Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases13th EditionFred David

Whether its broke or not, fix it make it better. Not just products, but the whole company if necessary. Bill SaporitoStrategy Analysis & Choice Life is full of lousy options. General P.X. Kelley

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

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

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

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

SPACE MatrixStrategic Position & Action Evaluation MatrixAggressiveConservativeDefensiveCompetitive

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

External dimensionsEnvironmental position (EP)Industry position (IP)

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

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

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

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

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

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

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 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

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

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

Cultural Aspects of Strategy ChoiceA set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firmSuccessful strategies depend on support of the firms cultureOrganization Culture

Politics of Strategy ChoiceHierarchy of commandCareer 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 stakeholders interestsAdvancement of stockholders rightsBoard of Directors Roles & Responsibilities

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