David sm13 ppt_06

1. Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall Ch 6 -1
Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
13th
Edition
Fred David

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Publishing as Prentice Hall Ch 6 -2

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“Whether it’s broke or not, fix it – make it
better. Not just products, but the whole
company if necessary.”
– Bill Saporito
Strategy Analysis & Choice
“Life is full of lousy options.”
– General P.X. Kelley

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 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
Strategy Analysis & Choice

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Strategy Analysis & Choice
Generating Alternatives –
Participation in generating alternative
strategies should be as broad as
possible

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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

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Strategy-Formulation Framework
External Factor Evaluation
Matrix (EFE)
Internal Factor Evaluation
Matrix (IFE)
Competitive Profile Matrix
(CPM)
Stage 1:
The Input Stage

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Stage 2: The Matching Stage
Match between organization’s internal
resources & skills and the opportunities &
risks created by its external factors

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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

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

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

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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

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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

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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

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

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

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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

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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

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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

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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

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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

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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

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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

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Grand Strategy Matrix
 Tool for formulating alternative
strategies
 Based on two dimensions
 Competitive position
 Market growth

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Quadrant IV
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Quadrant III
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION

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Grand Strategy Matrix
Excellent strategic position
Concentration on current
markets/products
Take risks aggressively when
necessary
Quadrant I

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Grand Strategy Matrix
Evaluate present approach
How to improve
competitiveness
Rapid market growth requires
intensive strategy
Quadrant II

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Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction
(retrenchment)
Quadrant III

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Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more
promising growth areas
Quadrant IV

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

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QSPM
Technique designed to determine
the relative attractiveness of feasible
alternative actions
Quantitative Strategic Planning Matrix

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QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
Strategy 3Strategy 2Strategy 1WeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives

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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

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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

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QSPM
Sets of strategies considered
simultaneously or sequentially
Integration of pertinent external &
internal factors in the decision-
making process
Advantages

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QSPM
Requires intuitive judgments &
educated assumptions
Only as good as the prerequisite
inputs
Limitations

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Cultural Aspects of Strategy
Choice
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
Organization Culture

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Politics of Strategy Choice
Hierarchy of command
Career aspirations
Allocation of scarce resources
Politics in Organizations

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Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Political Tactics for Strategists

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Governance Issues
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholders’ interests
Advancement of stockholders’ rights
Board of Directors Roles & Responsibilities

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