david_sm13_ppt_06

Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases13th EditionFred David

Subjective decisions based on objective informationGenerating alternative strategiesSelecting strategies to pursueBest alternative course of action to achieve mission & objectivesDerived from vision, mission, objectives, external audit, and internal auditStrategy Analysis & Choice

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

Comprehensive Strategy-Formulation FrameworkStage 1 - Input StageEFE MatrixIFE matrixCPMStage 2 - Matching StageSWOTSPACE matrixBCG matrixIE MatrixGrand strategy matrixStage 3 - Decision StageQSPM

Comprehensive Strategy-Formulation FrameworkAs 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

The Strategy-Formulation Analytical FrameworkStage 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.

Strategy-Formulation FrameworkExternal Factor Evaluation Matrix (EFE)Internal Factor Evaluation Matrix (IFE)Competitive Profile Matrix (CPM)Stage 1: The Input Stage

Stage 2: The Matching Stage

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

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

Stage 2: The Matching StageStrengthsWeaknessesOpportunitiesThreatsSWOT Matrix

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

SWOT MatrixSO strategies use a firms internal strengths to take advantage of external opportunitiesWO strategies improve internal weaknesses by taking advantage of external opportunitiesST strategies use a firms strengths to avoid or reduce the impact of external threatsWT strategies defensive tactics aimed at reducing internal weakness and avoiding external threats

Strategic Position and Action Evaluation (SPACE) MatrixThe SPACE matrixs 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]).

SPACE MatrixDepending 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 firms EFE and IFE matrices should be considered in developing a SPACE matrix.

SPACE MatrixInternal dimensionsFinancial position (FP)Competitive position (CP)

External dimensionsEnvironmental position (EP)Industry position (IP)

Steps to Developing a SPACE MatrixSelect a set of variables to define FS, CA, ES, and IS.Assign 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, and IS.

Steps to Developing a SPACE Matrix4. 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.

BCG MatrixThe 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 divisions own market share (or revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry.

BCG MatrixRelative 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.

BCG MatrixAn 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.

BCG Matrix

Question Marks low relative market share in a high-growth industryStars high relative market share in a high-growth industryCash Cows high relative market share in a low-growth industryDogs Low relative market share in a slow or no growth industry

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

Grand Strategy Matrix Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth

Quadrant IVRelated diversificationUnrelated diversificationJoint venturesQuadrant IIIRetrenchmentRelated diversificationUnrelated diversificationDivestitureLiquidation

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

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

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.

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.

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 factor

Steps to Develop a QSPMExamine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing Determine the Attractiveness ScoresCompute the Total Attractiveness ScoresCompute the Sum Total Attractiveness Score

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