Chapter 06

Chapter 6 Strategy Analysis And Choice
Strategic Management: Concepts and Cases. 9th edition Fred R. David

PowerPoint Slides by Anthony F. Chelte Western New England College
Fred R. David Prentice Hall Ch 6-1
Chapter Outline
The Nature of Strategy Analysis and Choice A Comprehensive Strategy-Formulation Framework The Input Stage
Chapter Outline
The Matching Stage
The Decision Stage

Cultural Aspects of Strategy Choice
Fred R. David Prentice Hall
Ch 6-3
Chapter Outline
The Politics of Strategy Choice The Role of a Board of Directors
Ch 6-4
Strategy Analysis & Choice

Whether its broke or not, fix itmake it better. Not just products, but the whole company if necessary. -- Bill Saporito
Ch 6-5
Strategic analysis and choice largely involves making subjective decisions based on objective information.
Ch 6-6

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
Ch 6-7

Alternative strategies derive from
Vision Mission Objectives External audit Internal audit Past successful strategies
Participation in generating alternative strategies should be broad
Ch 6-9
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
Ch 6-10
Formulation Framework
Internal Factor Evaluation Matrix (IFE)
Stage 1: The Input Stage
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix

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
Ch 6-12
TOWS Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix

Matching Stage
Match between organizations internal resources and skills and the opportunities and risks created by its external factors.
Ch 6-14
Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy
Excess working capacity (strength)
20% annual growth in the cell phone industry = (opportunity)
Acquire Cellfone, Inc.
Insufficient capacity (weakness)
Exit of two major foreign competitors form the industry (opportunity)
Pursue horizontal integration by buying competitor's facilities
Strong R&D (strength)
Decreasing numbers of young adults (threat)
Develop new products for older adults
Poor employee morale (weakness)
+ Strong union activity (threat)

Develop a new employee benefits package

Ch 6-15
TOWS Matrix
SPACE Matrix
BCG Matrix
IE Matrix

Matching Stage
TOWS Matrix
Threats Opportunities Strengths Weaknesses
Ch 6-17
TOWS Matrix
Develop four types of strategies
Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT)
Ch 6-18
SO Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
SO Strategies
Use a firms internal strengths to take advantage of external opportunities
Ch 6-19
WO Strategies
WO Strategies
Improving internal weaknesses by taking advantage of external opportunities

Ch 6-20
ST Strategies
ST Strategies
Using firms strengths to avoid or reduce the impact of external threats.
Ch 6-21
WT Strategies
Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.
Ch 6-22
WT Strategies
TOWS Matrix
Steps in developing the TOWS Matrix
1.
2.
3. 4.
List the firms key external opportunities List the firms key external threats List the firms key internal strengths List the firms key internal weaknesses
Ch 6-23
TOWS Matrix
Developing the TOWS Matrix
5. 6. 7. 8.
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
Ch 6-24
TOWS Matrix
Leave Blank Strengths-S
List Strengths
Weaknesses-W
List Weaknesses
Opportunities-O
List Opportunities
SO Strategies
Use strengths to take advantage of opportunities
WO Strategies
Overcome weaknesses by taking advantage of opportunities
Threats-T
List Threats
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize weaknesses and avoid threats
Ch 6-25
TOWS Matrix
SPACE Matrix
BCG Matrix
IE Matrix

SPACE Matrix
Strategic Position and Action Evaluation Matrix

Four quadrant framework Determines appropriate strategies

Aggressive Conservative Defensive Competitive
Ch 6-27
SPACE Matrix
Two Internal Dimensions
Financial Strength [FS] Competitive Advantage [CA]
Two External Dimensions
Environmental Stability [ES] Industry Strength [IS]
Ch 6-28
SPACE Matrix
Overall Strategic position determined by:
Financial Strength [FS] Competitive Advantage [CA] Environmental Stability [ES] Industry Strength [IS]
Ch 6-29
SPACE Matrix
Developing the SPACE Matrix:

EFE Matrix IFE Matrix Financial Strength Competitive Advantage Environmental Stability Industry Strength
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
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.
Ch 6-32
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS)

Return on investment Leverage Liquidity Working capital Cash flow Ease of exit from market Risk involved in business
Environmental Stability (ES)

Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand
Ch 6-33
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage CA
Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors
Industry Strength (IS)

Growth potential Profit potential Financial stability Technological know-how Resource utilization Capital intensify Ease of entry into market Productivity, capacity utilization
Ch 6-34
SPACE Matrix
Conservative FS
+6 +5 +4 +3 +2 +1
Aggressive
CA
-6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 +1 +2 +3 +4 +5 +6
IS
Defensive
-6
Competitive ES
Ch 6-35
TOWS Matrix
SPACE Matrix
BCG Matrix
IE Matrix

BCG Matrix
Boston Consulting Group Matrix

Enhances multidivisional firms efforts to formulate strategies Autonomous divisions (or profit centers) constitute the business portfolio Firms divisions may compete in different industries requiring separate strategy
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
BCG Matrix
Relative market share position defined:
Ratio of a divisions own market share in a particular industry to the market share held by the largest rival firm in that industry.
Ch 6-39
BCG Matrix
Relative Market Share Position
High 1.0 Medium .50 Low 0.0
Industry Sales Growth Rate
High +20
Stars II
Medium 0
Question Marks I
Cash Cows III

Low -20
Dogs IV
Ch 6-40
BCG Matrix

Question Marks Stars Cash Cows Dogs
Ch 6-41
BCG Matrix
Question Marks
Low relative market share position yet compete in high-growth industry.

Cash needs are high Case generation is low
Decision to strengthen (intensive strategies) or divest

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

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 weakretrenchment or divestiture
Ch 6-44
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
Ch 6-45
TOWS Matrix
SPACE Matrix
BCG Matrix
IE 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

RAPID MARKET GROWTH

1. 2.
3.
4. 5. 6.
Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation
1. 2.
3.
4. 5. 6. 7.
WEAK COMPETITIVE POSITION

1. 2. 3. 4. 5.
Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification Quadrant IV Concentric diversification Horizontal diversification Conglomerate diversification Joint ventures GROWTH
Quadrant III Retrenchment 1. Concentric diversification 2. Horizontal diversification 3. Conglomerate diversification 4. Liquidation SLOW MARKET
STRONG COMPETITIVE POSITION
Ch 6-48

Quadrant I
Excellent strategic position Concentration on current markets and products Take risks aggressively when necessary
Ch 6-49

Quadrant II
Evaluate present approach seriously How to change to improve competitiveness Rapid market growth requires intensive strategy
Ch 6-50

Quadrant III
Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost and asset reduction indicated (retrenchment)
Ch 6-51

Quadrant IV
Strong competitive position Slow-growth industry Diversification indicated to more promising growth areas
Ch 6-52
Stage 3: The Decision Stage
Quantitative Strategic Planning Matrix (QSPM)
Ch 6-53
QSPM
Quantitative Strategic Planning Matrix
Only technique designed to determine the relative attractiveness of feasible alternative actions
Ch 6-54
QSPM
Tool for objective evaluation of alternative strategies Based on identified external and internal crucial success factors Requires good intuitive judgment
Ch 6-55
QSPM
List the firms key external opportunities & threats; list the firms key internal strengths and weaknesses
Assign weights to each external and internal critical success factor
Ch 6-56
QSPM
Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing Determine the Attractiveness Scores (AS)
Ch 6-57
QSPM
Compute the total Attractiveness Scores Compute the Sum Total Attractiveness Score
Ch 6-58
QSPM
Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Weight
Strategic Alternatives
Strategy 1 Strategy 2 Strategy 3
Ch 6-59
QSPM
Limitations:
Requires intuitive judgments and educated assumptions

Only as good as the prerequisite inputs
Ch 6-60
QSPM
Positives:
Sets of strategies examined simultaneously or sequentially Requires the integration of pertinent external and internal factors in the decision-making process
Ch 6-61

Culture: The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm

Culture: Successful strategies depend on degree of support from a firms culture
Ch 6-63
Politics of Strategy Choice
Politics in organizations: Management hierarchy Career aspirations Allocation of scarce resources

Ch 6-64
Politics of Strategy Choice

Political tactics for strategists:
Equifinality Satisfying Generalization Focus on Higher-Order Issues Provide Political Access on Important Issues
Ch 6-65
Role of A Board of Directors
Duties and Responsibilities:

1. 2. 3. 4. Control and oversight over management Adherence to legal prescriptions Consideration of stakeholder interests Advancement of stockholders rights
Key Terms

Aggressive quadrant Attractiveness Scores (AS) Board of Directors Boston Consulting Group (BCG) Matrix Business portfolio Cash cows Champions Competitive Advantage (CA)
Key Terms

Competitive quadrant Conservative quadrant Culture Decision stage Defensive quadrant Directional vector Dogs Environmental Stability (ES) Financial Strength (FS)
Key Terms

Grand Strategy Matrix Halo error Industry Strength (IS) Input stage Internal-External (IE) Matrix Long-term objectives Matching Matching stage Quantitative Strategic Planning Matrix (QSPM)
Key Terms

Question marks Relative market share position SO strategies ST strategies Stars Strategic Position and Action Evaluation (SPACE) Matrix Strategy-formulation framework
Key Terms

Sum total attractiveness scores Threats-Opportunities-WeaknessesStrengths (TOWS) Matrix Total Attractiveness Scores (TAS) WO strategies WT strategies
Ch 6-71

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Chapter 6 Strategy Analysis And Choice

Strategic Management: Concepts and Cases. 9th edition Fred R. David

The Decision Stage

Fred R. David Prentice Hall

Fred R. David Prentice Hall

Strategy Analysis & Choice

Fred R. David Prentice Hall

Strategy Analysis & Choice

Fred R. David Prentice Hall

Strategy Analysis & Choice

Fred R. David Prentice Hall

Strategy Analysis & Choice

Strategy Analysis & Choice

Participation in generating alternative strategies should be broad

Fred R. David Prentice Hall

Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Fred R. David Prentice Hall

Stage 1: The Input Stage

External Factor Evaluation Matrix (EFE)

Competitive Profile Matrix

Fred R. David Prentice Hall

Grand Strategy Matrix

Fred R. David Prentice Hall

Excess working capacity (strength)

20% annual growth in the cell phone industry = (opportunity)

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

Exit of two major foreign competitors form the industry (opportunity)

Pursue horizontal integration by buying competitor's facilities

Strong R&D (strength)

Decreasing numbers of young adults (threat)

Develop new products for older adults

Poor employee morale (weakness)

+ Strong union activity (threat)

Develop a new employee benefits package

Grand Strategy Matrix

Fred R. David Prentice Hall

Fred R. David Prentice Hall

Threats Opportunities Weaknesses Strengths (TOWS)

Use a firms internal strengths to take advantage of external opportunities

Fred R. David Prentice Hall

Threats Opportunities Weaknesses Strengths (TOWS)

Improving internal weaknesses by taking advantage of external opportunities

Fred R. David Prentice Hall

Threats Opportunities Weaknesses Strengths (TOWS)

Using firms strengths to avoid or reduce the impact of external threats.

Fred R. David Prentice Hall

Threats Opportunities Weaknesses Strengths (TOWS)

Fred R. David Prentice Hall

Fred R. David Prentice Hall

Fred R. David Prentice Hall

Grand Strategy Matrix

Four quadrant framework Determines appropriate strategies

Aggressive Conservative Defensive Competitive

Fred R. David Prentice Hall

Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES] Industry Strength [IS]

Fred R. David Prentice Hall

Fred R. David Prentice Hall

Fred R. David Prentice Hall