Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 13th Edition Fred David Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

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 “Life is full of lousy options.” – General P.X. Kelley Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Analysis & Choice 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 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Analysis & Choice Generating Alternatives – Participation in generating alternative strategies should be as broad as possible Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

Strategy-Formulation Framework External Factor Evaluation Matrix (EFE) Stage 1: The Input Stage Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix (CPM) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 2: The Matching Stage Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 2: The Matching Stage Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 2: The Matching Stage SWOT Matrix Strengths Weaknesses Opportunities Threats Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

SWOT Matrix Four Types of Strategies Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

Limitations with SWOT Matrix Does not show how to achieve a competitive advantage Provides a static assessment in time May lead the firm to overemphasize a single internal or external factor in formulating strategies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 2: The Matching Stage Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

SPACE Matrix Aggressive Conservative Defensive Competitive Strategic Position & Action Evaluation Matrix Aggressive Conservative Defensive Competitive Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

SPACE Matrix Internal dimensions External dimensions Financial position (FP) Competitive position (CP) External dimensions Environmental position (EP) Industry position (IP) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

Stage 2: The Matching Stage Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Boston Consulting Group Matrix BCG Matrix Boston Consulting Group Matrix Assists multidivisional firm in formulating strategies Autonomous divisions = business portfolio Divisions may compete in different industries Focus on relative market-share position & industry growth rate Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

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

Stage 2: The Matching Stage Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

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

IE Matrix Based on two key dimensions Divided into three major regions 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 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 2: The Matching Stage Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Tool for formulating alternative strategies Based on two dimensions Grand Strategy Matrix Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

RAPID MARKET GROWTH Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION Quadrant III Retrenchment Related diversification Unrelated diversification Divestiture Liquidation Quadrant IV Related diversification Unrelated diversification Joint ventures SLOW MARKET GROWTH Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Excellent strategic position Concentration on current markets/products Grand Strategy Matrix Quadrant I Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Evaluate present approach How to improve competitiveness Grand Strategy Matrix Quadrant II Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Compete in slow-growth industries Weak competitive position Grand Strategy Matrix Quadrant III Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strong competitive position Slow-growth industry Grand Strategy Matrix Quadrant IV Strong competitive position Slow-growth industry Diversification to more promising growth areas Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage 3: The Decision Stage Strategy-Formulation Analytical Framework Quantitative Strategic Planning Matrix (QSPM) Stage 3: The Decision Stage Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Quantitative Strategic Planning Matrix QSPM Quantitative Strategic Planning Matrix Technique designed to determine the relative attractiveness of feasible alternative actions Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Alternatives QSPM Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Management Information Systems Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Steps to Develop a QSPM Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column Assign weights to each key external and internal factor Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Steps to Develop a QSPM Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing Determine the Attractiveness Scores Compute the Total Attractiveness Scores Compute the Sum Total Attractiveness Score Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Sets of strategies considered simultaneously or sequentially QSPM Advantages Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision-making process Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Requires intuitive judgments & educated assumptions QSPM Limitations Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Cultural Aspects of Strategy Choice Organization Culture A set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm Successful strategies depend on support of the firm’s culture Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Politics of Strategy Choice Politics in Organizations Hierarchy of command Career aspirations Allocation of scarce resources Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Politics of Strategy Choice Political Tactics for Strategists Equifinality Satisfying Generalization Higher-order issues Political access on important issues Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Control & oversight over management Adherence to legal prescriptions Governance Issues Board of Directors Roles & Responsibilities Control & oversight over management Adherence to legal prescriptions Consideration of stakeholders’ interests Advancement of stockholders’ rights Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall