Chapter 6 Strategy Analysis and Choice

Why Are Clear Objectives Needed? To Provide Direction To Provide Purpose To Allow Synergy To Aid in Evaluations To Establish Priorities To Reduce Uncertainty To Minimize Conflicts To Stimulate Exertion To Allocate Resources To Design Jobs To Motivate Managers & Employees ©1999 Prentice Hall

Strategy-formulation Framework Stage 1: The input stage External factor evaluation matrix (EFE) Competitive profile matrix (CPM) Internal factor evaluation matrix (IFE) Stage 2: The matching stage Strengths, weaknesses, opportunities and threats matrix (SWOT) Strategic position and action evaluation matrix (SPACE) Boston consulting group matrix (BCG) Internal-external matrix (IE) Grand strategy matrix (GS) Stage 3: The decision stage Quantitative strategic planning matrix (QSPM)

The TOWS Matrix (Figure 6-3) STRENGTHS - S WEAKNESSES - W List strengths List weaknesses OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES Use strengths to take advantage of opportunities Overcome weaknesses by taking advantage of opportunities List opportunities THREATS - T ST STRATEGIES WT STRATEGIES Use strengths to avoid threats Minimize weaknesses and avoid threats List threats ©1999 Prentice Hall

Boston Consulting Group Matrix Allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization. Relative market share position - ratio of a division’s own market share to the market share held by the largest rival.

Relative Market Share Position in the Industry The BCG Matrix Relative Market Share Position in the Industry High Medium Low 1.0 .50 0.0 High +20 Medium 0 Low -20 Stars (II) Question Marks (I) Industry Sales Growth Rate (Percent) ? Cash Cows (III) Dogs (IV) ©1999 Prentice Hall

The BCG Matrix and Strategic Direction Question marks - strengthen them via market penetration, market development or product development, or sell them. Stars - forward, backward and horizontal integration; market penetration; market development; product development; or joint venture. Cash cows - for strong ones product development or concentric diversification; for weak ones, retrenchment or divestiture. Dogs - liquidate, divest or retrench.

The Internal-external Matrix and Strategic Direction Positions an organization’s various divisions in a nine-cell display based on SWOT analysis weighted scores (from EFE and IFE matrices). Grow and build (divisions in cells 1, 2 or 4): market penetration, market development, product development or backward, forward and horizontal integration. Hold and maintain (divisions in cells 3, 5, 7): market penetration or product development. Harvest or divest (divisions in cells 6, 8, 9): divest, liquidate, or retrench.

The Grand Strategy Matrix Organizations or divisions are positioned into one of four quadrants based on market growth and competitive position. Each quadrant suggests alternative strategies.

The Decision Stage: The Quantitative Strategic Planning Matrix Use input from stages 1 and 2. Not all strategies generated in stage 2 need to be included. Must assign an “attractiveness score” for each strategy by examining external and internal (SWOT) critical success factors and asking “Does this factor affect the choice of strategies being made?” If yes, then the strategies should be compared relative to that key factor and assign a score of 1 (not attractive) to 4 (highly attractive) to each factor. Calculate “total attractiveness scores” by multiplying weights by “attractiveness scores”.