Business Strategy and the environment - Part 2

Business Strategy

Stage III: Decision Stage

After stage I and stage II, the next step is to enter the third stage, the Decision Stage. In this stage, the method used is to use the Quantitative Strategic Planning Matrix (QSPM). QSPM is a technique that can objectively set prioritized alternative strategies.

This method is a recommended tool for strategists to objectively evaluate alternative strategy choices, based on key internal-external success factors that have been identified previously.

Conceptually, the purpose of this method is to establish the relative attractiveness of the various strategies chosen, to determine which strategy is best implemented.

The main components of a QSPM consist of Key Factors, Strategic Alternatives, Weights, Attractiveness Score (AS), Total Attractiveness Score (TAS), and Sum Attrectivesess Score.

The steps for developing QSPM are as follows:

  • Make a list of opportunities, threats, strengths, and weaknesses of the organization taken from the EFE and IFE methods.
  • Give weight to each external and internal key success factor with the total weight must be 1 as in the EFE and IFE methods.
  • Research the methods available at the analysis stage in strategic planning and identify alternative strategies whose implementation must be considered beforehand by the company.
  • Calculate the Attractiveness Score (AS), which is the value that shows the relative attractiveness for each chosen strategy. By examining each of the external and internal key success factors. The Limitation of Attractiveness Score is 1 = not attractive; 2 = rather interesting; 3 = interesting; 4 = very interesting.
  • Calculate the Total Attractiveness Score (TAS), obtained from the multiplication of weights with the Attractiveness Score (AS) in each row.
  • Calculate the Sum of Total Attractiveness Score. Add all the TASs together in each QSPM column. The TAS value of the highest strategic alternative is one that shows that the alternative strategy is the main choice.

The smallest TAS value indicates that this alternative strategy is the last option. The basic forms of the QSP Matrix are as follows:

Concept of Analytical Hierarchy Process (AHP)

Analytical Hierarchy Process (AHP) is the most commonly used Multi-Criteria Decision Making (MCDM) method and the method for making alternative decision sequences and choosing the best when decision making has several goals or certain criteria for decision making.

Multi-Criteria Decision Making (MCDM) is a method that can be used in decision making for multi-criteria. By using AHP, a problem will be solved in an organized frame of thinking, so that it can be expressed to make effective decisions on the problem.

The working principle of AHP is the simplification of complex problems which are not structured, strategic and dynamic into its parts, and organize in a hierarchy. Then the level of importance of each variable is given a subjective numerical value about the relative importance of the variable compared to other variables.

AHP gives the possibility of the user to give the value of relative weights of compound criteria intuitively, namely by making pairwise comparisons. (Marimin, 2004).

The steps to use the Analytical Hierarchy Process (AHP) method are as follows:
1. Define the hierarchy structure of the problem to be solved.
2. It provides weighting of elements at each level of the hierarchy.
3. Calculate weighted priority (weighted priority).
4. Display the order/ranking of alternatives considered.

Strategic Business Unit (SBU) Characteristics

The Strategic Business Unit (SBU) was first introduced in 1979 by Mc. Kensey and Co. in his collaboration with General Electric.

SBU is defined as a way of managing a business so that each unit sells a set of products/services to a group of customers in competition with a group of competitors.

The characteristics of the SBU consist of five aspects, namely:

1. External focus is the management and organization of an SBU that refers to problems that arise due to external factors.
2. Identifiable competitors are SBU that are designed in such a way that the SBU competitors can be identified.
3. An autonomous profit center is an SBU that operates as a separate business with its own goals and objectives led by a manager.
4. Distinct marketing strategy is every SBU that has its own marketing strategy and is different from other business units.
5. Separate accounting is an SBU that competes as a stand-alone unit and must be able to calculate its own profits and costs, so it must be able to have a separate accounting system from other units.

Strategy Concept

The strategy is a tool to achieve goals. In its development, the concept of strategy continues to develop. This can be shown by the different concepts regarding the strategy of the last 30 years.

The first strategy definition proposed by Chandler (1962: 13) states that the strategy is the long-term goals of a company, as well as the utilization and allocation of all the resources that are important to achieve these goals. A good understanding of the concept of strategy and other related concepts will determine the success of the strategy prepared.

The concepts are as follows:
1. Distinctive Competence: actions taken by the company in order to perform activities better than its competitors. According to Day and Wensley (1998), identification of distinctive competence in an organization includes:

a. Workforce expertise, and
b. Resource capability

These two factors cause this company to be superior compared to its competitors.

2. Competitive Advantage. Competitive advantage is caused by the choice of strategy made by the company to seize market opportunities.

According to Porter, if the company wants to increase its business in increasingly fierce competition, the company must choose the principle of doing business, namely products with high prices or products with low costs, not both. Based on this principle,

Porter states there are three generic strategies, namely:

a. Differentiation Strategy. This strategy is characterized by the company's decision to build a potential market perception of a superior product/service so that it looks different from other products. Thus, it is expected that potential consumers want to buy at high prices because of the difference.

b. Overall Cost Leadership Strategy. The trait is that companies take into account competitors more than customers by focusing on low-priced product sales, so that the cost of production, promotion, and research can be reduced, if necessary the products produced are just mimicking products from other companies.

3. Focus Strategy (Focus). The characteristic is that the company concentrates on a small market share to avoid competitors by using the Comprehensive Cost Leadership strategy or Differentiation.
(Source: Freddy Rangkuti, 2006)

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