Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
10th Edition
Fred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6 -1
Copyright 2005 Prentice Hall
Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -2
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Strategy Analysis & Choice
Alternative Strategies Derive From --
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Ch 6 -3
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Process of generating and selecting
strategies
Generating Alternatives --
Participation in generating alternative
strategies should be as broad as possible
Participants : people who earlier involved to
set vision & mission, performed int/ext audit,
representatives in each dpt.
Keep participants well informed of ext, int
audit results + missions.
Ch 6 -4
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Process of generating and selecting
strategies
Alt strategies are listed in writing & make them
understood by participants
Proposed alternative strategies are discussed in a series
of meetings
Alt strategies are ranked in order of attractiveness
1- should not be implemented
2- possibly should be implemented
3- probably should be implemented
4- definitely should be implemented
Results - best strategies which have been prioritized
Ch 6 -5
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Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -6
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Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation
The Input Stage Matrix (EFE)
Competitive Profile Matrix
(CPM)
Ch 6 -7
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Stage 1: The Input Stage
Basic input information for the matching &
decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Ch 6 -8
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -9
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Stage 2: The Matching Stage
Match between organization’s external opp &
threats with internal strengths & weaknesses
Ch 6 -10
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SWOT Matrix
Matching tool to develop 4 Types of
Strategies
Strengths-Opportunities (SO)
- Use a firm’s internal strengths to take advantage of ext opp.
Weaknesses-Opportunities (WO)
- Improve internal weaknesses by utilizing ext opp
Strengths-Threats (ST)
- Use firm’s strength to avoid / reduce the impact of ext. threats
Weaknesses-Threats (WT)
- Defensive tactics : reduce internal weakness and avoid ext threats.
Ch 6 -11
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SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -12
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WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -13
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ST Strategies
Strengths Use a firm’s
Weaknesses strengths
Opportunities to avoid or
Threats ST reduce the impact
Strategies of external
threats
SWOT
Ch 6 -14
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WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT
Ch 6 -15
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SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths
List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -16
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SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies
Use strengths to take Overcoming weaknesses
List Opportunities advantage of by taking advantage of
opportunities opportunities
Threats – T ST Strategies WT Strategies
Use strengths to avoid Minimize weaknesses and
List Threats threats avoid threats
Ch 6 -17
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Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
20% annual growth in
Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)
Exit of two major foreign Pursue horizontal integration
Insufficient capacity
+ competitors form the = by buying competitor's
(weakness)
industry (opportunity) facilities
Decreasing numbers of Develop new products for
Strong R&D (strength) + =
young adults (threat) older adults
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -18
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -19
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SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -20
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SPACE Matrix
Two Internal Dimensions
Financial Position (FP)
Competitive Position (CP)
Ch 6 -21
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SPACE Matrix
Two External Dimensions
Stability Position (SP)
Industry Position (IP)
Ch 6 -22
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SPACE Factors
Internal Strategic Position External Strategic Position
Financial Position (FP) Stability Position (SP)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -23
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Position (CP) Industry Position (IP)
Market share Growth potential
Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Ch 6 -24
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-4
-5
Defensive Competitive
-6
ES Ch 6 -25
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -26
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BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating strategies
Divisions may compete in different industries
Allows a multi-divisional firm to manage its business
portfolio by examining the relative market-share
position & industry growth rate of each
division/business relative to all other division in the org.
Ch 6 -27
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BCG Matrix
Relative Market Share Position
Ratio of a division’s market share in an industry
TO THE market share held by the largest rival
firm in that industry.
Ch 6 -28
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BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Stars Question Marks
II I
Medium
0
Cash Cows Dogs
III IV
Low
-20
Ch 6 -29
BCG Matrix
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Cash generation is low
Decision to strengthen (intensive strategies) or
divest
Ch 6 -30
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BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or
strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
Ch 6 -31
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BCG Matrix
Cash Cows
High relative market share, competes in low-
growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
If weakens—retrenchment or divestiture
Ch 6 -32
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BCG Matrix
Dogs
Low relative market share & compete in slow or
no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -33
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Develop BCG Matrix
Figure 6.8 page 216
Each division is represented by:
1) Circle size – indicates revenues
2) Pie-slice - % profits
Ch 6 -34
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Limitations of BCG Matrix
Oversimplification of business quadrant.
Some business fall right in the middle of
matrix and not easily classified.
Does not show whether or not various
divisions are growing over time.
Not only relative market share & industry
growth rate are important in making strategic
decision of various divisions.
Ch 6 -35
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -36
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Internal – External (IE) Matrix
Similar to the BCG Matrix (tool for multidivisional firms):
- Circle size represents revenues
- % of profits
IE & BCG are called “portfolio matrices”
Differences:
- Division’s position is plotted on a 9-cell display.
- Derived information from IFE & EFE of each division
- Different axes: IFE weighted score Vs EFE weighted
score
- IE matrix requires more information about the divisions
than the BCG.
Ch 6 -37
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Internal – External (IE) Matrix
9 cells are divided into 3 three major regions:
- Cells 1,2,4 – grow and build
- Cells 3,5,7 – Hold and maintain
- Cells 6, 8, 9 – Harvest or Divest
See figure 6.10 pg 217
Prepare “before & after” IE/BCG to minimize the
limitations of these matrices of being a
“snapshot in time”
Ch 6 -38
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
BCG Matrix
Grand Strategy Matrix
Ch 6 -39
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Grand Strategy Matrix
Based on two dimensions
Competitive position
Market (industry) growth - annual growth in
industry’s sales exceeds 5% is considered to
have RAPID GROWTH.
Ch 6 -40
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RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch 6 -41
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Ch 6 -42
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Grand Strategy Matrix
Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Ch 6 -43
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Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Must make drastic changes quickly to avoid
further decline
Do first cost & asset reduction (retrenchment)
Secondly, try unrelated diversification
Thirdly, divestiture / liquidate
Ch 6 -44
Copyright 2005 Prentice Hall
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Firms have high cash-flow level. Thus, do
related or unrelated diversification to more
promising growth areas.
Ch 6 -45
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Strategy-Formulation Analytical
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -46
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QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative
attractiveness of feasible alternative actions
Ch 6 -47
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QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Ch 6 -48
QSPM
Limitations
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs
Ch 6 -49
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QSPM
Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal
factors in the decision making process
Ch 6 -50
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Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of
consistency with the firm’s culture
Ch 6 -51
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Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -52
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Politics of Strategy Choice
Political tactics for strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -53
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Tactics to aid in strategy:
Equifinality – It is often possible to achieve similar results using different
means or paths.
Satisfying – Achieving satisfactory results with an acceptable strategy is far
better than failing to achieve optimal results with an unpopular
strategy.
Generalization – Shifting focus from specific issues to more general ones
may increase options for gaining organizational
commitment.
Focus on Higher-Order Issues – By raising an issue to a higher level, many
short-term interests can be postponed in
favour of long-term interests.
Provide Political Access on Important Issues –
Strategy and policy decisions with significant negative consequences
for middle managers will motivate intervention behaviour from them.
Copyright © 2011 Pearson Education, Inc. Ch 6 -54
Publishing as Prentice Hall
Governance Issues
Director: a person entrusted with the overall direction of a
corporate enterprise.
Board of Directors:
A group of individuals who are elected by the ownership
of a corporation to have oversight and guidance over
management and look for shareholders’ interests.
Governance = the act of oversight and direction
Ch 6 -55
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Governance
The characteristics of ensuring that long-term
strategic objectives and plans are established
and that the proper management structure is
in place to achieve those objectives, while at
the same time making sure that the structure
functions to maintain the corporation’s
integrity, reputation and responsibility to its
various constituencies.
Ch 6 -56
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Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
Ch 6 -57
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Corporate Governance Issues
Business Week’s “principles of good governance”
1. No more than 2 directors current or former company executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Ch 6 -58
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For Review (Chapter 6)
Key Terms & Concepts
Aggressive Quadrant Business Portfolio
Attractiveness Scores
Cash Cows
(AS)
Competitive Advantage
Boards of Directors
(CA)
Boston Consulting
Competitive Quadrant
Group (BCG) Matrix
Ch 6 -59
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For Review (Chapter 6)
Key Terms & Concepts
Conservative Quadrant Dogs
Environmental Stability
Culture
(ES)
Financial Strength
Defensive Quadrant
(FS)
Directional Vector Governance
Ch 6 -60
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For Review (Chapter 6)
Key Terms & Concepts
Internal-External (IE)
Grand Strategy Matrix
Matrix
Halo Error Matching
Industry Strength
Matching Stage
(IS)
Quantitative Strategic
Input Stage
Planning Matrix (QSPM)
Ch 6 -61
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For Review (Chapter 6)
Key Terms & Concepts
Question Marks Stars
Relative Market Share Strategic Position & Action
Position Evaluation (SPACE)
Sum Total Attractiveness
SO Strategies
Score (STAS)
ST Strategies Sustainability
Ch 6 -62
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For Review (Chapter 6)
Key Terms & Concepts
Strengths, Weaknesses
WO Strategies
Opportunities, Threats SWOT
Total Attractiveness
WT Strategies
Scores (TAS)
Ch 6 -63
Copyright 2005 Prentice Hall
