STRATEGY

GENERATION and
SELECTION

Chapter Eight

8-1
Chapter Objectives
1. Describe a three-stage framework for choosing among
alternative strategies.
2. Explain how to develop a SWOT Matrix, SPACE Matrix,
BCG Matrix, IE Matrix, and QSPM.
3. Identify important behavioral, political, ethical, and social
responsibility considerations in strategy analysis and
choice.
4. Discuss the role of intuition in strategic analysis and choice.
5. Discuss the role of organizational culture in strategic
analysis and choice.
6. Discuss the role of a board of directors in choosing among
alternative strategies.

8-2
A Comprehensive Strategic-Management Model

8-3
The Process of Generating and Selecting Strategies

• A manageable set of the most attractive alternative strategies must be

developed
• The advantages, disadvantages, trade-offs, costs, and benefits of these
strategies should be determined
• Identifying and evaluating alternative strategies should involve many of the
managers and employees who earlier assembled the organizational vision
and mission statements, performed the external audit, and conducted the
internal audit.
• Alternative strategies proposed by participants should be considered and
discussed in a series of meetings.
• Proposed strategies should be listed in writing.
• When all feasible strategies identified by participants are given and
understood, the strategies should be ranked in order of attractiveness.
8-4
The Strategy-Formulation Analytical Framework
summarizes the basic input focuses on generating feasible
information needed to formulate alternative strategies by aligning key
strategies external and internal factors

reveals the relative attractiveness of

alternative strategies and thus provides
objective basis for selecting specific
strategies
8-5
Matching Key External and Internal Factors to Formulate Alternative Strategies

8-6
The Matching Stage
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix helps
managers develop four types of strategies:

• SO Strategies • WO Strategies
• use a firm’s internal strengths • aim at improving internal
to take advantage of external weaknesses by taking
opportunities advantage of external
opportunities

• ST Strategies • WT Strategies
• use a firm’s strengths to avoid • defensive tactics directed at
or reduce the impact of reducing internal weakness
external threats and avoiding external threats

8-7
SWOT Matrix
1. List the firm’s key external opportunities
2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
5. Match internal strengths with external opportunities
6. Match internal weaknesses with external opportunities, and record the
resultant WO Strategies
7. Match internal strengths with external threats, and record the resultant
ST Strategies
8. Match internal weaknesses with external threats, and record the
resultant WT Strategies

8-8
A SWOT Matrix for a Retail Computer Store

8-9
A SWOT Matrix for a Retail Computer Store

8-10
The SPACE Matrix
Strategic Position and Action Evaluation (SPACE) Matrix
four-quadrant framework indicates whether aggressive, conservative, defensive, or
competitive strategies are most appropriate for a given organization

8-11
Factors That Make Up the SPACE Matrix Axes
1. Select a set of variables to define financial position (FP), competitive position
(CP), stability position (SP), and industry position (IP).

2. Assign a 4. Assign a
numerical value numerical value
ranging from +1 ranging from –1
(worst) to +7 (best) to –7
(best) to each of (worst) to each
the variables of the variables
that make up that make up
the FP the SP
dimension dimension.

3. Assign a 5. Assign a
numerical value numerical value
ranging from –1 ranging from +1
(best) to –7 (worst) to +7
(worst) to each (best) to each of
of the variables the variables
that make up that make up
the CP the IP
dimensions. 6. Compute an average score for FP, CP, IP, and SP. dimension.

8-12
Developing a SPACE Matrix
7. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE
Matrix.
8. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on
the y-axis and plot the resultant point onY. Plot the intersection of the new xy point.
9. Draw a directional vector from the origin of the SPACE Matrix through the new xy point.
+5

(+1, +5)

+1

13
Example Strategy Profiles

8-14
Example Strategy Profiles

8-15
The Boston Consulting Group (BCG) Matrix

BCG Matrix:
• graphically portrays differences among divisions in terms of relative market share position
and industry growth rate
• allows a multidivisional organization to manage its portfolio of businesses by examining
the relative market share position and the industry growth rate of each division relative to
all other divisions in the organization

8-16
The BCG Matrix
• Question marks – Quadrant I
• Organization must decide whether to strengthen them by pursuing an intensive strategy
(market penetration, market development, or product development) or to sell them

• Stars – Quadrant II
• represent the organization’s best long-run opportunities for growth and profitability

• Cash Cows – Quadrant III

• generate cash in excess of their needs
• should be managed to maintain their strong position for as long as possible

• Dogs – Quadrant IV
• compete in a slow- or no-market-growth industry
• businesses are often liquidated, divested, or trimmed down through retrenchment

The major benefit of the BCG Matrix is that it draws attention to the cash
flow, investment characteristics, and needs of an organization’s various
divisions
8-17
The Internal-External (IE) Matrix

• The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE
total weighted scores on the y-axis

• Three major regions: (1) Grow and build, (2) Hold and maintain, and (3) Harvest or divest

8-18
The IE Matrix

8-19
The Grand Strategy Matrix
• Grand Strategy Matrix: based on two evaluative dimensions:
competitive position and market (industry) growth

8-20
The Grand Strategy Matrix
• Quadrant I: Continued concentration on current markets (market penetration and market
development) and products (product development) is an appropriate strategy
• Quadrant II: Unable to compete effectively; need to determine why the firm’s current
approach is ineffective and how the company can best change to improve its competitiveness

8-21
The Grand Strategy Matrix
• Quadrant III: Must make some drastic changes quickly to avoid further decline and possible
liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first
• Quadrant IV: have characteristically high cash-flow levels and limited internal growth needs
and often can pursue related or unrelated diversification successfully

8-22
The Quantitative Strategic Planning Matrix (QSPM)
• objectively indicates which alternative strategies are best
• uses input from Stage 1 analyses and matching results from Stage 2 analyses to
decide objectively among alternative strategies

8-23
Steps in a QSPM
1. Make a list of the firm’s key external opportunities/threats
and internal strengths/weaknesses in the left column of the
QSPM.
2. Assign weights to each key external and internal factor.
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should consider
implementing.
4. Determine the Attractiveness Scores (AS).
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.

8-24
A QSPM for a Retail Computer Store

8-25
A QSPM for a Retail Computer Store (cont.)

8-26
Positive Features of the QSPM
• Sets of strategies can be examined sequentially or simultaneously
• Requires strategists to integrate pertinent external and internal factors
into the decision process
• Can be adapted for use by small and large for-profit and nonprofit
organizations

Limitations of the QSPM

• Always requires intuitive judgments and educated assumptions
• Only as good as the prerequisite information and matching analyses
upon which it is based

8-27
The Politics of Strategy Choice
• Political maneuvering consumes valuable time, subverts organizational
objectives, diverts human energy, and results in the loss of some
valuable employees
• Political biases and personal preferences get unduly embedded in
strategy choice decisions
• Political maneuvering consumes valuable time, subverts organizational
objectives, diverts human energy, and results in the loss of some
valuable employees
• Political biases and personal preferences get unduly embedded in
strategy choice decisions

8-28
Tactics to Aid Strategists

Choose Methods That Afford Employee Commitment

Achieve Satisfactory Results with a Popular Strategy

Shift from Specific to General Issues

Focus on Long-Term Issues and Concerns

Involve Middle Level Managers in Decisions

8-29
Governance Issues: Board of Director Duties and
Responsibilities
• Board of
directors: a group
of individuals who
are elected by the
ownership of a
corporation to have
oversight and
guidance over
management and
who look out for
shareholders’
interests

8-30
Principles of Good Governance
1. No more than two directors are current or
former company executives.
2. The audit, compensation, and nominating
committees are made up solely of outside
directors.
3. Each director owns a large equity stake in the
company, excluding stock options.
4. Each director attends at least 75 percent of all
meetings.
5. The board meets regularly without management
present and evaluates its own performance
annually.
6. The CEO is not also the chairperson of the board.
7. There are no interlocking directorships (where a
director or CEO sits on another director’s board).
8-31