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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 6 -1

Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases

13th Edition

Fred David


Ch 6 -2


Ch 6 -3

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


Ch 6 -4

Strategy Analysis & Choice

Generating Alternatives –

Participation in generating alternative strategies should be as broad as possible


Ch 6 -5

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


Ch 6 -6

Comprehensive Strategy-Formulation Framework As shown in the previous PowerPoint,

strategy formulation techniques can be integrated into a three-stage decision-making framework. The tools presented in this framework are applicable to all sizes and types of organizations and can help strategists identify, evaluate, and select strategies


Ch 6 -7

The Strategy-Formulation Analytical Framework Stage 1 (Input Stage) summarizes the basic

input information needed to formulate strategies.

Stage 2 (Matching Stage) focuses on generating feasible alternative strategies by aligning key external and internal factors.

Stage 3 (Decision Stage) uses the QSPM to objectively evaluate feasible alternative strategies identified in Stage 2.


Ch 6 -8

Strategy-Formulation Framework

External Factor EvaluationMatrix (EFE)

Internal Factor EvaluationMatrix (IFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage


Ch 6 -9

Stage 2: The Matching Stage

Match between organization’s internal resources & skills and the opportunities & risks created by its external factors


Ch 6 -10

Strategy-Formulation FrameworkSWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:The Matching Stage


Ch 6 -11

Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix


Ch 6 -12

SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies


Ch 6 -13

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


Ch 6 -14


SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -15

Strategic Position and Action Evaluation (SPACE) Matrix The SPACE matrix’s four-quadrant

framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. Its axes represent two internal dimensions (financial strength [FS] and competitive advantage [CA]) and two external dimensions (environmental stability [ES] and industry strength [IS]).


Ch 6 -16

SPACE Matrix

Depending upon the type of organization, numerous variables could make up each of the dimensions represented on the axes of the SPACE matrix. Variables that were included in the firm’s EFE and IFE matrices should be considered in developing a SPACE matrix.


Ch 6 -17

SPACE Matrix

Internal dimensions Financial position (FP) Competitive position (CP)

External dimensions Environmental position (EP) Industry position (IP)


Ch 6 -18

Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA, ES, and IS.

2. Assign a numerical value:1. From +1 to +6 to each FS & IS dimension

2. From -1 to -6 to each ES & CA dimension

3. Compute an average score for each FS, CA, ES, and IS.


Ch 6 -19

Steps to Developing a SPACE Matrix

4. Plot the average score on the appropriate axis.

5. Add 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 point.

6. Draw a directional vector from the origin through the new intersection point. This vector reveals the type of strategies recommended for the organization.


Ch 6 -20


Ch 6 -21


SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -22

BCG Matrix

The BCG matrix helps multi-divisional firms formulate strategies. It graphically portrays differences among divisions in terms of relative market share position and industry growth rate. Relative market share position is defined as the ratio of a division’s own market share (or revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry.


Ch 6 -23

BCG Matrix

Relative market share position is given on the x-axis. The mid-point on the x-axis usually is set at .50, corresponding to a division that has half the market share of the leading firm in the industry. The y-axis represents the industry growth rate in sales, measured in percentage terms. The growth rate percentages on the y-axis could range from -20 to +20%, with 0.0 being the mid-point.


Ch 6 -24

BCG Matrix

An example of a BCG matrix appears in the next Power Point. Each circle represents a separate division. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit, and the pie slice indicates the proportion of corporate profits generated by that division. Divisions located in Quadrant I are called “Question Marks;” Quadrant II, “Stars;” Quadrant III, “Cash Cows;” and Quadrant IV, “Dogs.”


Ch 6 -25


Ch 6 -26

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


Ch 6 -27


SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -28

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


Ch 6 -29


Ch 6 -30

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


Ch 6 -31


SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -32


Tool for formulating alternative strategies

Based on two dimensions Competitive position

Market growth


Ch 6 -33

Quadrant IV

1. Related diversification

2. Unrelated diversification

3. Joint ventures

Quadrant III

1. Retrenchment


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


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

STRONGCOMPETITIVE

POSITION


Ch 6 -34

Strategy-Formulation Analytical Framework

Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)


Ch 6 -35

QSPM

Technique designed to determine the relative attractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix


Ch 6 -36

Quantitative Strategic Planning Matrix (QSPM) The QSPM is an analytical technique designed to determine the

relative attractiveness of feasible alternative strategies. Information from each of the matrices in Stages 1 and 2 is used to construct the QSPM.

The left column of a QSPM consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2). Specifically, the left column consists of information obtained directly from the EFE matrix and the IFE matrix. In the column to the right of the key factors, the respective weights received by each factor in the EFE matrix and IFE matrix are recorded.


Ch 6 -37

Quantitative Strategic Planning Matrix (QSPM)

The top row of a QSPM consists of alternative strategies derived from each matrix in Stage 2. These matching techniques usually generate similar feasible alternatives. However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM. Strategists should use good intuitive judgment in selecting strategies to include in a QSPM.

The basic format of the QSPM is illustrated in the following Power Point.


Ch 6 -38

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


Ch 6 -39

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


Ch 6 -40

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