STRATEGY DEVELOPMENT:

SITUATIONAL ANALYSIS AND

BUSINESS STRATEGY
Lesson 3: Generating alternative strategies by using TOWS matrix
LESSON 4: Business Strategies, Porter’s Competitive Strategies and
Cooperative Strategies
 
 Generating alternative strategies by using
TOWS matrix
• TOWS Analysis is a version of the classic business tool, SWOT Analysis.
• They are both acronyms for different arrangement of the words
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
• The only difference between TOWS and SWOT is that TOWS
emphasizes the external environment while SWOT emphasizes the
internal environment.
 Identifying Strategic Options
“STRATEGY" is the art of determining how you'll "win" in business and
life
SWOT or TOWS analysis helps you get a better understanding of the strategic
choices that you face.
It helps you ask, and answer, the following questions: how do you:
• Make the most of your strengths?
• Overcome your weaknesses?
• Capitalize on your opportunities?
• Manage your threats?
TOWS Matrix, helps you think about the options that you could pursue. To
do this you match external opportunities and threats with your internal
strengths and weaknesses, as illustrated in the matrix below:

External Opportunities External Threats

(O) (T)
1. 1.
2. 2.
3. 3.
  4. 4.

Internal Strengths
(S)
1. SO
2. "Maxi-Maxi" Strategy ST
3. Strategies that use strengths to maximize "Maxi-Mini" Strategy
4. opportunities. Strategies that use strengths to minimize threats.

Internal Weaknesses (W)

1. WO WT
2. "Mini-Maxi" Strategy "Mini-Mini" Strategy
3. Strategies that minimize weaknesses by taking Strategies that minimize weaknesses and avoid
4. advantage of opportunities. threats.
• This helps you identify strategic alternatives that address the following
additional questions:
• Strengths and Opportunities (SO) – How can you use your strengths to
take advantage of the opportunities?
• Strengths and Threats (ST) – How can you take advantage of your
strengths to avoid real and potential threats?
• Weaknesses and Opportunities (WO) – How can you use your
opportunities to overcome the weaknesses you are experiencing?
• Weaknesses and Threats (WT) – How can you minimize your weaknesses
and avoid threats?
• For each combination of internal and external environmental factors,
consider how you can use them to create good strategic options
 KEY POINTS
• The TOWS Matrix is a relatively simple tool for generating
strategic options. By using it, you can look intelligently at how
you can best take advantage of the opportunities open to you, at
the same time that you minimize the impact of weaknesses and
protect yourself against threats.
• Used after detailed analysis of your threats, opportunities,
strength and weaknesses, it helps you consider how to use the
external environment to your strategic advantage, and so
identify some of the strategic options available to you.
Business Strategies, Porter’s
Competitive Strategies and
Cooperative Strategies
 The Concept of Strategy
• The many definitions of strategy found in the management literature fall into one of four
categories: plan, pattern, position, and perspective. According to these views, strategy is:
• A plan, a "how," a means of getting from here to there.
• A pattern in actions over time; for example, a company that regularly markets very
expensive products is using a "high end" strategy.
• A position, that is, it reflects decisions to offer particular products or services in particular
markets.
• A perspective, that is, a vision and direction, a view of what the company or organization
is to become.
FOCAL POINTS OF STRATEGY
 STRATEGY IN GENERAL
• Strategy, in general, refers to how a given objective will be achieved.
• The relationships between ends and means, that is, between the results we
seek and the resources at our disposal.
• Strategy and tactics are both concerned with formulating and then carrying
out courses of action intended to attain particular objectives. For the most
part, strategy is concerned with deploying the resources at your disposal
whereas tactics is concerned with employing them.   Together, strategy and
tactics bridge the gap between ends and means
BRIDGING THE GAP B/N ENDS AND
MEANS
 CORPORATE VS COMPETITIVE
STRATEGY
• Corporate strategy defines the markets and the businesses in which a
company will operate.
• Corporate strategy is typically decided in the context of defining the
company’s mission and vision, that is, saying what the company
does, why it exists, and what it is intended to become.
 COMPETITIVE STRATEGY
• Competitive or business strategy defines for a given business the basis on which it will compete.
• Competitive strategy hinges on a company’s capabilities, strengths, and weaknesses in relation to market
characteristics and the corresponding capabilities, strengths, and weaknesses of its competitors.
According to Michael Porter, a Harvard Business School professor and the reigning guru of competitive
strategy, competition within an industry is driven by five basic factors:
• Threat of new entrants.
• Threat of substitute products or services.
• Bargaining power of suppliers.
• Bargaining power of buyers.
• Rivalry among existing firms.
 PORTER’S COMPETITIVE
STRATEGY
• Michael Porter defines three strategy types that can attain
competitive advantage. These strategies are cost leadership,
differentiation, and market segmentation (or focus).
 COST LEADERSHIP
• is about achieving scale economies and utilizing them to produce high
volume at a low cost.
• Cost leaders include organizations like Procter & Gamble, Walmart,
McDonald's and other large firms generating a high volume of goods that
are distributed at a relatively low cost (compared to the competition).
 DIFFERENTIATION
• creating a unique service or product offering, either
through good branding or strong internal skills
• aims at offering something difficult to copy and is strongly associated
with an organization's brand
• Coach handbags are a good example of differentiation; the company's
margins are high due to the markup on each bag (which mostly covers
marketing costs, not production).
 MARKET SEGMENTATION
• is a business practice that brands use to divide their target market into
smaller, more manageable groups of people based on common ground
they share to optimize their marketing, advertising, and sales efforts.
• is narrower in scope than cost leadership and differentiation are relatively
broad in market scope
Porter warns that companies who try to accomplish
both cost leadership and differentiation may fall into
the "hole in the middle"; he notes that specializing
is the ideal strategic approach.
 Other Factors Affecting Corporate and
Competitive Strategy
Factors that can serve as the basis for formulating corporate and competitive
strategy include the following:
Products-services offered Sales-marketing methods
Users-customers served Distribution methods
Market types and needs Natural resources
Production capacity-capability Size/growth goals
Technology Return/profit goals
 Three basic "value disciplines” as the basis for
settling on strategy (corporate or competitive)
Operational Strategy is predicated on the production and
Excellence delivery of products and services. The objective
is to lead the industry in terms of price and
convenience.

Customer Strategy is predicated on tailoring and shaping

Intimacy products and services to fit an increasingly fine
definition of the customer. The objective is long-
term customer loyalty and long-term customer
profitability.

Product Strategy is predicated on producing a

Leadership continuous stream of state-of-the-art products
and services. The objective is the quick
commercialization of new ideas.
 COOPERATIVE STRATEGY

- Firms work together to achieve a shared objective.

Primary Type of Cooperative Strategy: Strategic Alliance

(firms combine resources and capabilities to create a competitive
advantage).
 Three Types of Strategic Alliances
• Joint Venture
• 2 or more firms create a legally independent company to share resources and capabilities to develop
a competitive advantage.

• Equity Strategic Alliance

• 2 or more firms own a portion of the equity in the venture they have created.
• Non-equity strategic alliance that include: Licensing agreements; Distribution
Agreements; Supply Contracts and Outsourcing commitments
• 2 or more firms develop a contractual relationship to share some of their unique resources and
capabilities to create a competitive advantage.
 WHY FIRMS DEVELOP STRATEGIC
ALLIANCES?
• Most firms lack the full set of resources and capabilities needed to reach their
objectives.
• Cooperative behavior allows partners to create a value that they couldn’t develop by
acting independently.
• Aligning stakeholder interests can reduce environmental uncertainty.
• Lastly, it provides a new source of revenue, be a vehicle for firm growth, enhance the
speed of responding to market opportunities, technological changes and global
conditions and also allows firms to gain new knowledge and experiences to increase
competitiveness.
 CORPORATE LEVEL COOPERATIVE
STRATEGY
• help firm to diversify itself in terms of products offered, markets served or
both.
• Managing Cooperative Strategy
• Cost Minimization – relationship with partner is formalized with contracts ;
the goal is to minimize costs and prevent opportunistic behaviors by partners
• Opportunity Maximization – its focus is to maximize partnership’s value
creation opportunities; partners need a high level of trust that each party will
act in the partnership’s best interest, which is more difficult in international
situations.
 KEY POINTS
• The preceding discussion asserts that strategy in general is concerned with
how, with courses of action intended to achieve particular objectives.
Corporate strategy is concerned with choices and commitments regarding
markets, business and the very nature of the company itself. Competitive
strategy is concerned with competitors and the basis of competition.
THANK YOU FOR LISTENING.

Prepared by: AIDA E. GANITUEN