Strategy analysis and change- Matrix

‫السالم‬ ‫عليه‬ ‫ؤمنين‬ُ‫م‬‫ال‬ ‫أمير‬ َ‫ل‬‫ا‬َ‫ق‬ َ‫و‬:ُ‫م‬ْ‫ل‬ِ‫ع‬ْ‫ال‬ٌ‫ة‬َ‫ث‬‫ا‬َ‫ر‬ِ‫و‬
َ‫و‬ ٌ‫ة‬َ‫د‬َّ‫د‬َ‫ج‬ُ‫م‬ ٌ‫ل‬َ‫ل‬ُ‫ح‬ ُ‫اب‬َ‫د‬ ْ‫اْل‬ َ‫و‬ ٌ‫ة‬َ‫م‬‫ي‬ ِ‫ر‬َ‫ك‬ِِ‫ا‬ََ ٌ‫ة‬‫ة‬ ْ‫ر‬ِ‫م‬ ُ‫ر‬ْ‫ك‬ِِْ‫ال‬ٌ‫ة‬َ‫ي‬.
Ameer al-Mu’mineen, peace be upon him,
said: Knowledge is a venerable estate; good manners
are new dresses; and thinking is clear mirror.

G-9
Atta Hussain Syed 2k14/com/26
Sanjay Kumar 2k14/com/93
Ameer Hyder Memon 2k14/com/15
Unsa Soomro 2k14/com/116
Kanwal Soomro 2k14/com/55
Sajjad Burghri 2k14/com/88
Ab Karim Malik 2k14/com/06
Tofique Malak 2k14/com/132
Mahesh Kumar 2k14/com/59

Strategy Analysis and
Change
Chapter Six

Outline
• Introduction
• Formulation Process
• Stage 1
• Stage 2
• Stage 3

Introduction to Matrix
• It is a type of organizational management wherein
employees of similar skills are shared for work
assignments.
• It is a structure in which the workforce reports to multiple
managers of different roles.
• It is recognizing that companies have both vertical and
horizontal chains of command, for which matrix model is
created.

Historical background
• • • •
1970s1960s
1990s

Comprehensive Strategy-Formulation
Framework
• The tools presented in this framework of Three stages are applicable to all
sizes and types of organizations and can help strategists identify, evaluate, and
select strategies.
 Stage 1 - Input Stage
• EFE Matrix
• IFE matrix
• CPM
 Stage 2 - Matching Stage
• IE Matrix
• SPACE matrix
• SWOT Matrix
• BCG matrix
• Grand strategy matrix
 Stage 3 - Decision Stage
• QSPM

Strategy-Formulation Framework
Stage 1:
The Input Stage

External Factors Evaluation (EFE) Matrix
• External Factor Evaluation (EFE) matrix is a strategy tool
used to examine company’s external environment
(PESTEL-G, Porter’s Five Forces) and to identify
available opportunities and threats.

Process of EFE matrix
• EFE matrix consists of five steps process.
1. List key external factors: opportunities and threats.
2. Assign weight to each factor (0 to 1.0) sum of all weights = 1.0 the
weight ranges from 0.0 (not important) to 1.0 (very important)
3. Assign 1-4 rating to each factor to indicate how effectively the firm’s
current strategies response to the factor. Where 4 = the response is
superior, 3 = the response is above average, 2 = the response is average,
Where 4 = the response is superior, 3 = the response is above average, 2 =
the response is average, and 1= the response is poor. Rating is based on
effectiveness of the firm’s strategies.
4. Multiply each factor’s weight by its rating.
5. Sum the weighted scores for each factor

Ratings and Weighted
• Highest possible weighted score for the organization is
4.0
• The lowest is 1.0
• The average is 2.5
• A total weighted score of 4.0 indicates that an organization is
responding in a outstanding way to existing opportunities and
threats in its industry.
• A total score of 1.0 indicated that a firm’s strategies are not
capitalizing on opportunities or avoiding external threats.

EFE Matrix Example
Key External Factors Weight Rating
Weighted
Score
Opportunities
A lot of countries encourage technology innovation and
high-tech industry is really important.
0.03 3 0.09
Countries value the protection of intellectual property 0.04 3 0.12
GDP and national income per capita increasing 0.12 3 0.36
Consumption pattern is changing from subsistence
consumption to well spending Pattern
0.07 3 0.21
Samsung’s mobile phones have high attention 0.09 4 0.36
Growing India’s smartphone market 0.05 2 0.10
People more care about brand and quality than price 0.14 3 0.42

Cont..
Key External Factors Weight Rating Weighted Score
Threats
Legal issues with Apple 0.05 3 0.15
Price wars with Chinese phones 0.10 3 0.30
More and more new substitute and
potential entrant
0.10 4 0.4
Strong competitors: Apple, Nokia,
HTC…
0.12 4 0.48
The user experience is upgrading 0.09 3 0.27
Total 1.00 37 3.26

Conclusion
• As per the standards given, Samsung reap following;
1. Samsung’s total weighted score 3.26 it means it has
potential to avoid threats, exploit opportunities in better
way.
2. Earn above average

Internal Factor Evaluation (IFE) Matrix
• Internal Factor Evaluation (IFE) matrix is a strategic
management tool for auditing or evaluating major strengths and
weaknesses in functional areas of a business.

Internal Factor Evaluation (IFE) Matrix
INTERNAL FACTORS
Internal factors are the outcome of detailed internal audit of a firm, every
company have some weak and strong points, therefor the internal factors
are divided into two categories namely strengths and weakness.

Internal Strengths
• Strengths are the strong areas or attribute of the company,
which are used to overcome weakness and capitalize to
take advantage of the external opportunities available in
the industry. The strengths could be tangible or intangible;
such as brand image, financial position, income, human
resource.

Weaknesses
• Weaknesses are the risky areas which needs to be
addressed on priority to minimize its impact. The competitors
always searching for the loop holes in your company and put
their best effort to capitalize on the identified weaknesses.

• IFE matrix also provides a basis for identifying and
evaluating relationships among those areas. The Internal
Factor Evaluation matrix is used in strategy formulation.
• The IFE Matrix together with the EFE matrix is a strategy-
formulation tool that can be utilized to evaluate how a
company is performing in regards to identified internal
strengths and weaknesses of a company.
IFE Matrix

Steps
There are Five steps in making Internal Evaluation Factor
Matrix.
• List key internal factors as identified in the internal-audit
process. Use total of from ten to twenty internal factors,
including both strengths and weaknesses. List strengths
first and then weaknesses. Be as specific as possible,
using percentages, ratios, and comparative numbers.

• Assign a weight that ranges from 0.0 (not important) to 1.0
(all-important) to each factor. The weight assigned to a
given factor indicates the relative importance of the factor
to being successful in the firm's industry. Regardless of
whether a key factor is an internal strength or weakness,
factors considered to have the greatest effect on
organizational performance should be assigned the highest
weights. The sum of all weights must equal 1.0

• Assign a 1-to-4 rating to each factor to indicate whether
that factor represents a major weakness (rating = 1), a
minor weakness (rating = 2), a minor strength (rating = 3),
or a major strength (rating = 4). Note that strengths must
receive a 4 or 3 rating and weaknesses must receive a 1 or
2 rating. Ratings are, thus, company based, whereas the
weights in Step 2 are industry based.

4. Multiply each factor's weight by its rating to determine a
weighted score for each variable.
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization

• Regardless of how many factors are included in an IFE
Matrix, the total weighted score can range from a low of
1.0 to a high of 4.0, with the average score being 2.5.
Total weighted scores well below 2.5 characterize
organizations that are weak internally, whereas scores
significantly above 2.5 indicate a strong internal position.
• The number of factors has no effect upon the range of
total weighted scores because the weights always sum to
1.0

IFE Matrix Example
Key Internal Factors Weight Rating
Weighted
Score
Strengths
Brand Recognition and Loyalty 0.07 3 0.21
A large number of products and broad product line 0.05 4 0.20
Strong research and development ability 0.10 3 0.30
Hardware integration with many open source OS and software 0.04 2 0.08
Innovation and fashion design, especially popular among younger
peoples
0.15 4 0.60
With extensive sales channels and propaganda 0.06 3 0.18
Low production costs 0.03 3 0.09
Largest share in Smartphone industry ( 30% market share
worldwide, extending its lead over Apple and Nokia)
0.15 4 0.60

Cont..
Key Internal Factors Weight Rating
Weighted
Score
Weaknesses
Not high lighting Price/Performance Ratio. 0.10 4 0.40
Lack its own OS and Software 0.07 4 0.28
Patent infringement 0.04 3 0.12
Too low profit margin 0.04 2 0.08
Limited high-end products 0.03 2 0.06
Focus on too many products, with inaccurate positioning 0.07 3 0.21
Total 1.00 44 3.41

Competitive profile matrix(CPM)
• Identifies a firm’s major competitors and
their particular strengths and weaknesses
in relation to a sample firm’s strategic
position.

Strengths
• Resources and capabilities that it possesses that enable it to engage in
activities that generate economic value and some times competitive
advantage.
• It is important to have strength so no one can ever take anything from you
ever again as this is vital for success in life.
• Example:- Microsoft has ability to write application software.
Disney has strength in creating entertainment markets

Weaknesses
• Are firms resources and capabilities that either make it difficult to
realize the economic value of a firm’s strengths or actually reduce
a firm’s economic value.
• Example:- US Air’s high cost of labor id weakness
McDonalds faces huge loss in India

Opportunities
• Chance for a firm to improve its competitive position and
performance.
• Opportunities come in all different sizes, from hardly
noticeable ones, to life-changing ones.
• Example:-A big sporting event for an energy drink’s
producers: a large sporting event would be a great place
for an energy drink producer to advertise, and sponsor
athletes.

Threats
• Are any individual groups, or organization outside a firms that seeks to
reduce the level of the firm’s performance .
• Every firms faces threats in its comitatives .

Ratings Scale
• If rating scales are 4, than
• 1-4 is major weakness
• 2-4 is minor weakness
• 3-4 is minor strength
• 4-4 is major strength

Competitive Profile Matrix (CPM)

Factors for analysis
• Effectiveness of distribution channels
• Patent advantages
• Location of facilities
• Production capacity and efficiency
• Experience
• Union relations
• Technological advantages
• E-commerce expertise

Effectiveness of distribution channels
 Direct marketing: where the goods are sold directly from the product direct
to the customer.
 Wholesaler: A wholesaler is normally an intermediary between the
producer and the retailer.

 Agents/Brokers: Agents and brokers are
intermediaries between the producer and the wholesaler
and/or retailer.
 Retailers: A retailer is an intermediary, which buys
products either from manufacturers or
from wholesalers and resells them to consumers

Patent Advantage
• A patent gives you the right to stop others from
copying, manufacturing, selling or importing your
invention without your permission.

Production Capacity
• is the volume of products or services that can be
produced by an enterprise using current resources.

Experience
• the process or fact of personally observing,
encountering, undergoing something.
• practical contact with and observation of facts or
events.

Union Relations
• Industrial Unions
• Public Sector Unions
• Labor unions

Technological Advantage
• Are ways of develop our lives, because the technology
help us with different king of work.

Ecommerce Expertise
• help save you money and satisfy your valued customers,
we also have established meaningful partnerships that
can benefit your business, from shopping carts, to call
centers, to dependable shipping carriers.

IE Matrix
SPACE Matrix
SWOT Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage

• The internal and external (IE) matrices have been introduced by Fred R . David .
• Internal Factor Evaluation (IFE): The internal factor evaluation (IFE)
Matrix is a strategy tool used to evaluate firm’s internal environment used to
reveal it’s strength as well as weaknesses.
• External Factor Evaluation (EFE): The external factor evaluation
(EFE) is used to examine company’s external environment and to identify
the available opportunities and threats.
Internal-External (IE) Matrix

 Position of various division of an organization is categorized
into nine cell display( I, II, III, IV V,VI,VII,VIII,IX).
 The IE Matrix is much similar to the Boston Consulting Group (BCG) but there are
certain differences like
- IE Matrix need more information about the division.
-There are separate implications for ever kind of Matrix.
 Based on two key dimension:
-The IFE total weighted scores on X-axis
-The EFE total weight scores on the Y-axis
 Divide into three major regions
- Grow and build-Cell I,II,IV
- Hold and maintain-Cell III,V, or VII
- Harvest or divest- Cell VI,VIII,IX
Characteristics of (IE) Matrix

Steps for the Develpoment of IE Matrix
1. Based on two key dimensions IFE and EFE.
2. Place IFE total weighted scores on the x-axis and the EFE total
weighted scores on the y-axis.
3. On the x-axis of the IE Matrix ,an IFE total weighted score of 1.0
to 1.99 represents a weak internal position ; a score of 2.0 to 2.99
is considered average; and a score of 3.0 to 4.0 is strong.
4. On the y-axis , an EFE total weighted score of 1.0 to 1.99 is
considered low; a score of 2.0 to 2.99 is medium; and a score of
3.0 to 4.0 is high.

IE Matrix Three Major Regions That Have
Different Implications
Region first
( Cells , I, II, IV)
Grow and build
strategy
Region Third
(Cell, VI,VIII,IX)
Harvest or divest
strategy
Region second
(Cell, III,V,VII)
Hold and maintain
strategy

Grow and build
It involve the strategies that focuses on market
penetration , market development product development
and Horizontal and Vertical integration.
Hold and maintain
Strategies should focus on market development and
product development.
Harvest or Divest
Strategies should focus on retrenchment and
divesture.

Benefits of IE Matrix:
• Easy to understand .The input have a clear meaning to every one inside or
outside of the company.
• Easy to use . The matrix do not require extensive expertise.
• Focusing on key external and internal factors(the IFE and EFE only highlight
the key factors that are affecting a company or its strategy).
• It is used for multiple purpose such as used to build SWOT Analysis and
benchmarking.

Limitations of IE Matrix
• Easily replaced.IFE and EFE Matrix can be replaced by competitive profile
matrix , BCG matrix SPACE matrix and also SWOT matrix.
• Doesn’t directly help in formation. Both analysis only identify and evaluate
the factors but do not help the company directly in determining the next
strategic move or the best strategy.
• Too broad factors .SWOT matrix has the same limitation and it has same
means the some factors that are not specific enough can be confused with
each other.

Review
Input
• EFE Matrix
• IFE Matrix
• CPM
Matching • IE Matrix
Decision
• It is the comprehensive framework of strategy formulation. From input to
the out put.
• External Factor Evaluation (EFE) matrix is a strategy tool used to
examine company’s external environment (PESTEL Analysis, Porter’s
Five Forces) and to identify available opportunities and threats
• Competitive profile matrix(CPM) Identifies a firm’s major competitors
and their particular strengths and weaknesses in relation to a sample
firm’s strategic position.
• The IE Matrix is based on the matching of internal and external factors.
 Based on two key dimension:
-The IFE total weighted scores on X-axis
-The EFE total weight scores on the Y-axis
 Divide into three major regions
- Grow and build-Cell I,II,IV
- Hold and maintain-Cell III,V, or VII
- Harvest or divest- Cell VI,VIII,IX

Glossary
• Aggressive: Willing to accept calculated risk of greater
than average loss in quest of greater than average returns,
without gambling on random chance.
• Conservative: is an investing strategy that seeks to
preserve an investment portfolio's value by investing in
lower risk securities such as fixed-income and money
market securities, and often blue-chip or large-cap equities.

Glossary
• Defensive: A management approach designed to reduce
the risk of loss. defensive strategy when it comes to
investing its extra liquid funds in certificates of deposit or
relatively stable bonds and stocks.
• Competitive: Good, service, or offer that can hold its own
against competing products because it offers an attractive
value for money proposition to its buyers.

Strategy Position and Action Evaluation
(SPACE) Matrix
• SPACE analysis matrix is a tremendous technique for
evaluating the sense and wisdom in a particular strategic
plan.
• It was developed by strategy academics “Alan Rowe,
Richard Mason, Karl Dickel, Richard Mann and Robert
Mockler”. .
Introduction:

Significance
• The most important concern of most of the organizations is for guaranteed in complex
environmental changes. Strategic planning provides some tools for the organizations to
follow the formulation of the strategy in various aspects of the organization and manage their
strategic performance
• SPACE matrix is a strategic management tool that focuses on strategy formulation especially
as related to the
• Strategy models provide a common focus point for discussion. The best strategies come of
from the insight of applying the strategy tools and the discussions that happen within the
management team and not of using the planning model.
• You can see a set of conditions or even a particular symptom and you can relate it back to
the rest of the strategy model to understand more about what is happening at the moment,
what is happening and perhaps what will happen

• Financial Strength
(FS)
SPACE Dimensions
• The SPACE Matrix is a relatively easy to understand and use
method as a decision aid. It uses two internal dimensions , two
external dimensions.
• By combining ratings on each dimension on one SPACE matrix
diagram, the framework guides the strategic agenda
• Competitive
Advantage (CA)
• Industrial Strength
(IS)
• Environmental
Stability (ES)

Financial Position/Strength Competitive Position/Strength
Return on Investment (ROI) Market Share
Leverage Product Quality
Liquidity Product Life Cycle
Working Capital Customer Loyalty
Cash Flow Resources Utilization
Earning per Share Technology Know-how
Price Earning Ratio Control over suppliers and distributors
Internal Dimension

External Dimension
Industrial Position/Strength Environmental Position/Strength
Profit Potential Technological Changes
Financial Stability Inflation Rates
Extent Leveraged Demand Variability
Growth Potential Barriers to entry into market
Resources Utilization Competitive Pressure
Productivity

• The SPACE matrix focuses on strategy formulation especially as
related to the competitive position of an organization.
• The SPACE matrix is broken down to four quadrants where each
quadrant suggests a different type of a strategy depending on
which quadrant the outcome of the analysis places the
organization. The strategy types are:
1. Aggressive
2. Conservative
3. Defensive
4. Competitive
Strategic Position & Action Evaluation
Matrix

Dimensions & Strategies in SPACE Matrix
Defensive Conservative Competitive Aggressive
Strategy Postures
Dimensions
Unstable Stable Unstable Stable
Environmental Strength
(ES)
Unattractive Attractive Unattractive Attractive Industrial Strength (IS)
Weak Weak Strong Strong
Competitive Advantage
(CA)
Weak High Weak High Financial Strength (FS)

SPACE Matrix Quadrants
Internal Dimension
External Dimension

• Defensive; Retrenchment, Divestiture and Liquidation are
turnaround strategies
- Retrenchment: limited withdrawal from one or more product or market
segments.
- Divestiture: is one of defensive strategies in which part or division of
an organization which are closed that need heavy capital, or
unprofitable & that are not suitable for the business organization.
- Liquidation: sale of assets or a portion of the firm that does not, by it
self, constitute a viable operation, by this some capital is raised.
Appropriate Strategies

• Conservative (risk averse);
- Market Penetration: include the activities that are used to
increase the market share of a particular product or service.
- Market Development: is a growth strategy that identifies
and develops new market segments for current
products, targets non-buying customers in currently
targeted segments. It also targets new customers in new
segments.
Cont.…

Cont.…
- Product Development: This growth strategy requires
changes in business operations, including a research and
development (R&D) function that is needed to introduce
new products to your existing customer base.
- Related Diversification: It is when a business adds or
expands its existing product lines or markets.
- For example, a phone company that adds or expands its
wireless products and services by purchasing another
wireless company is engaging in related diversification.

Cont.…
• Competitive;
- Vertical Integration: is a strategy where a company expands its
business operations into different steps on the same production
path, such as when a manufacturer owns its supplier and/or
distributor
Horizontal Integration: Horizontal integration is the acquisition of
additional business activities that are at the same level of
the value chain in similar or different industries.
- Market Penetration
- Market Development
- Product Development

Cont…
• Aggressive:
- Vertical Integration
- Horizontal Integration
- Market Penetration
- Market Development
- Product Development: (related or unrelated): Diversification is the
art of entering product markets different from those in which the firm
is currently engaged in. It is helpful to divide diversification into
‘related’ diversification and ‘unrelated’ diversification.

How to Construct SPACE Matrix
• The SPACE matrix is constructed by plotting calculated
values for competitive advantage (CA) and industry
strength (IS) dimensions on the X axis.
• The Y axis is based on the environmental stability (ES)
and financial strength (FS) dimensions.

1. Choose variables of CA, IS, ES, and FS.
2. Rate individual factors to each dimension, rate CA and ES using rating scale from
-6 (worst) to -1 (best). Rate IS and FS from +1 (worst) to +6 (best).
3. Find the average scores for CA, IS, ES, and FS.
4. Plot values from step 3 for each dimension on the SPACE matrix on appropriate
axis.
5. Add the average score for CA, and IS dimensions. This will be final point on X axis
on the SPACE Matrix.
6. Add the average score for the SPACE matrix ES and FS dimensions to find your
final point on the axis Y.
7. Find intersection of your X and Y points. Draw a line from the center of the
SPACE matrix to your point. This line reveals the type of strategy the company
should pursue.
Steps

Samsung SPACE Matrix
Internal Dimension External Dimension
Y Financial Strength (FS) +1 to +6 Environmental Stability (ES) -6 ton-1
+3 Earning per share -2 Price of competitive product
+5 Revenue increase -4 Competitive pressure
+4 Return on Assets -4 Global economic
+4 Leverage -2 Technology changes
+3 Liquidity -2 Demand elasticity
+3 Cash flows -2 Inflation rate
Average 3.7 (22/6= 3.6666 or 3.7) Average - 2.7 (-16/6 = 2.6666 or 2.7)
Total Y axis score: 1.00 (3.7 – 2.7 )
Y Financial Strength (FS) +1 to +6 Environmental Stability (ES) -6 ton-1
+3 Earning per share -2 Price of competitive product
+5 Revenue increase -4 Competitive pressure
+4 Return on Assets -4 Global economic
+4 Leverage -2 Technology changes
+3 Liquidity -2 Demand elasticity
+3 Cash flows -2 Inflation rate
Average 3.7 (22/6= 3.6666 or 3.7) Average - 2.7 (-16/6 = 2.6666 or 2.7)
Total Y axis score: 1.00 (3.7 – 2.7 )

Cont.
X Competitive Advantage (CA) -6 to -1 Industrial Strength (IS) +1 to +6
-1 Product Quality +6 Barriers to entry
-1 Market Share +5 Growth potential
-1 Brand & Image +5 Access to financing
-3 Product Life Cycle +6 Consolidation
-5 Customer Service +6 Profits
-2 Customer Loyalty
Average -2.2 (-13/6 = -2.1666 or 2.2) Average 5.6 (28/5)
Total X axis Score: 3.4

SPACE Matrix Graph
Backward, Forward, Horizontal
Integration
Market Penetration
Market Development
Product Development
Diversification (Related or Unrelated)

Finished!
That is all for Today
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IE Matrix
SPACE Matrix
SWOT Matrix
BCG Matrix
Stage 2:
The Matching Stage

History of SWOT/TOWS MATRIX
S stood for what things are Satisfactory at present,
O denoted what Opportunities can be explored in the future,
F meant the Faults in the present and
T signified the Threats that could surface in the future.
.
 1960-1970s
Albert Humphrey developed an analytical tool to evaluate the strategic plans and find out why corporate
planning failed. He coined this technique as SOFT analysis where –

Continue..
 1964:
In the seminar held in Zurich by Urick and Orr proposed the concept of SWOT
analysis which was derived from SOFT by replacing the F for faults with W for
Weaknesses. With its initial promotion in the Britain, the concept soon gained
recognition among strategic planners and management consultants the world
over

Continue..
TOWS is developed by the American international business professor Heinz
Weirich
The TOWS Matrix is derived from the SWOT Analysis model, which stands for
the internal Strengths and Weaknesses of an organisation and the external
Opportunities and Threats that the business is confronted with
SWOT and TOWS use the same factors for analysis. SWOT and TOWS are
used interchangeably without regard to the order that strengths, weaknesses,
threats and opportunities are examined. The only difference between them is
order nothing else.

SWOT/TOWS MATRIX
 Swot analysis is a strategic planning method used
to evaluate the internal (strengths and
weaknesses)and external factors(Opportunities
and threats)that are favourable and unfavourable
to achieve the objects in a business or a project.
 It is conceptual framework for a systematic
analysis that facilitates matching the external
threats and opportunities with the internal
weaknesses and strengths of the organisation.
 It is a matching stage as it compares internal
environment with external environment.

Strength and weaknesses
• Strength: Characteristics of the business or team that give it an advantage over
others in the industry
Example: Established brand name
• Lower production costs
• Superior management
• Excellent marketing skills
• Weaknesses:
Detract the organization from its ability to attain the core goal and influence its growth.
Example: Higher production costs
• Obsolete or Out-of-date products/technology
• Poor market image
• Poor marketing skills

Opportunities And threats
 Strength: Condition of the environment that benefits the organization in planning
and executing strategies that enable it to become more profitable
Example:
• Decline in demand for a substitute product
• Changing customer needs/tastes
• New uses discovered for existing product
• Threats: External elements in the environment that could cause trouble for the
business. Introduction of new substitute products
Example:
• Decline in product life cycle
• Changing customer needs/tastes

Alternative strategies of tows matrix
. The TOWS MATRIX helps to identify the strategic alternatives for a company that works as a matching tool by
constructing four types of strategies such as
1.WT strategy
2. WO strategy
3. ST strategy
4.SO strategy

WT strategy AND WO Strategy
1. WT Strategy: It aims to minimize both weakness and threats
and maybe called as mini-mini strategy. Min-min strategy
Example: weak distribution network creating many problems for
the firm if it strong many external threats can be removed.
2. WO Strategy: Attempts to minimize the weaknesses and
maximize opportunities. Min-Max strategy.
Example: the firm is in the critical financial problems that is
weakness and firm is availing merger with Multinational
Corporation is an opportunity

ST Strategy and SO Strategy
3.ST strategy: it is based on using organisation’s strengths to deal with threats in
the environment. The aim is to maximize the former while mini maximizing latter.
Defensive strategy.
For Example: In a case with an organization that possess good quality of products but is
facing threats against competitors who offers low priced products can adopt ST strategy
by mass production of the products, therefore it will reduce the unit cost of production.
4. SO Strategy:
This is also known as Maxi –Maxi Strategy where a firm utilizes most of its internal
strengths in order to grab the right external opportunities. Attacking strategies.
For Example: A firm whose financial position is quite strong and posses low market
share is able to introduce many innovative products in the market by making investment
in the Research & development Department of the firm.

Steps necessary for constructing tows
matrix
 Steps for developing strategies:
• There are eight steps involved in constructing a TOWS Matrix:
1. Rank external opportunities
2. Rank external threats
3. Rank internal strength
4. Rank internal weaknesses.
5. Match internal strengths with external opportunities and mention the result in the SO Strategies cell.
6. Match internal weaknesses with external opportunities and mention the result in the WO Strategies
cell.
7. Match internal strengths with external threats and mention the result in the ST Strategies cell.
8. Match internal weaknesses with external threats and mention the result in the WT strategies cell.

Who need Swot Analysis?
• SWOT Analysis is useful for various aspects from the perspective of the following

Continue…
1.job holder:
When his supervisor has issues with work output, When he is assigned to a
new job
2. Business Unit:
When the customer service needs to be improved, When launching a new
business unit to pursue a new business
3. Company:
When revenue, cost and expense and targets are not being achieved ,When
the market share is declining, When the industry conditions are unfavorable

Limitations
• Does not show how to achieve a competitive advantage,
so it must not be an end in itself.
• Provides a static/inactive (i.e. Snapshot) assessment in
time. In other words, it is like a single frame of a motion
picture.
• May lead the firm to overemphasize a single internal or
external factor in formulating strategies

Boston Consulting Group Matrix:
• The Boston Consulting Group (BCG) is a management consulting
firm founded by Harvard Business School Alum Bruce Henderson
in 1963.
• The BCG Matrix is used for the evaluation of the organization's
product portfolio in marketing and sales planning. It aims to evaluate
each product.
• The growth-share matrix is a chart created to help corporation
analyze their business units or product lines, and decide where to
allocate cash.

• Market Growth: An increase in the demand of a product or
service in the market is termed as Market Growth. When company
tries to expand, it expects markets to grow. For this, companies
try to increase the perceived value, product features, competitive
prices etc.
• Market Share: Market share represents the percentage of an
industry or market's total sales that is earned by a particular
company over a specified time period. Market share is calculated
by taking the company's sales over the period and dividing it by
the total sales of the industry over the same period.

Boston Consulting Group Matrix:
It is categorized into four types for the purpose of taking decisions:
A- Question Marks
B- Stars
C- Cash Cows
d- Dogs

Question Marks:
• Question Marks (sometimes called “problem children” or “wildcats”)
are new products with the potential for success, but they need a lot
of cash for development.
• Units with low market share in a fast-growing industry are known as
question marks. Such business units require large amounts of cash
to grow their market share.
• In PLC Question mark is termed as Introduction stage
• For Examples:
MacBook (Laptops) of Apple company.

Stars
• Stars represent business units having large market share in a fast
growing industry.
• Stars are market leaders that are typically at the peak of their
product life cycle and are able to generate enough cash to maintain
their high share of the market and usually contribute to the
company’s profits.
• In Star category product having high growth rate and high market
share.
• Star category is depicted in PLC as Growth stage.
• For Example:
I-Phone of Apple Company.

Cash Cows
• Cash cows typically bring in far more money than is needed to
maintain their market share.
• Cash Cows is the part of business that always makes a profit and
that provides money for the rest of business.
• Cash cows require little investment and generate cash that can be
utilized for investment in other business units.
• In Cash Cow product having high market share and low market
growth
• For Example:
I-Pad of Apple.

Dogs
• Dogs represent businesses having weak market shares in low-growth
markets. They neither generate cash nor require huge amount of cash.
Due to low market share, these business units face cost
disadvantages.
• In PLC Dogs category is known as decline stage.
• It shows that the product having low market share and low market
growth.
• For example: I-Pods of Apple

Advantages of BCG Matrix:
• Clear guidance is provided for each quadrant in terms of the approach
to investment and support of business units .
• The growth-share matrix is a chart created to help corporation
analyze their business units or product lines, and decide where to
allocate cash.
• Although the matrix is developed based upon historical/current position,
the four quadrants of the BCG matrix provide some strategic guidance
for the future.

Basic terminology
• Grand strategy: The Grand Strategies are the
corporate level strategies designed to identify the
firm’s choice with respect to the direction it follows
to accomplish its set objectives Matrix is a set of
numbers laid out in tabular form (in rows and
columns).
• Market Growth: The expansion of market
share by a company, brand or product, as
measured by units sold or revenue, achieved
through
increased consumer demand or competitive
advantages

Basic Terminology
• Competitive position; The concept of competitive
position was given by Jack Trout in 1981. It is the position
that a firm has already acquired or is trying to acquire,
relative to its competitor. A competitive position gives a firm
an advantage over its competitors, thus allowing it to
retain/attract more customers, gain mindshare of customers
and market share etc

• History 1: The basic concept of Grand Strategy
was given Sir Basil Henry Liddell Hart. He is a
English soldier, military historian and military
theorist.
• History 2: The concept of Grand Strategy Matrix
was given by Roland Christensen , Norman Berg,
and Malcolm in the article of Policy formulation and
Administration . It is Published By Richard D Irwin
in 1976

• Definition: It is a very useful instrument for
creating different and alternative strategies for an
organization . It has four quadrant , each quadrant
contains different set of strategies and the entire
firms along with their respective division must
fall in one of the quadrant

1st Quadrant
• The first quadrant of Grand Strategy Matrix indicates that the organization has
strong competitive position & there is rapid growth rate in the market. The
organization that lies in the first quadrant has the excellent strategic position .
The organization of the first quadrant should concentrate on the current market
and need to adopt the strategies.
• Those company which lay on first quadrant they focus on following strategy.
• Market development
• Market Penetration
• Product development
• Forward Integration
• Backward Integration
• Horizontal Integration
• Concentric Diversification

1st Quadrant Strategy
• Market development The concept of market development was
given by Igor Ansoff in Ansoff Matrix in 1957. The Market
development defined as the selling of existing product in new
market or geographical location. Market development increase by
New areas or regions about of the country and foreign market.
• Market Penetration The concept was given by Igor Ansoff in 1957.
Increase market share for present product or service in present markets
through greater market efforts is called market penetration. Market
penetration increase by decreasing product price and increasing in
promotion and distribution support.

1st Quadrant strategy
• Product development The concept was given by Igor Ansoff in
Harvard Business review To increase sell of new products, with
new or altered features, to existing markets is called Product
development. It happen by new ideas and invest in research and
development of additional product.
• Forward Integration A strategy that involves gaining ownership
or increased control over distribution or retailers, such as a
manufacturer opening its own chain. When an organization is
earning high profit because of stable production. It also affect
product prize and competitive advantage

1st Quadrant Strategy
• Backward Integration A strategy seeking ownership or increased control of a
firm’s supplier such as a manufacturer acquiring its raw material source firms
• Horizontal Integration It is the process of a company increasing production of
goods or services by combining similar firm to increase market share and profit.
• Concentric diversification Concentric diversification involves adding new
products or services that are related to your current offerings. they appeal to the
same market or because they can be offered without much investment in new
resources (or both) . This means that there is a technological similarity between the
industries. Example : If a company produce table linens and also might start
making curtain.

2nd Quadrant strategy
• The second quadrant highlights that the organization has weak competitive situation and there
is fast market growth. The organization that lies in the second quadrant should evaluate its
current strategy for the marketplace seriously. Although there is growing industry but the
organization is not able to compete effectively. The organization of second quadrant should find
out the reason that why its current strategies are not effective enough to make it competitive in
the market. Moreover the organization should also try to find out the best way of change that
can improve its effectiveness.
Those company which lay on second quadrant they focus on following strategy.
• Market development
• Market Penetration
• Product development
• Horizontal Integration
• Divestiture
• Liquidation

2nd Quadrant strategy
• Divestiture; is one of the strategies in which part or division of an
organization is sold Business organization are closed that need heavy capital,
are unprofitable & that are not suitable with the other activities of the business
organization.
• Liquidation is the selling of all the assets of the organization in order to cash
their tangible worth.

3rd Quadrant Strategy
• The third quadrant of the Grand Strategy Matrix specifies that the organization has the weak competitive
situation and the market growth rate is quite slow. The organization that lies in the third quadrant competes in
the industry of slow growth and holds weak competitive position. The organization should seriously adopt
certain drastic changes that can minimize further demise and the resulting liquidation. It is better option for the
organization that it should adopt extensive asset & cost reduction. There is another suitable option that the
organization should keep resources away from the current declining business & put those resources into other
diversified areas. Even if all other diversified projects failed then there is last option for the organization to be
liquidate itself.
Those company which lay on third quadrant they focus on following strategy.
• Retrenchment
• Concentric diversification
• Horizontal diversification
• Conglomerate diversification
• Divestiture
• Liquidation

3rd Quadrant strategy
• Retrenchment The word retrenchment is derived from French word
‘retrancher’ which means to cut down. When a firm decide to eliminate its activities
through reduction in business operation, cost ,customer group, customer function and
technology alternative is retrenchment strategy. When a company’s sales and profit
become reduced then defense our self by reducing number of employee and
controlled business expenses in effectively manner.
Example ; In September 2011 Nokia company cuts 4,000 job due decrease 21%in sales
in amounts it is $1.4billion in a quarter

3rd Quadrant Strategy
• Horizontal Diversification; When a company adding new, unrelated product or service for
existing customer is Horizontal diversification . In this technology dissimilarity in the industry .
Example: A company that was making notebooks earlier may also enter the pen market with its new product.
• Conglomerate Diversification; Conglomerate diversification is one type of diversification in which
new products, new markets, new technologies or new market functions introduce which is not related to the existing
business.
Example: A company which deal with automotive repair parts may enter the toy production industry

4th quadrant strategy
• The fourth quadrant of highlights that the organization has strong competitive
situation and the market growth rate is slow. The organization that lies in the fourth
quadrant has strong competitive position but the industry in which the organization
relates has slow growth. The organization can have suitable option o initiate
diversified programs into other growth areas.
Those company which lay on fourth quadrant they focus on following strategy.
• Concentric Diversification
• Horizontal Diversification
• Conglomerate
• Diversification
• Joint Venture

4th Quadrant Strategy
• Diversification; Diversification strategy takes place, for extending product line by
new product and operating in different new market. According Warren Buffet
“Diversification is protection against ignorance, it makes little sense for those who
know what they’re doing.”
• Joint venture ; A joint venture (JV) is a business entity created by two or more parties,
generally characterized by shared ownership, shared returns and risks, and shared
governance. The Purpose of Joint venture to share risk for major investments or
projects and to access a new market. In Pakistan on 2011 Pak Suzuki motor company
limited was formed as a joint venture between Pakistan automobile corporation and
Suzuki motor corporation.

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

Quantitative Strategic Planning Matrix
• QSPM is a high-level strategic management
approach for evaluating possible strategies
• QSPM provides an analytical method for
comparing feasible alternative action

Why go for QSPM
• . QSPM attempts to objectively select the best strategy using input
from other management techniques and some easy techniques.
• The QSPM uses input from stage 1 analyses match them with
result from stage 2 analyses, and then decides objectively among
alternative strategy

Steps to Develop a QSPM
1. the overall strategic management analyses is used to identify key strategic management
factors. This can be done through EFE & IFE matrix
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 Determine the Attractiveness Scores.
The range for AS is
i. 1 = not attractive,
ii. 2 = somewhat attractive,
iii. 3 = reasonably attractive, and
iv. 4 = highly attractive.

Cont.
5. Compute the Total Attractiveness Scores
Total attractiveness Scores (TAS) are defined as the product of multiplying the
weights (Step 2) by the AS (Step 4) in each row.
6. Compute the Sum Total Attractiveness Score
Add TAS in each strategy column of the QSPM. the Sum Total Attractiveness
Scores (STAS) reveal which strategy is most attractive in each set of alternatives.
Higher scores indicate more attractive strategies

strategy 2
Strategic Alternatives
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
TASASAS TASWeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Enviro
nmental
Technological
Competitive
strategy 1

Pros and Cons of QSPM
Advantages
 Sets of strategies considered
simultaneously or
sequentially
 Integration of pertinent
external & internal factors in
the decision-making process
• Requires intuitive judgments &
educated assumptions
• Only as good as the
prerequisite inputs
• Only strategies within a given
set are evaluated relative to
each other
Disadvantages

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