1. Chapter 6 Strategy Analysis & Choice
Strategic Management: Concepts & Cases
13th Edition
Fred David
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3. 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
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4. Strategy Analysis & Choice
Generating Alternatives –
Participation in generating alternative strategies should be as broad as possible
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5. 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
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6. Comprehensive Strategy-Formulation Framework
As 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
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7. The Strategy-Formulation Analytical Framework
Stage 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.
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8. Strategy-Formulation Framework
External Factor Evaluation Matrix (EFE)
Stage 1: The Input Stage
Internal Factor Evaluation Matrix (IFE)
Competitive Profile Matrix (CPM)
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9. Stage 2: The Matching Stage
Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
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10. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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11. Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
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12. SWOT Matrix Four Types of Strategies Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
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13. 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
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14. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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15. Strategic Position and Action Evaluation (SPACE) Matrix
The SPACE matrix’s 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]).
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16. SPACE Matrix
Depending 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 firm’s EFE and IFE matrices should be considered in developing a SPACE matrix.
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17. SPACE Matrix Internal dimensions External dimensions
Financial position (FP)
Competitive position (CP)
External dimensions
Environmental position (EP)
Industry position (IP)
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18. Steps to Developing a SPACE Matrix
Select a set of variables to define FS, CA, ES, and IS.
Assign a numerical value:
From +1 to +6 to each FS & IS dimension
From -1 to -6 to each ES & CA dimension
Compute an average score for each FS, CA, ES, and IS.
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19. Steps to Developing a SPACE Matrix
4. 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.
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21. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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Publishing as Prentice Hall

22. BCG Matrix
The 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 division’s own market share (or revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry.
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23. BCG Matrix
Relative 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.
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24. BCG Matrix
An 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.”
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26. 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
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27. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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28. 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
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30. 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
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31. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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32. 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
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33. 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
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34. Stage 3: The Decision Stage
Strategy-Formulation Analytical Framework
Quantitative Strategic Planning Matrix (QSPM)
Stage 3: The Decision Stage
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35. Quantitative Strategic Planning Matrix
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative attractiveness of feasible alternative actions
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36. 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.
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37. 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.
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38. 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
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39. 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
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40. 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
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