Strategic Management Ch 6

1. Fred R. David
Prentice Hall
Ch 6-1
Chapter 6
Strategy Analysis And Choice
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College

2. Fred R. David
Prentice Hall
Ch 6-2
Chapter Outline
• The Nature of Strategy Analysis and
Choice
• A Comprehensive Strategy-Formulation
Framework
• The Input Stage

3. Fred R. David
Prentice Hall
Ch 6-3
Chapter Outline
• The Matching Stage
• The Decision Stage
• Cultural Aspects of Strategy Choice

4. Fred R. David
Prentice Hall
Ch 6-4
Chapter Outline
• The Politics of Strategy Choice
• The Role of a Board of Directors

5. Fred R. David
Prentice Hall
Ch 6-5
Strategy Analysis & Choice
Whether it’s broke or not, fix it—make it
better. Not just products, but the whole
company if necessary.
-- Bill Saporito

6. Fred R. David
Prentice Hall
Ch 6-6
Strategy Analysis & Choice
Strategic analysis and choice largely
involves making subjective decisions
based on objective information.

7. Fred R. David
Prentice Hall
Ch 6-7
Strategy Analysis & Choice
The Nature of Strategy Analysis and Choice –
– Establishing long-term objectives
– Generating alternative strategies
– Selecting strategies to pursue
– Best alternative to achieve mission and objectives

8. Fred R. David
Prentice Hall
Ch 6-8
Strategy Analysis & Choice
Alternative strategies derive from –
– Vision
– Mission
– Objectives
– External audit
– Internal audit
– Past successful strategies

9. Fred R. David
Prentice Hall
Ch 6-9
Strategy Analysis & Choice
Participation in generating alternative
strategies should be broad –

10. Fred R. David
Prentice Hall
Ch 6-10
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage

11. Fred R. David
Prentice Hall
Ch 6-11
Formulation Framework
External Factor Evaluation
Matrix (EFE)
Competitive Profile
Matrix
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage

12. Fred R. David
Prentice Hall
Ch 6-12
Input Stage
• Provides basic input information for the
matching and decision stage matrices
• Requires strategists to quantify
subjectivity early in the process
• Good intuitive judgment always needed

13. Fred R. David
Prentice Hall
Ch 6-13
Formulation Framework
SPACE Matrix
Stage 2:
The Matching Stage
TOWS Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

14. Fred R. David
Prentice Hall
Ch 6-14
Matching Stage
• Match between organization’s internal
resources and skills and the opportunities
and risks created by its external factors.

15. Fred R. David
Prentice Hall
Ch 6-15
Matching Key Factors to Formulate Alternative Strategies
Resultant Strategy
Key External Factor
Key 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 Cellfone, Inc.
=
20% annual growth in the
cell phone industry
(opportunity)
+
Excess working capacity
(strength)

16. Fred R. David
Prentice Hall
Ch 6-16
Formulation Framework
SPACE Matrix
Stage 2:
The Matching Stage
TOWS Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

17. Fred R. David
Prentice Hall
Ch 6-17
Matching Stage
TOWS Matrix
–Threats
–Opportunities
–Strengths
–Weaknesses

18. Fred R. David
Prentice Hall
Ch 6-18
TOWS Matrix
Develop four types of strategies
–Strengths-Opportunities (SO)
–Weaknesses-Opportunities (WO)
–Strengths-Threats (ST)
–Weaknesses-Threats (WT)

19. Fred R. David
Prentice Hall
Ch 6-19
SO Strategies
SO
Strategies
Use a firm’s
internal
strengths to take
advantage of
external
opportunities
Threats
Opportunities
Weaknesses
Strengths
(TOWS)

20. Fred R. David
Prentice Hall
Ch 6-20
WO Strategies
WO
Strategies
Improving
internal
weaknesses by
taking
advantage of
external
opportunities
Threats
Opportunities
Weaknesses
Strengths
(TOWS)

21. Fred R. David
Prentice Hall
Ch 6-21
ST Strategies
ST
Strategies
Using firm’s
strengths to
avoid or reduce
the impact of
external threats.
Threats
Opportunities
Weaknesses
Strengths
(TOWS)

22. Fred R. David
Prentice Hall
Ch 6-22
WT Strategies
WT
Strategies
Defensive
tactics aimed at
reducing
internal
weaknesses
and avoiding
environmental
threats.
Threats
Opportunities
Weaknesses
Strengths
(TOWS)

23. Fred R. David
Prentice Hall
Ch 6-23
TOWS Matrix
Steps in developing the TOWS 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

24. Fred R. David
Prentice Hall
Ch 6-24
TOWS Matrix
Developing the TOWS Matrix
5. Match internal strengths with external opportunities
and record the resultant SO Strategies
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

25. Fred R. David
Prentice Hall
Ch 6-25
TOWS 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

26. Fred R. David
Prentice Hall
Ch 6-26
Formulation Framework
SPACE Matrix
Stage 2:
The Matching Stage
TOWS Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

27. Fred R. David
Prentice Hall
Ch 6-27
SPACE Matrix
Strategic Position and Action Evaluation Matrix
 Four quadrant framework
 Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive

28. Fred R. David
Prentice Hall
Ch 6-28
SPACE Matrix
Two Internal Dimensions
 Financial Strength [FS]
 Competitive Advantage [CA]
Two External Dimensions
 Environmental Stability [ES]
 Industry Strength [IS]

29. Fred R. David
Prentice Hall
Ch 6-29
SPACE Matrix
Overall Strategic position determined by:
– Financial Strength [FS]
– Competitive Advantage [CA]
– Environmental Stability [ES]
– Industry Strength [IS]

30. Fred R. David
Prentice Hall
Ch 6-30
SPACE Matrix
Developing the SPACE Matrix:
• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength

31. Fred R. David
Prentice Hall
Ch 6-31
SPACE Matrix
• Select variables to define FS, CA, ES,
& IS
• Assign numerical ranking from +1
(worst) to +6 (best) for FS and IS;
Assign numerical ranking from –1 (best)
to –6 (worst) for ES and CA.
• Compute average score for FS, CA,
ES, & IS

32. Fred R. David
Prentice Hall
Ch 6-32
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.

33. Fred R. David
Prentice Hall
Ch 6-33
SPACE 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

34. Fred R. David
Prentice Hall
Ch 6-34
SPACE 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

35. Fred R. David
Prentice Hall
Ch 6-35
SPACE Matrix
FS
+6
+1
+5
+4
+3
+2
-6
-5
-4
-3
-2
-1
-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
ES
CA IS
Conservative Aggressive
Defensive Competitive

36. Fred R. David
Prentice Hall
Ch 6-36
Formulation Framework
SPACE Matrix
Stage 2:
The Matching Stage
TOWS Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

37. Fred R. David
Prentice Hall
Ch 6-37
BCG Matrix
Boston Consulting Group Matrix
• 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

38. Fred R. David
Prentice Hall
Ch 6-38
BCG Matrix
Boston Consulting Group Matrix
• 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

39. Fred R. David
Prentice Hall
Ch 6-39
BCG Matrix
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.

40. Fred R. David
Prentice Hall
Ch 6-40
BCG Matrix
Dogs
IV
Cash Cows
III
Question Marks
I
Stars
II
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
Industry
Sales
Growth
Rate
High
+20
Low
-20
Medium
0

41. Fred R. David
Prentice Hall
Ch 6-41
BCG Matrix
• Question Marks
• Stars
• Cash Cows
• Dogs

42. Fred R. David
Prentice Hall
Ch 6-42
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

43. Fred R. David
Prentice Hall
Ch 6-43
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

44. Fred R. David
Prentice Hall
Ch 6-44
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

45. Fred R. David
Prentice Hall
Ch 6-45
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

46. IE Matrix
• The IE matrix positions an
organization’s various divisions in a nine
cell display.
• IE matrix requires more information
about the divisions than BCG Matrix
• Strategists in multidivisional firms
develop both BCG and IE Matrix
Fred R. David
Prentice Hall
Ch 6-46

47. Fred R. David
Prentice Hall
Ch 6-47
Formulation Framework
SPACE Matrix
Stage 2:
The Matching Stage
TOWS Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

48. Fred R. David
Prentice Hall
Ch 6-48
Grand Strategy Matrix
• Popular tool for formulating alternative
strategies
• All organizations (or divisions) can be
positioned in one of four quadrants
• Based on two evaluative dimensions:
– Competitive position
– Market growth

49. Fred R. David
Prentice Hall
Ch 6-49
Quadrant IV
1. Concentric diversification
2. Horizontal diversification
3. Conglomerate
diversification
4. Joint ventures
Quadrant III
1. Retrenchment
2. Concentric diversification
3. Horizontal diversification
4. Conglomerate
diversification
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Concentric 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

50. Fred R. David
Prentice Hall
Ch 6-50
Grand Strategy Matrix
Quadrant I
• Excellent strategic position
• Concentration on current markets and
products
• Take risks aggressively when necessary

51. Fred R. David
Prentice Hall
Ch 6-51
Grand Strategy Matrix
Quadrant II
• Evaluate present approach seriously
• How to change to improve competitiveness
• Rapid market growth requires intensive
strategy

52. Fred R. David
Prentice Hall
Ch 6-52
Grand Strategy Matrix
Quadrant III
• Compete in slow-growth industries
• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction indicated
(retrenchment)

53. Fred R. David
Prentice Hall
Ch 6-53
Grand Strategy Matrix
Quadrant IV
• Strong competitive position
• Slow-growth industry
• Diversification indicated to more promising
growth areas

54. Fred R. David
Prentice Hall
Ch 6-54
Formulation Framework
Quantitative Strategic
Planning Matrix
(QSPM)
Stage 3:
The Decision Stage

55. Fred R. David
Prentice Hall
Ch 6-55
QSPM
Quantitative Strategic Planning Matrix
• Only technique designed to determine the
relative attractiveness of feasible
alternative actions

56. Fred R. David
Prentice Hall
Ch 6-56
QSPM
Quantitative Strategic Planning Matrix
• Tool for objective evaluation of
alternative strategies
• Based on identified external and
internal crucial success factors
• Requires good intuitive judgment

57. Fred R. David
Prentice Hall
Ch 6-57
QSPM
Quantitative Strategic Planning Matrix
• 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

58. Fred R. David
Prentice Hall
Ch 6-58
QSPM
Quantitative Strategic Planning Matrix
• Examine the Stage 2 (matching) matrices
and identify alternative strategies that the
organization should consider implementing
• Determine the Attractiveness Scores (AS)

59. Fred R. David
Prentice Hall
Ch 6-59
QSPM
Quantitative Strategic Planning Matrix
• Compute the total Attractiveness
Scores
• Compute the Sum Total Attractiveness
Score

60. Fred R. David
Prentice Hall
Ch 6-60
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Strategy 3
Strategy 2
Strategy 1
Weight
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives

61. Fred R. David
Prentice Hall
Ch 6-61
QSPM
Limitations:
• Requires intuitive judgments and
educated assumptions
• Only as good as the prerequisite inputs

62. Fred R. David
Prentice Hall
Ch 6-62
QSPM
Positives:
• Sets of strategies examined simultaneously
or sequentially
• Requires the integration of pertinent external
and internal factors in the decision-making
process

63. Fred R. David
Prentice Hall
Ch 6-63
Cultural Aspects of Strategy
Choice
Culture:
• The set of shared values, beliefs,
attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm

64. Fred R. David
Prentice Hall
Ch 6-64
Cultural Aspects of Strategy
Choice
Culture:
• Successful strategies depend on
degree of support from a firm’s culture

65. Fred R. David
Prentice Hall
Ch 6-65
Politics of Strategy Choice
Politics in organizations:
• Management hierarchy
• Career aspirations
• Allocation of scarce resources

66. Fred R. David
Prentice Hall
Ch 6-66
Politics of Strategy Choice
Political tactics for strategists:
• Equifinality
• Satisfying
• Generalization
• Focus on Higher-Order Issues
• Provide Political Access on Important Issues

67. Fred R. David
Prentice Hall
Ch 6-67
Role of A Board of Directors
Duties and Responsibilities:
1. Control and oversight over management
2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stockholders’ rights

68. Fred R. David
Prentice Hall
Ch 6-68
Key Terms
• Aggressive quadrant
• Attractiveness Scores (AS)
• Board of Directors
• Boston Consulting Group (BCG) Matrix
• Business portfolio
• Cash cows
• Champions
• Competitive Advantage (CA)

69. Fred R. David
Prentice Hall
Ch 6-69
Key Terms
• Competitive quadrant
• Conservative quadrant
• Culture
• Decision stage
• Defensive quadrant
• Directional vector
• Dogs
• Environmental Stability (ES)
• Financial Strength (FS)

70. Fred R. David
Prentice Hall
Ch 6-70
Key Terms
• 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)

71. Fred R. David
Prentice Hall
Ch 6-71
Key Terms
• Question marks
• Relative market share position
• SO strategies
• ST strategies
• Stars
• Strategic Position and Action Evaluation
(SPACE) Matrix
• Strategy-formulation framework

72. Fred R. David
Prentice Hall
Ch 6-72
Key Terms
• Sum total attractiveness scores
• Threats-Opportunities-Weaknesses-
Strengths (TOWS) Matrix
• Total Attractiveness Scores (TAS)
• WO strategies
• WT strategies