments for each strategic factor from the previous EFAS and IFAS Tables. The total weighted score for the average firm in an industry is always 3.0.

The resulting SFAS Matrix is a listing of the firm’s external and internal strategic factors in one table. The example given in Figure 6–1 is for Maytag Corporation in 1995, before the firm sold its European and Australian operations and it was acquired by Whirlpool. The SFAS Matrix includes only the most important factors gathered from environmental scanning, and thus provides information that is essential for strategy formulation. The use of EFAS and IFAS Tables together with the SFAS Matrix deals with some of the criticisms of SWOT analysis. For example, the use of the SFAS Matrix reduces the list of factors to a manageable number, puts weights on each factor, and allows one factor to be listed as both a strength and a weakness (or as an opportunity and a threat).

Finding Market Niches

One desired outcome of analyzing strategic factors is identifying niches where an organization can use its core competencies to take advantage of a particular market opportunity. A niche is a need in the marketplace that is currently unsatisfied. This is the premise of the book Blue Ocean Strategy and many other popular press books on strategy. The goal is to find a propitious niche—an extremely favorable niche—that is so well suited to the firm’s competitive advantages that other organizations are not likely to challenge or dislodge it.2 A niche is propitious to the extent that it currently is just large enough for one firm to satisfy its demand. After a firm has found and filled that niche, it is not worth a potential competitor’s time or money to also go after the same niche.

Finding such a niche or sweet spot is not easy. A firm’s management must continually look for a strategic window—that is, a unique market opportunity that is available only for a particular time. The first firm through a strategic window can occupy the market and discourage competition (if the firm has the required internal strengths). One company that successfully found a propitious niche was Frank J. Zamboni & Company, the manufacturer of the machines that smooth the ice at ice skating rinks. Frank Zamboni invented the unique tractor-like machine in 1949 and no one yet has found a way to dislodge this company from the market. Before the machine was invented, people had to clean and scrape the ice by hand to prepare the surface for skating. Now hockey fans look forward to intermissions just to watch “the Zamboni” slowly drive up and down the ice rink, turning rough, scraped ice into a smooth mirror surface—almost like magic. So long as Zamboni’s company is able to produce the machines in the quantity and quality desired, at a reasonable price, it was not worth another company’s effort.

As a niche grows, so can a company within that niche—by increasing its operations’ capacity or through alliances with larger firms. The key is to identify a market opportunity in which the first firm to reach that market segment can obtain and keep dominant market share. Church & Dwight was the first company in the United States to successfully market sodium bicarbonate for use in cooking. Its Arm & Hammer brand baking soda is still found in 95% of all U.S. households. This niche concept is crucial to the software industry. Small initial demand in emerging markets allows new entrepreneurial ventures to go after niches too small to be noticed by established companies. When Microsoft developed its first disk operating system (DOS) in 1980 for IBM’s personal computers, for example, the demand for such open systems software was very small—a small niche for a then very small Microsoft. The company was able to fill that niche and to successfully grow with it.

Niches can also change—sometimes faster than a firm can adapt to that change. A company’s management may discover in their situation analysis that they need to invest heavily in the firm’s capabilities to keep them competitively strong in a changing niche. South African Breweries (SAB), for example, took this approach when management realized that the only way to keep competitors out of its market was to continuously invest in increased productivity and infrastructure in order to keep its prices very low.

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