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Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases11th EditionFred David

Copyright 2005 Prentice Hall

Chapter OutlineThe Nature of Strategy & ChoiceA Comprehensive Strategy-Formulation FrameworkThe Input Stage


Chapter Outline (contd)The Matching StageThe Decision StageCultural Aspects of Strategy Choice


Chapter Outline (contd)The Politics of Strategy ChoiceGovernance Issues


To acquire or not to acquire, that is the question Robert J. TerryStrategy Analysis & Choice Life is full of lousy options General P.X. Kelley


-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectivesNature of Strategy Analysis & ChoiceStrategy Analysis & Choice


VisionMissionObjectivesExternal auditInternal auditPast successful strategiesStrategy Analysis & ChoiceAlternative Strategies Derive From --


Strategy Analysis & ChoiceGenerating Alternatives --Participation in generating alternative strategies should be as broad as possible


Comprehensive Strategy-Formulation FrameworkStage 1: The Input StageStage 2: The Matching StageStage 3: The Decision Stage


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


Stage 1: The Input Stage

Basic input information for the matching & decision stage matricesRequires strategists to quantify subjectivity early in the processGood intuitive judgment always needed


Strategy-Formulation Analytical FrameworkSWOT MatrixSPACE MatrixBCG MatrixIE MatrixGrand Strategy MatrixStage 2: The Matching Stage


Stage 2: The Matching Stage

Match between organizations internal resources & skills and the opportunities & risks created by its external factors


Stage 2: The Matching StageStrengthsWeaknessesOpportunitiesThreatsSWOT Matrix


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


SO StrategiesUse a firms internal strengths to take advantage of external opportunitiesSO StrategiesStrengths Weaknesses OpportunitiesThreats SWOT


WO StrategiesImproving internal weaknesses by taking advantage of external opportunitiesWO StrategiesStrengths Weaknesses OpportunitiesThreats SWOT


ST StrategiesUse a firms strengths to avoid or reduce the impact of external threatsST StrategiesStrengths Weaknesses OpportunitiesThreats SWOT


WT StrategiesDefensive tactics aimed at reducing internal weaknesses & avoiding environmental threats WT StrategiesStrengths Weaknesses OpportunitiesThreats SWOT


SWOT MatrixDeveloping the SWOT List firms key internal StrengthsList firms key internal WeaknessesList firms key external OpportunitiesList firms key external Threats


SWOT Matrix


Key Internal FactorKey External FactorResultant StrategyMatching Key Factors to Formulate Alternative Strategies

Limitations with SWOT MatrixDoes not show how to achieve a competitive advantageProvides a static assessment in timeMay lead the firm to overemphasize a single internal or external factor in formulating strategies


SPACE MatrixStrategic Position & Action Evaluation MatrixAggressiveConservativeDefensiveCompetitive


SPACE MatrixTwo Internal DimensionsFinancial Strength (FS)Competitive Advantage (CA)


SPACE MatrixTwo External DimensionsEnvironmental Stability (ES)Industry Strength (IS)


SPACE Factors

Steps to Developing a SPACE MatrixSelect a set of variables to define FS, CA, ES, & ISAssign a numerical value:From +1 to +6 to each FS & IS dimensionFrom -1 to -6 to each ES & CA dimensionCompute an average score for each FS, CA, ES, & IS


Steps to Developing a SPACE MatrixPlot the average score on the appropriate axisAdd the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point. Plot the intersection of the new xy pointDraw a directional vector from the origin through the new intersection point.


SPACE MatrixFS+6+1+5+4+3+2-6-5-4-3-2-1-6-5-4-3-2-1+1+2+3+4+5+6ESCAISConservativeAggressiveDefensiveCompetitive

BCG MatrixBoston Consulting Group MatrixEnhances multi-divisional firm in formulating strategiesAutonomous divisions = business portfolioDivisions may compete in different industriesFocus on market-share position & industry growth rate


BCG MatrixRelative Market Share PositionRatio of a divisions own market share in an industry to the market share held by the largest rival firm in that industry


BCG MatrixRelative Market Share PositionHigh1.0Medium.50Low0.0Industry Sales Growth RateHigh+20Low-20Medium0

BCG MatrixQuestion MarksLow relative market share compete in high-growth industryCash needs are highCase generation is low

Decision to strengthen (intensive strategies) or divest


BCG MatrixStarsHigh relative market share and high growth rateBest long-run opportunities for growth & profitability

Substantial investment to maintain or strengthen dominant positionIntegration strategies, intensive strategies, joint ventures


BCG MatrixCash CowsHigh relative market share, competes in low-growth industryGenerate cash in excess of their needsMilked for other purposesMaintain strong position as long as possibleProduct development, concentric diversificationIf weakensretrenchment or divestiture


BCG MatrixDogsLow relative market share & compete in slow or no market growthWeak internal & external position

Liquidation, divestiture, retrenchment


The Internal-External MatrixPositions an organizations various divisions in a nine-cell displaySimilar to BCG Matrix except the IE Matrix:Requires more information about the divisionsStrategic implications of each matrix are different


IE MatrixBased on two key dimensionsThe IFE total weighted scores on the x-axisThe EFE total weighted scores on the y-axisDivided into three major regionsGrow and build Cells I, II, or IVHold and maintain Cells III, V, or VIIHarvest or divest Cells VI, VIII, or IX


Strategy-Formulation Analytical FrameworkSPACE MatrixBCG MatrixIE MatrixStage 2: The Matching StageSWOT MatrixGrand Strategy Matrix


Grand Strategy MatrixTool for formulating alternative strategiesBased on two dimensionsCompetitive positionMarket growth


Quadrant IVConcentric diversificationHorizontal diversificationConglomerate diversificationJoint venturesQuadrant IIIRetrenchmentConcentric diversificationHorizontal diversificationConglomerate diversificationLiquidation

Quadrant IMarket developmentMarket penetrationProduct developmentForward integrationBackward integrationHorizontal integrationConcentric diversificationQuadrant IIMarket developmentMarket penetrationProduct developmentHorizontal integrationDivestitureLiquidationRAPID MARKET GROWTHSLOW MARKET GROWTHWEAK COMPETITIVE POSITIONSTRONGCOMPETITIVE POSITION

Grand Strategy MatrixExcellent strategic positionConcentration on current markets/productsTake risks aggressively when necessaryQuadrant I


Grand Strategy MatrixEvaluate present approachHow to improve competitivenessRapid market growth requires intensive strategyQuadrant II


Grand Strategy MatrixCompete in slow-growth industriesWeak competitive positionDrastic changes quicklyCost & asset reduction (retrenchment)Quadrant III


Grand Strategy MatrixStrong competitive positionSlow-growth industryDiversification to more promising growth areasQuadrant IV


Strategy-Formulation Analytical FrameworkStage 3: The Decision StageQuantitative Strategic Planning Matrix (QSPM)


QSPMTechnique designed to determine the relative attractiveness of feasible alternative actionsQuantitative Strategic Planning Matrix


QSPMStrategic Alternatives

Steps to Develop a QSPMMake a list of the firms key external opportunities/threats and internal strengths/weaknesses in the left columnAssign weights to each key external and internal factorExamine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing


Steps to Develop a QSPMDetermine the Attractiveness ScoresCompare the Total Attractiveness ScoresCompute the Sum Total Attractiveness Score


QSPMRequires intuitive judgments & educated assumptionsOnly as good as the prerequisite inputsLimitations


QSPMSets of strategies considered simultaneously or sequentiallyIntegration of pertinent external & internal factors in the decision making processAdvantages


Cultural Aspects of Strategy ChoiceSuccessful strategies depend on the degree of consistency with the firms cultureOrganization Culture


Politics of Strategy ChoiceManagement hierarchyCareer aspirationsAllocation of scarce resourcesPolitics in Organizations


Politics of Strategy ChoiceEquifinalitySatisfyingGeneralizationHigher-order issuesPolitical access on important issuesPolitical Tactics for Strategists


Governance IssuesControl & oversight over managementAdherence to legal prescriptionsConsideration of stakeholder interestsAdvancement of stockholder rightsBoard of Directors Roles & Responsibilities


Corporate Governance IssuesNo more than 2 directors are current or former company executives2.No directors do business with the company3.Audit, compensation, and nominating committees made up of outside directors4.Each director owns a large equity stake in the company 5.At least one outside director with extensive experience 6.Fully employed directors sit on no more than 4 boards Retirees on no more than 7 7.Each director attends at lest 75% of all meetings Business Weeks Principles of Good Governance


Corporate Governance Issues8.Board meets regularly without management present9.Audit committee meets at least four times a year 10.Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises 11.CEO is not also the Chairperson of the Board12.Shareholders have considerable power and information to choose & replace directors13.Stock options are considered a corporate expense14.No interlocking directorshipsBusiness Weeks principles of good governance


Key Terms & ConceptsFor Review (Chapter 6)Aggressive QuadrantBusiness PortfolioAttractiveness Scores (AS)Cash CowsBoards of DirectorsCompetitive Advantage (CA)Boston Consulting Group (BCG) MatrixCompetitive Quadrant


Key Terms & ConceptsFor Review (Chapter 6)Conservative QuadrantDogsCultureEnvironmental Stability (ES)Defensive QuadrantFinancial Strength (FS)Directional VectorGovernance


Key Terms & ConceptsFor Review (Chapter 6)Grand Strategy MatrixInternal-External (IE) MatrixHalo ErrorMatchingIndustry Strength (IS)Matching StageInput StageQuantitative Strategic Planning Matrix (QSPM)


Key Terms & ConceptsFor Review (Chapter 6)Question MarksStarsRelative Market Share PositionStrategic Position & Action Evaluation (SPACE)SO StrategiesSum Total Attractiveness Score (STAS)ST StrategiesSustainability


Key Terms & ConceptsFor Review (Chapter 6)Total Attractiveness Scores (TAS)WO StrategiesWT StrategiesStrengths, Weaknesses Opportunities, Threats SWOT


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