David sm13 PPT 06

Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
13th Edition
Global Edition
Fred David
Copyright © 2011 Pearson Education Ch 6 -1

“Whether it’s broke or not, fix it – make it

better. Not just products, but the whole
company if necessary.”
– Bill Saporito
“Life is full of lousy options.”

– General P.X. Kelley

 Subjective decisions based on objective

information
 Generating alternative strategies
 Selecting strategies to pursue
 Best alternative course of action to
achieve mission & objectives
 Derived from vision, mission, objectives,
external audit, and internal audit

Generating Alternatives –
Participation in generating alternative

strategies should be as broad as
possible

Comprehensive Strategy-
Formulation Framework
 Stage 1 - Input Stage
 EFE Matrix
 IFE matrix
 CPM
 Stage 2 - Matching Stage
 SWOT
 SPACE matrix
 BCG matrix
 IE Matrix
 Grand strategy matrix
 Stage 3 - Decision Stage
 QSPM
Strategy-Formulation Framework
External Factor Evaluation

Matrix (EFE)
Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)
Competitive Profile Matrix

(CPM)

Stage 2: The Matching Stage
Match between organization’s internal

resources & skills and the opportunities &
risks created by its external factors

SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix

Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats

SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

SWOT Matrix
 SO strategies use a firm’s internal strengths

to take advantage of external opportunities
 WO strategies improve internal weaknesses
by taking advantage of external opportunities
 ST strategies use a firm’s strengths to avoid
or reduce the impact of external threats
 WT strategies defensive tactics aimed at
reducing internal weakness and avoiding
external threats
Limitations with SWOT Matrix
 Does not show how to achieve a competitive

advantage
 Provides a static assessment in time
 May lead the firm to overemphasize a single
internal or external factor in formulating
strategies

SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix

SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive

SPACE Matrix
 Internal dimensions
 Financial position (FP)
 Competitive position (CP)
 External dimensions
 Environmental position (EP)
 Industry position (IP)

SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix

BCG Matrix
Boston Consulting Group Matrix

Assists multidivisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on relative market-share position &
industry growth rate

BCG Matrix
 Question Marks – low relative market share

in a high-growth industry
 Stars – high relative market share in a high-
growth industry
 Cash Cows – high relative market share in a
low-growth industry
 Dogs – Low relative market share in a slow or
no growth industry

SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix

The Internal-External Matrix
 Positions an organization’s various divisions

in a nine-cell display
 Similar to BCG Matrix except the IE Matrix:
 Requires more information about the divisions
 Strategic implications of each matrix are different

IE Matrix
 Based on two key dimensions

 The IFE total weighted scores on the x-axis
 The EFE total weighted scores on the y-axis
 Divided into three major regions
 Grow and build – Cells I, II, or IV
 Hold and maintain – Cells III, V, or VII
 Harvest or divest – Cells VI, VIII, or IX

SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix

 Tool for formulating alternative

strategies
 Based on two dimensions
 Competitive position
 Market growth

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. Related diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation
SLOW MARKET GROWTH

Quadrant I
Excellent strategic position

Concentrationon current
markets/products
Takerisks aggressively when
necessary
Quadrant II
Evaluate present approach

How to improve
competitiveness
Rapid market growth requires
intensive strategy
Quadrant III
Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction
(retrenchment)
Quadrant IV
Strong competitive position

Slow-growth industry
Diversification
to more
promising growth areas

Strategy-Formulation Analytical
Framework
Quantitative Strategic
Stage 3: Planning Matrix
The Decision Stage (QSPM)

QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine

the relative attractiveness of feasible
alternative actions

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
Management Information
Systems

Steps to Develop a QSPM
1. Make a list of the firm’s key external

opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor

Steps to Develop a QSPM
3. Examine the Stage 2 (matching) matrices,

and identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness
Score

QSPM
Advantages
Sets of strategies considered

simultaneously or sequentially
Integration of pertinent external &
internal factors in the decision-
making process

QSPM
Limitations
Requires intuitive judgments &

educated assumptions
Only as good as the prerequisite
inputs

Cultural Aspects of Strategy
Choice
Organization Culture
A set of values, beliefs, attitudes,
customs, norms, personalities,
heroes and heroines that describe a
firm
Successful strategies depend on
support of the firm’s culture
Politics of Strategy Choice
Politics in Organizations
Hierarchy of command
Career aspirations
Allocation of scarce resources

Politics of Strategy Choice
Political Tactics for Strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholders’ interests
Advancement of stockholders’ rights

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

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Chapter 6

Strategy Analysis & Choice

Copyright © 2011 Pearson Education Ch 6 -1

“Whether it’s broke or not, fix it – make it

“Life is full of lousy options.”

Copyright © 2011 Pearson Education Ch 6 -3

 Subjective decisions based on objective

Copyright © 2011 Pearson Education Ch 6 -4

Participation in generating alternative

Copyright © 2011 Pearson Education Ch 6 -5

External Factor Evaluation

Stage 1: Internal Factor Evaluation

Competitive Profile Matrix

Copyright © 2011 Pearson Education Ch 6 -7

Match between organization’s internal

Copyright © 2011 Pearson Education Ch 6 -8

Stage 2: BCG Matrix

Grand Strategy Matrix

Copyright © 2011 Pearson Education Ch 6 -9

Copyright © 2011 Pearson Education Ch 6 -10

Four Types of Strategies

Copyright © 2011 Pearson Education Ch 6 -11

 SO strategies use a firm’s internal strengths

 Does not show how to achieve a competitive

Copyright © 2011 Pearson Education Ch 6 -13

Stage 2: BCG Matrix

Grand Strategy Matrix

Copyright © 2011 Pearson Education Ch 6 -14

Copyright © 2011 Pearson Education Ch 6 -15

Copyright © 2011 Pearson Education Ch 6 -16

Stage 2: BCG Matrix

Grand Strategy Matrix

Copyright © 2011 Pearson Education Ch 6 -18

Boston Consulting Group Matrix

Copyright © 2011 Pearson Education Ch 6 -19

 Question Marks – low relative market share

Copyright © 2011 Pearson Education Ch 6 -20

Stage 2: BCG Matrix

Grand Strategy Matrix

Copyright © 2011 Pearson Education Ch 6 -22

 Positions an organization’s various divisions

Copyright © 2011 Pearson Education Ch 6 -23

 Based on two key dimensions

Copyright © 2011 Pearson Education Ch 6 -25

Stage 2: BCG Matrix

Grand Strategy Matrix

Copyright © 2011 Pearson Education Ch 6 -26

 Tool for formulating alternative

Copyright © 2011 Pearson Education Ch 6 -27

SLOW MARKET GROWTH

Excellent strategic position

Evaluate present approach

Compete in slow-growth industries

Strong competitive position

Copyright © 2011 Pearson Education Ch 6 -32

Copyright © 2011 Pearson Education Ch 6 -33

Quantitative Strategic Planning Matrix

Technique designed to determine

Copyright © 2011 Pearson Education Ch 6 -34