1. Chapter 6 Strategy Analysis And Choice

2. Strategy Analysis & Choice
Strategic analysis and choice largely involves making subjective decisions based on objective information.

3. Strategy Analysis & Choice
The Nature of Strategy Analysis and Choice –
Establishing long-term objectives
Generating alternative strategies
Selecting strategies to pursue
Best alternative to achieve mission and objectives

4. Strategy Analysis & Choice
Alternative strategies derive from –
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies

5. Strategy Analysis & Choice
Participation in generating alternative strategies should be broad –

6. Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage

7. Formulation Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Competitive Profile
Matrix

8. Input Stage
Provides basic input information for the matching and decision stage matrices
Requires strategists to quantify subjectivity early in the process
Good intuitive judgment always needed

9. Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix

10. Matching Stage
Match between organization’s internal resources and skills and the opportunities and risks created by its external factors.

11. Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
Develop a new employee benefits package =
Strong union activity (threat) +
Poor employee morale (weakness)
Develop new products for older adults
Decreasing numbers of young adults (threat)
Strong R&D (strength)
Pursue horizontal integration by buying competitor's facilities
Exit of two major foreign competitors form the industry (opportunity)
Insufficient capacity (weakness)
Acquire Cellfone, Inc.
20% annual growth in the cell phone industry (opportunity)
Excess working capacity (strength)

12. Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix

13. Matching Stage
TOWS Matrix
Threats
Opportunities
Strengths
Weaknesses

14. TOWS Matrix Develop four types of strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

15. SO Strategies Threats Opportunities Weaknesses Strengths (TOWS)
Use a firm’s internal strengths to take advantage of external opportunities

16. WO Strategies Threats Opportunities Weaknesses Strengths (TOWS)
Improving internal weaknesses by taking advantage of external opportunities

17. ST Strategies Threats Opportunities Weaknesses Strengths (TOWS)
Using firm’s strengths to avoid or reduce the impact of external threats.

18. WT Strategies Threats Opportunities Weaknesses Strengths (TOWS)
Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.

19. TOWS Matrix Steps in developing the TOWS Matrix
List the firm’s key external opportunities
List the firm’s key external threats
List the firm’s key internal strengths
List the firm’s key internal weaknesses

20. TOWS Matrix Developing the TOWS Matrix
Match internal strengths with external opportunities and record the resultant SO Strategies
Match internal weaknesses with external opportunities and record the resultant WO Strategies
Match internal strengths with external threats and record the resultant ST Strategies
Match internal weaknesses with external threats and record the resultant WT Strategies

21. TOWS Matrix WT Strategies ST Strategies Threats-T WO Strategies
Minimize weaknesses and avoid threats
ST Strategies
Use strengths to avoid threats
Threats-T
List Threats
WO Strategies
Overcome weaknesses by taking advantage of opportunities
SO Strategies
Use strengths to take advantage of opportunities
Opportunities-O
List Opportunities
Weaknesses-W
List Weaknesses
Strengths-S
List Strengths
Leave Blank

22. Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix

23. SPACE Matrix Strategic Position and Action Evaluation Matrix
Four quadrant framework
Determines appropriate strategies
Aggressive
Conservative
Defensive
Competitive

24. SPACE Matrix Two Internal Dimensions Two External Dimensions
Financial Strength [FS]
Competitive Advantage [CA]
Two External Dimensions
Environmental Stability [ES]
Industry Strength [IS]

25. SPACE Matrix Overall Strategic position determined by:
Financial Strength [FS]
Competitive Advantage [CA]
Environmental Stability [ES]
Industry Strength [IS]

26. SPACE Matrix Developing the SPACE Matrix: EFE Matrix IFE Matrix
Financial Strength
Competitive Advantage
Environmental Stability
Industry Strength

27. SPACE Matrix Select variables to define FS, CA, ES, & IS
Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from –1 (best) to –6 (worst) for ES and CA.
Compute average score for FS, CA, ES, & IS

28. SPACE Matrix Plot the average scores on the Matrix
Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new xy point.
Draw a directional vector from origin through the new intersection point.

29. External Strategic Position Internal Strategic Position
SPACE Factors
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business
External Strategic Position
Internal Strategic Position

30. External Strategic Position Internal Strategic Position
SPACE Factors
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensify
Ease of entry into market
Productivity, capacity utilization
Competitive Advantage CA
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Control over suppliers & distributors
External Strategic Position
Internal Strategic Position

31. SPACE Matrix FS Conservative Aggressive CA IS Competitive Defensive ES+6 +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 -1 -2 -3 -4 -5
Competitive
Defensive -6 ES

32. Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix

33. BCG Matrix Boston Consulting Group Matrix
Enhances multidivisional firms’ efforts to formulate strategies
Autonomous divisions (or profit centers) constitute the business portfolio
Firm’s divisions may compete in different industries requiring separate strategy

34. BCG Matrix Boston Consulting Group Matrix
Graphically portrays differences among divisions
Focuses on market share position and industry growth rate
Manage business portfolio through relative market share position and industry growth rate

35. BCG Matrix Relative market share position defined:
Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.

36. Relative Market Share Position Industry Sales Growth Rate
BCG Matrix
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
Industry Sales Growth Rate
Dogs IV
Cash Cows
III
Question Marks I
Stars II
High
+20
Medium
Low
-20

37. BCG Matrix
Question Marks
Stars
Cash Cows
Dogs

38. BCG Matrix Question Marks
Low relative market share position yet compete in high-growth industry.
Cash needs are high
Cash generation is low
Decision to strengthen (intensive strategies) or divest

39. BCG Matrix
Stars
High relative market share and high industry growth rate.
Best long-run opportunities for growth and profitability
Substantial investment to maintain or strengthen dominant position
Integration strategies, intensive strategies, joint ventures

40. BCG Matrix
Cash Cows
High relative market share position, but compete in low-growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
If becomes weak—retrenchment or divestiture

41. BCG Matrix
Dogs
Low relative market share position and compete in slow or no market growth
Weak internal and external position
Decision to liquidate, divest, retrenchment

42. Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix

43. Grand Strategy Matrix
Popular tool for formulating alternative strategies
All organizations (or divisions) can be positioned in one of four quadrants
Based on two evaluative dimensions:
Competitive position
Market growth

44. 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
Concentric diversification
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
Quadrant III
Retrenchment
Concentric diversification
Horizontal diversification
Conglomerate diversification
Liquidation
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate diversification
Joint ventures
SLOW MARKET GROWTH

45. Grand Strategy Matrix Quadrant I Excellent strategic position
Concentration on current markets and products
Take risks aggressively when necessary

46. Grand Strategy Matrix Quadrant II Evaluate present approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive strategy

47. Grand Strategy Matrix Quadrant III Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated (retrenchment)

48. Grand Strategy Matrix Quadrant IV Strong competitive position
Slow-growth industry
Diversification indicated to more promising growth areas

49. Formulation Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)

50. QSPM Quantitative Strategic Planning Matrix
Only technique designed to determine the relative attractiveness of feasible alternative actions

51. QSPM Quantitative Strategic Planning Matrix
Tool for objective evaluation of alternative strategies
Based on identified external and internal crucial success factors
Requires good intuitive judgment

52. QSPM Quantitative Strategic Planning Matrix
List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknesses
Assign weights to each external and internal critical success factor

53. QSPM Quantitative Strategic Planning Matrix
Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing
Determine the Attractiveness Scores (AS)

54. QSPM Quantitative Strategic Planning Matrix
Compute the total Attractiveness Scores
Compute the Sum Total Attractiveness Score

55. Strategic Alternatives
QSPM
Strategic Alternatives
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Strategy 3
Strategy 2
Strategy 1
Weight
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive

56. QSPM
Limitations:
Requires intuitive judgments and educated assumptions
Only as good as the prerequisite inputs

57. QSPM
Positives:
Sets of strategies examined simultaneously or sequentially
Requires the integration of pertinent external and internal factors in the decision-making process