Chapter 6

Ch. 6-1
Strategic Management
Concepts & Cases
15th
edition
Fred R. David
Chapter 6:
Strategy Analysis &
Choice

Ch. 6-2
Comprehensive Strategic Management ModelComprehensive Strategic Management Model
Vision
&
Mission
Statements
Chapter 2
External
Audit
Chapter 3
Internal
Audit
Chapter 4
Strategies
In
Action
Chapter 5
Strategy
Analysis
&
Choice
Chapter 6
Implement
Strategies:
Mgmt Issues
Chapter 7
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Chapter 8
Measure &
Evaluate
Performance
Chapter 9

Ch. 6-3
Strategy Analysis &Strategy Analysis &
ChoiceChoice
“Strategic management is not a box of tricks or a
bundle of techniques. It is analytical thinking
and commitment of resources to action. But
quantification alone is not planning. Some of
the most important issues in strategic
management cannot be quantified at all.”
—Peter Drucker—

Ch. 6-4
ChoiceChoice
“Whether it’s broke or not, fix it—make it
better. Not just products, but the whole
company if necessary.”
—Bill Saporito—

Ch. 6-5
ChoiceChoice
“Planning is often doomed before it ever
starts, either because too much is
expected of it or because not enough is
put into it.”
—T. J. Cartwright—

Ch. 6-6
ChoiceChoice
Strategic Analysis and Choice:
Making subjective decisions based on
objective information

Ch. 6-7
ChoiceChoice
Strategic Analysis and Choice:
• Generate feasible alternatives
• Evaluate alternatives
• Select specific course of action

Ch. 6-8
ChoiceChoice
Generating & Selecting Strategies
 Develop set of most attractive alternative
strategies
 Determine for the set
• Advantages
• Disadvantages
• Trade-offs
• Costs
• Benefits

Ch. 6-9
ChoiceChoice
 Involve a broad mix of personnel
• Representation from each department/function
• Provides opportunity to gain understanding of
firm’s direction
• Provides vehicle to develop commitment to
attainment of organizational objectives

Ch. 6-10
ChoiceChoice
 Evaluate each alternative
• Internal and external audit information
• Firm’s mission statement
• Listed in writing
• Ranked in order of attractiveness

Ch. 6-11
Strategy-Formulation Analytical Framework
Stage 1: The Input StageStage 1: The Input Stage
Stage 2: The Matching StageStage 2: The Matching Stage
Stage 3: The Decision StageStage 3: The Decision Stage

Ch. 6-12
Stage 1: The Input StageStage 1: The Input Stage
External
Factor
Evaluation
Matrix (EFE)
Competitive
Profile
Matrix
Internal
Factor
Evaluation
Matrix (IFE)

Ch. 6-13
Stage 2: The Matching StageStage 2: The Matching Stage
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
Strategic
Position &
Action
Evaluation
(SPACE)
Boston
Consulting
Group
Matrix
(BCG)
Internal-
External
Matrix
(IE)
Grand
Strategy
Matrix

Ch. 6-14
Stage 3: The Decision StageStage 3: The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)

Ch. 6-15
ChoiceChoice
Stage 1: The Input Stage
 Provides Basic Input for Stages 2 and 3
• External Factor Evaluation Matrix (EFE)
• Internal Factor Evaluation Matrix (IFE)
• Competitive Profile Matrix (CPM)

Ch. 6-16
ChoiceChoice
Stage 2: The Matching Stage
 Strategy is characterized by the
organizational match between
• Internal resources and skills
• Opportunities & risks created by external
factors

Ch. 6-17
Matching Key FactorsMatching Key Factors
Resultant StrategyKey External FactorKey Internal Factor
Develop a new
employee benefits
package
=Strong union
activity (threat)
+
Poor employee
morale (weakness)
Develop new products
for older adults
=
Decreasing
numbers of young
adults (threat)
+Strong R&D (strength)
Pursue horizontal
integration by buying
competitor's facilities
=
Exit of two major
foreign competitors
form the industry
(opportunity)
+
Insufficient capacity
(weakness)
Acquire Visioncable,
Inc.
=
20% annual growth
in the cablevision
industry
(opportunity)
+
Excess working
capacity (strength)

Ch. 6-18
Four Types of StrategiesFour Types of Strategies
WT
Strategies
ST
Strategies
WO
Strategies
SO
Strategies
Strengths
Weaknesses
Opportunities
Threats
(SWOT)

Ch. 6-19
SOSO StrategiesStrategies
SO
Strategies
Use a firm’s
internal
strengths to take
advantage of
external
opportunities
Strengths
Weaknesses
Opportunities
Threats
(SWOT)

Ch. 6-20
WOWO StrategiesStrategies
WO
Strategies
Improving
internal
weaknesses by
taking
advantage of
external
opportunities
Strengths
Weaknesses
Opportunities
Threats
(SWOT)

Ch. 6-21
STST StrategiesStrategies
ST
Strategies
Using firm’s
strengths to
avoid or reduce
the impact of
external threats.
Strengths
Weaknesses
Opportunities
Threats
(SWOT)

Ch. 6-22
WTWT StrategiesStrategies
WT
Strategies
Defensive
tactics aimed at
reducing internal
weaknesses
and avoiding
environmental
threats.
Strengths
Weaknesses
Opportunities
Threats
(SWOT)

Ch. 6-23
ChoiceChoice
The SWOT Matrix
• List the firm’s key external opportunities
• List the firm’s key external threats
• List the firm’s key internal strengths
• List the firm’s key internal weaknesses

Ch. 6-24
ChoiceChoice
The SWOT Matrix
• Match internal strengths with external opportunities
and record the resultant SO Strategies
• Match internal weaknesses with external
opportunities and record the resultant WO Strategies
• Match internal strengths with external threats and
record the resultant ST Strategies
• Match internal weaknesses with external threats and
record the resultant WT Strategies

Ch. 6-25
SWOT MatrixSWOT Matrix
WT Strategies
Minimize weaknesses
and avoid threats
ST Strategies
Use strengths to avoid
threats
Threats-T
List Threats
WO Strategies
Overcome
weaknesses by taking
advantage of
opportunities
SO Strategies
Use strengths to take
advantage of
opportunities
Opportunities-
O
List Opportunities
Weaknesses-W
List Weaknesses
Strengths-S
List Strengths
Leave Blank

Ch. 6-28
ChoiceChoice
Strategic Position & Action
Evaluation Matrix (SPACE)
• Four quadrant framework
• Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive

Ch. 6-29
ChoiceChoice
• Two Internal Dimensions
 Financial Position [FP]
 Competitive Position [CP]
• Two External Dimensions
 Stability Position [SP]
 Industry Position [IP]

Ch. 6-30
ChoiceChoice
Overall Strategic position determined by:
• Financial Position [FP]
• Competitive Position [CP]
• Stability Position [SP]
• Industry Position [IP]

Ch. 6-31
ChoiceChoice
Developing the SPACE Matrix:
• EFE Matrix
• IFE Matrix
• Financial Position
• Competitive Position
• Stability Position
• Industry Position

Ch. 6-32
ChoiceChoice
The SPACE Matrix
• Select variables to define FP, CP, SP, & IP
• Assign numerical ranking from +1 (worst) to
+7 (best) for FP and IP; Assign numerical
ranking from –1 (best) to –7 (worst) for SP
and CP.
• Compute average score for FP, CP, SP, & IP

Ch. 6-33
ChoiceChoice
The SPACE Matrix
• Plot the average scores on the Matrix
• Add the two scores on the x-axis and plot
point on X. Add the scores on the y-axis and
plot Y. Plot the intersection of the new xy
point.
• Draw a directional vector from origin through
the new intersection point.

Ch. 6-34
SPACE FactorsSPACE Factors
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing
products
Barriers to entry
Competitive pressure
Price elasticity of demand
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business
External Strategic Position
Internal Strategic
Position

Ch. 6-35
SPACE FactorsSPACE Factors
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensify
Ease of entry into market
Productivity, capacity
utilization
Competitive Advantage CA
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers &
distributors
External Strategic
Position
Internal Strategic Position

Ch. 6-36
SPACE MatrixSPACE Matrix
FP
+6
+1
+5
+4
+3
+2
-6
-5
-4
-3
-2
-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
SP
CP IP
Conservative Aggressive
Defensive Competitive

Ch. 6-38
ChoiceChoice
Boston Consulting Group Matrix
(BCG)
• Enhances multidivisional firms’ efforts to
formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in different
industries requiring separate strategy

Ch. 6-39
ChoiceChoice
(BCG)
• Graphically portrays differences among
divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through relative
market share position and industry growth
rate

Ch. 6-40
ChoiceChoice
(BCG)
• Relative market share position defined:
 Ratio of a division’s own market share in a
particular industry to the market share held by the
largest rival firm in that industry.

Ch. 6-41
BCG MatrixBCG Matrix
DogsDogs
IVIV
Cash CowsCash Cows
IIIIII
Question MarksQuestion Marks
II
StarsStars
IIII
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
Industr
High
+20
Low
-20
Medium
0

Ch. 6-42
ChoiceChoice
BCG Matrix
• Question Marks
• Stars
• Cash Cows
• Dogs

Ch. 6-43
ChoiceChoice
BCG Matrix
• Question Marks
Low relative market share position yet
compete in high-growth industry.
 Cash needs are high
 Case generation is low
Decision to strengthen (intensive
strategies) or divest

Ch. 6-44
ChoiceChoice
BCG Matrix
• Stars
High relative market share and high
industry growth rate.
 Best long-run opportunities for growth and
profitability
Substantial investment to maintain or
strengthen dominant position
 Integration strategies, intensive strategies, joint
ventures

Ch. 6-45
ChoiceChoice
BCG Matrix
• Cash Cows
High relative market share position, but
compete 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 becomes weak—retrenchment or divestiture

Ch. 6-46
ChoiceChoice
BCG Matrix
• Dogs
Low relative market share position and
compete in slow or no market growth
 Weak internal and external position
Decision to liquidate, divest, retrenchment

Internal-External (IE) MatrixInternal-External (IE) Matrix
• It is an important strategic tool which comes
under the portfolio management considered
much similar to BCG matrix.
• The Internal-External (IE) Matrix positions an
organization’s various divisions in a nine-cell
diagram.
Ch. 6-47

Ch. 6-49
ChoiceChoice
Grand Strategy Matrix
• Popular tool for formulating alternative
strategies
• All organizations can be positioned in one of
the Grand Strategy Matrix’s four strategy
quadrants.
• Based on two evaluative dimensions
 Competitive position
 Market growth

Ch. 6-50
Grand StrategyGrand Strategy
MatrixMatrix
Quadrant IV
• Concentric diversification
• Horizontal diversification
• Joint ventures
Quadrant III
• Retrenchment
• Horizontal diversification
• Liquidation
Quadrant I
• Market development
• Market penetration
• Product development
• Forward integration
• Backward integration
• Horizontal integration
Quadrant II
• Market development
• Market penetration
• Product development
• Horizontal integration
• Divestiture
• Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION

Ch. 6-51
ChoiceChoice
• Quadrant I
 Excellent strategic position
 Concentration on current markets and products
 Take risks aggressively when necessary

Ch. 6-52
ChoiceChoice
• Quadrant II
 Evaluate present approach seriously
 How to change to improve competitiveness
 Rapid market growth requires intensive strategy

Ch. 6-53
ChoiceChoice
• Quadrant III
 Compete in slow-growth industries
 Weak competitive position
 Drastic changes quickly
 Cost and asset reduction indicated (retrenchment)

Ch. 6-54
ChoiceChoice
• Quadrant IV
 Strong competitive position
 Slow-growth industry
 Diversification indicated to more promising growth
areas

Ch. 6-55
ChoiceChoice
Quantitative Strategic Planning
Matrix (QSPM)
• Comprises Stage 3 of the analytical
framework
• Analytical technique designed to determine
the relative attractiveness of feasible
alternative actions.
• Uses input from Stage 1 and Stage 2

Ch. 6-56
ChoiceChoice
Quantitative Strategic Planning
Matrix (QSPM)
• Tool for objective evaluation of alternative
strategies
• Based on identified external and internal
crucial success factors
• Requires good intuitive judgment

Ch. 6-57
QSPMQSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Strategy 3Strategy 2Strategy 1WeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives

Ch. 6-58
ChoiceChoice
QSPM
• List the firm’s key external opportunities
& threats; list the firm’s key internal
strengths and weaknesses
• Assign weights to each external and
internal critical success factor

Ch. 6-59
ChoiceChoice
QSPM
• Examine the Stage 2 (matching)
matrices and identify alternative
strategies that the organization should
consider implementing
• Determine the Attractiveness Scores
(AS)

Ch. 6-60
ChoiceChoice
QSPM
• Compute the total Attractiveness
Scores
• Compute the Sum Total Attractiveness
Score

Ch. 6-63
ChoiceChoice
QSPM
Positives:
• Sets of strategies examined
simultaneously or sequentially
• Requires the integration of pertinent
external and internal factors in the
decision-making process

Ch. 6-64
ChoiceChoice
QSPM
Limitations:
• Requires intuitive judgments and
educated assumptions
• Only as good as the prerequisite
inputs

Ch. 6-65
Key Terms & ConceptsKey Terms & Concepts
• Aggressive quadrant
• Attractiveness Scores
(AS)
• Board of Directors
• Boston Consulting
Group (BCG) Matrix
• Business portfolio
• Cash cows
• Champions
• Competitive Advantage
(CA)
• Competitive quadrant
• Conservative quadrant
• Culture
• Decision stage
• Defensive quadrant
• Directional vector
• Dogs
• Environmental Stability
(ES)
• Financial Strength (FS)

Ch. 6-66
• Grand Strategy Matrix
• Halo error
• Industry Strength (IS)
• Input stage
• Internal-External (IE)
Matrix
• Long-term objectives
• Matching
• Matching stage
• Quantitative Strategic
Planning Matrix
(QSPM)
• Question marks
• Relative market share
position
• SO strategies
• ST strategies
• Stars
• Strategic Position and
Action Evaluation
(SPACE) Matrix
• Strategy-formulation
framework

Ch. 6-67
• Sum total attractiveness
scores
• Threats-Opportunities-
Weaknesses-Strengths
(TOWS) Matrix
• Total Attractiveness
Scores (TAS)
• WO strategies
• WT strategies

Chapter 6

More Related Content

What's hot

Similar to Chapter 6

More from fizza tanvir

Recently uploaded

Chapter 6