The SPACE matrix is a management tool used to analyze a company.

It is used to determine what type of a strategy a company should undertake. The Strategic Position & ACtion Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix). What is the SPACE matrix strategic management method? To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:
• • • •

Aggressive Conservative Defensive Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our company has a strong competitive position it the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. This can include product development, integration with other companies, acquisition of competitors, and so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. The SPACE matrix is based on four areas of analysis. Internal strategic dimensions: Financial strength (FS) Competitive advantage (CA) External strategic dimensions: Environmental stability (ES) Industry strength (IS) There are many SPACE matrix factors under the internal strategic dimension. These factors analyze a business internal strategic position. The financial strength factors often come from company accounting. These SPACE matrix factors can include for example return on investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive advantage factors include for example the speed of innovation by the company, market niche position, customer loyalty, product quality, market share, product life cycle, and others. Every business is also affected by the environment in which it operates. SPACE matrix factors related to business external strategic dimension are for example overall economic condition, GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures, industry growth potential, and others. These factors can be well analyzed using the Michael Porter's Five Forces model. The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates. The following are a few model technical assumptions: - By definition, the CA and IS values in the SPACE matrix are plotted on the X axis. - CA values can range from -1 to -6. - IS values can take +1 to +6. - The FS and ES dimensions of the model are plotted on the Y axis. - ES values can be between -1 and -6. - FS values range from +1 to +6. How do I construct a SPACE matrix? The SPACE matrix is constructed by plotting calculated values for the competitive advantage (CA) and industry strength (IS) dimensions on the X axis. The Y axis is

based on the environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be created using the following seven steps: Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS). Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best). Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best). Step 3: Find the average scores for competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS). Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis. Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. This will be your final point on axis X on the SPACE matrix. Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial strength (FS) dimensions to find your final point on the axis Y. Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This line reveals the type of strategy the company should pursue. SPACE matrix example The following table shows what values were used to create the SPACE matrix displayed above.

Roland Christiansen. SWOT (sometimes referred to as TOWS) stands for Strengths. what if we have 2-3 strategies and need to decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can help to answer this question. and William D. But. The following diagram shows how a SWOT analysis fits into a strategic situation analysis. Weaknesses. . Because it concentrates on the issues that potentially have the most impact. Should you have any questions about the SPACE matrix. and Threats. 1969). Learned. the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation. Kenneth Andrews. The SWOT framework was described in the late 1960's by Edmund P. IL: Irwin. Where do I go next? The SPACE matrix can help to find a strategy. Opportunities. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. C. Text and Cases (Homewood. The General Electric Growth Council used this form of analysis in the 1980's. Guth in Business Policy. Adding individual strategic dimension averages provides values that are plotted on the axis X and Y.Each factor within each strategic dimension is rated using appropriate rating scale. you might want to submit them at our management discussion forum. Then averages are calculated. SWOT Analysis SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis.

Strengths can serve as a foundation for building a competitive advantage. Internal Analysis The internal analysis is a comprehensive evaluation of the internal environment's potential strengths and weaknesses. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. Factors should be evaluated across the organization in areas such as: • • • • • • • • • • • • • Company culture Company image Organizational structure Key staff Access to natural resources Position on the experience curve Operational efficiency Operational capacity Brand awareness Market share Financial resources Exclusive contracts Patents and trade secrets The SWOT analysis summarizes the internal factors of the firm as a list of strengths and weaknesses. External Analysis . much of which may not be highly relevant. By understanding these four aspects of its situation.Situation Analysis / Internal Analysis /\ Strengths Weaknesses \ External Analysis /\ Opportunities Threats | SWOT Profile The internal and external situation analysis can produce a large amount of information. capitalize on golden opportunities. and weaknesses may hinder it. and deter potentially devastating threats. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. correct its weaknesses. a firm can better leverage its strengths.

. . and implementation. . strategy formulation. . 3. The SWOT analysis summarizes the external environmental factors as a list of opportunities and threats. 2. 3. Weaknesses 1. Changes in the external environment may be related to: • • • • • • • • • Customers Competitors Market trends Suppliers Partners Social changes New technology Economic environment Political and regulatory environment The last four items in the above list are macro-environmental variables. . 2. . 3. Threats 1. . 2. . . and are addressed in a PEST analysis. a SWOT profile can be generated and used as the basis of goal setting. Many of these changes can be perceived as threats to the market position of existing products and may necessitate a change in product specifications or the development of new products in order for the firm to remain competitive. . . 3. .An opportunity is the chance to introduce a new product or service that can generate superior returns. The completed SWOT profile sometimes is arranged as follows: Strengths 1. SWOT Profile When the analysis has been completed. . Opportunities can arise when changes occur in the external environment. 2. Opportunities 1.

the interaction of the quadrants in the SWOT profile becomes important. SWOT Analysis Limitations While useful for reducing a large quantity of situational factors into a more manageable profile. even though this one person may have a broad view of the company and industry. or as opportunities or threats is somewhat arbitrary. A technological change can be a either a threat or an opportunity. McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). For example. The quality of the analysis will be improved greatly if interviews are held with a spectrum of stakeholders such as employees. If the information is obtained hastily during a quick interview with the CEO. Multiple Perspectives Needed The method used to acquire the inputs to the SWOT matrix will affect the quality of the analysis. customers. For example. the information would represent a single viewpoint. etc. Perhaps what is more important than the superficial classification of these factors is the firm's awareness of them and its development of a strategic plan to use them to its advantage. the SWOT framework has a tendency to oversimplify the situation by classifying the firm's environmental factors into categories in which they may not always fit. strategic partners. a particular company culture can be either a strength or a weakness. and managers can be alerted to weaknesses that might need to be overcome in order to successfully pursue opportunities. the strengths can be leveraged to pursue opportunities and to avoid threats. suppliers. This business screen became known as the GE/McKinsey Matrix and is shown below: GE / McKinsey Matrix Business Unit Strength High Medium Low High . GE / McKinsey Matrix In consulting engagements with General Electric in the 1970's.When formulating strategy. The classification of some factors as strengths or weaknesses.

determining the value of each parameter in the criteria. The industry attractiveness then is calculated as follows: .Medium Low The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBU's position in the industry. The result is a quantitative measure of industry attractiveness and the business unit's relative performance in that industry. which is determined by factors such as the following: • • • • • • • Market growth rate Market size Demand variability Industry profitability Industry rivalry Global opportunities Macroenvironmental factors (PEST) Each factor is assigned a weighting that is appropriate for the industry. and multiplying that value by a weighting factor. attempts to improve upon the BCG matrix in the following two ways: • • The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit. Industry attractiveness and business unit strength are calculated by first identifying criteria for each. four cells in the BCG matrix. The GE matrix has nine cells vs. The GE matrix however. Industry Attractiveness The vertical axis of the GE / McKinsey matrix is industry attractiveness.

.Industry attractiveness = factor value1 x factor weighting1 + factor value2 x factor weighting2 . Market share is shown by using the circle as a pie chart. . The expected future position of the circle is portrayed by means of an arrow. + factor valueN x factor weightingN Business Unit Strength The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. with the information conveyed as follows: • • • Market size is represented by the size of the circle. Some factors that can be used to determine business unit strength include: • • • • • • Market share Growth in market share Brand equity Distribution channel access Production capacity Profit margins relative to competitors The business unit strength index can be calculated by multiplying the estimated value of each factor by the factor's weighting. as done for industry attractiveness. The arrow in the upward left direction indicates that the business . The following is an example of such a representation: The shading of the above circle indicates a 38% market share for the strategic business unit. Plotting the Information Each business unit can be portrayed as a circle plotted on the matrix.

average business units in attractive industries. hold. Harvest weak business units in unattractive industries. it still presents a somewhat limited view by not considering interactions among the business units and by neglecting to address the core competencies leading to value creation. BCG matrix is often used to prioritize which products within company product mix get more funding and attention. and strong business units in average industries.unit is projected to gain strength relative to competitors. and weak business units in average industries. The BCG model is a well-known portfolio management tool used in product life cycle theory. portfolio matrices are better suited to displaying a quick synopsis of the strategic business units. The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. strong businesses in weak industries. For example. whereas it might perform a phased harvest of an average business unit in the same industry. Rather than serving as the primary tool for resource allocation. The BCG model is based on classification of products (and implicitly also company business units) into four categories based on combinations of market growth and market share relative to the largest competitor. and that the business unit is in an industry that is projected to become more attractive. and weak business in attractive industies. average business units in unattractive industries. . While the GE business screen represents an improvement over the more simple BCG growth-share matrix. within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry. Strategic Implications Resource allocation recommendations can be made to grow. BCG Matrix Model The BCG matrix or also called BCG model relates to marketing. There are strategy variations within these three groups. Hold average businesses in average industries. The tip of the arrow indicates the future position of the center point of the circle. or harvest a strategic business unit based on its position on the matrix as follows: • • • Grow strong business units in attractive industries.

An example of this product would be an iPod. how do we exactly find out what phase our product is in. to build distribution channels.Stars are the leaders in the business but still need a lot of support for promotion a placement.Stars are defined by having high market share in a growing market. we also ask. Knowing what we are selling helps managers to make decisions about what priorities to assign to not only products but also company departments and business units. Having a balanced product portfolio includes both high-growth products as well as low-growth products.Question marks are essentially new products where buyers have yet to discover them. The is the milking cow that brings in the constant flow of cash. and each stage in product's life-cycle represents a different profile of risk and return. . . . But the question is. and the price does not change much either. .When should I use the BCG matrix model? Each product has its product life cycle. The BCG matrix reaches further behind product mix. Stars are likely to grow into cash cows. In general. BCG QUESTION MARKS (high growth. What is the BCG matrix and how does the BCG model work? Placing products in the BCG matrix results in 4 categories in a portfolio of a company: BCG STARS (high growth. A low-growth product is for example an established product known by the market. customers know what they are getting.These products need to increase their market share quickly or they become dogs. high market share) . but it is a product that is expected to bring the gold in the future.These products are in growing markets but have low market share. and to build sales infrastructure. A high-growth product is for example a new one that we are trying to get to some market. .The marketing strategy is to get markets to adopt these products. This product has only limited budget for marketing.If market share is kept. It takes some effort and resources to market it. where does each of our products fit into our product mix? Should we promote one product more than the other one? The BCG matrix can help with this. An example of this product would be a regular Colgate toothpaste. and how do we classify what we sell? Furthermore. Characteristics of this product do not change much. a company should maintain a balanced portfolio of products. . .Question marks have high demands and low returns due to low market share. low market share) .

Because of the low growth. .Expensive turn-around plans usually do not help. cash cows have high profit margins and generate a lot of cash flow.Dogs are in low growth markets and have low market share. high market share) . . BCG DOGS (low growth. .Investments into supporting infrastructure can improve efficiency and increase cash flow more. .Cash cows are in a position of high market share in a mature market. promotion and placement investments are low.. BCG CASH COWS (low growth. let's put all this into a picture: Are there any problems with the BCG matrix model? Some limitations of the BCG matrix model include: • • • The first problem can be how we define market and how we get data about market share A high market share does not necessarily lead to profitability at all times The model employs only two dimensions – market share and product or service growth rate .Dogs should be avoided and minimized.Cash cows are the products that businesses strive for. .The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them.If competitive advantage has been achieved. low market share) . And now. .

Explanation of BCG Matrix. ('70) The BCG Matrix method is the most well-known portfolio management tool. The four segments of the BCG Matrix Placing products in the BCG matrix provides 4 categories in a portfolio of a company: . It was developed in the early 70s by the Boston Consulting Group. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth. It is based on product life cycle theory. it is better for the company.• • • • Low share or niche businesses can be profitable too (some Dogs can be more profitable than cash Cows) The model does not reflect growth rates of the overall market The model neglects the effects of synergy between business units Market growth is not the only indicator for attractiveness of a market Portfolio Management based on Market Share and Market Growth. a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The basic idea behind it is: if a product has a bigger market share. or if the product's market grows faster. To ensure long-term value creation. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit.

However if needed any attempt should be made to hold your market share in Stars. Dogs (low growth. o Watch out for expensive ‘rescue plans’. o Stars are frequently roughly in balance on net cash flow. Because of the low growth. low market share) o Avoid and minimize the number of Dogs in a company. o Dogs must deliver cash. otherwise they must be liquidated. high market share) o Profits and cash generation should be high. because the rewards will be Cash Cows if market share is kept. investments which are needed should be low. • • • Cash Cows (low growth. o Cash Cows are often the stars of yesterday and they are the foundation of a company. Question Marks (high growth. low market share) . high market share) o Stars are using large amounts of cash.• Stars (high growth. Stars are leaders in the business. Therefore they should also generate large amounts of cash.

BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars. Dogs Business Units are fighting an impossible battle and. Other uses and benefits of the BCG Matrix • • • • • If a company is able to use the experience curve to its advantage. BCG method is applicable to large companies that seek volume and experience effects. Question Marks will simply absorb great amounts of cash. If the market share remains unchanged. The executives are often praised anyhow. because of their low market share. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars). They can then try to get any possible cash from the Question Marks that were not selected. they are often allowed to reinvest substantial cash amounts in their mature businesses. the BCG Matrix and one size fits all strategies The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach. or invest nothing and generate any cash that you can.o o o Question Marks have the worst cash characteristics of all. Question Marks and Dogs.5% for an entire corporation. In such a scenario: • • • Cash Cows Business Units will reach their profit target easily. it is destined to be profitable. Even worse. or otherwise companies are advised to disinvest. Cash Cows. These are hopeless attempts to "turn the business around". such as a generic growth target (9 percent per year) or a generic return on capital of say 9. The model is simple and easy to understand. Their management have an easy job. because they have high cash demands and generate low returns. . Limitations of the BCG Matrix Some limitations of the Boston Consulting Group Matrix include: • It neglects the effects of synergy between business units. Increase market share or deliver cash. now and then investments are made. Once it becomes a star. In this way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. It provides a base for management to decide and prepare for future actions. Either invest heavily. As a result all Question Marks and Stars receive only mediocre investment funds. even worse. it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. or sell off.

Market growth is not the only indicator for attractiveness of a market.• • • • • • • • • High market share is not the only success factor. There is no clear definition of what constitutes a "market"." Juliet . but how to use it Lengue .. I'm a little bit confused about how to plot products on to the BCG matrix? Should I: [1] Look at the definitions of the animals and place products on to the graph depending upon what animal they most feel like [2] Look at the X and Y axis and place products on the graph and plot depending upon market share and growth and completely J How to do ignore the animals during the plotting process.Gha Funding "I think the cash cows should fund stars if they na Stars are cash hungry. The model uses only two dimensions – market share and growth rate.. or to divest prematurely.BCG I assume that [2] is the right approach. Book: Carl W. George Stalk .A or Fragmented in fragmented industries where there is a ngola Markets lack of information making almost impossible to make intelligent decisions. This may tempt management to emphasize a particular product." Yuri BCG in Emerging "The tool is really great. UK Plotting? If [2] is the right approach then how do I determine market share and growth? Lets say there are 100 people who want a TV. The model neglects small competitors that have fast growing market shares. What is my market share and what is my growth? Do I have high growth and low share? Thanks. 10 of them have my TV at the end of one year. And 50 of them have someone elses' TV. A high market share does not necessarily lead to profitability all the time. Winstanley .Perspectives on Strategy from The Boston Consulting Group - BCG Matrix Forum Recent User Comments "Hello everyone. Stern. A business with a low market share can be profitable too. The problems of getting data on the market share and market growth. For instance how would market growth rate or market share be calculated under 1 2 1 . Sometimes Dogs can earn even more cash as Cash Cows.

Pepsi will automatically be a Question mark or a dog. In that case. "Very Good"!" Nyle .Nethe & relative market share is smaller than 1. Matrix: Ogbuka What needs to be done may not necessarily be to let not in All Nigeria go but to invest more in such products in Cases repackaging (innovation).In ups.Netherl in BCG considered a star. as a result of which the relative market Cola share of Pepsi is always smaller than 1. The cost element is for instance an essential determinant. Coca cola is market LEADER. what should it do?" "The matrix is misrepresenting in some cases.such conditions?" "The matrix does not consider the place of traditional/generic products that companies maintain in their product lines that may have had high market share and market growth in time past. . Everyone understands that Pepsi is a cash cow or star!" Wallace The BCG "(How) could the the BCG Matrix be G. companies just can keep the dogs (low growth. it would be Rob .USA . Superb Manish in terms of penetrating the market as start explanation of Sijaria .Matrix: adapted to include synergy effects NY Reloaded between business units?" John BCG Matrix is "Totally useless (as a contemporary 43 31 27 25 19 16 . Can anyone explain why ands Matrix they have chosen the (fairly high) limit of 10%??" "This explanation of BCG matrix is superb.U Disadvantages of BCG Matrix or the GE/McKinsey SA Portfolio Planning Tools matrix?" Best User Comments 0 1 "Generally in the BCG Matrix. when the 10% limit market growth is more than 10%. Example: Coca cola and Pepsi. When the Thijs . low market share) BCG Dr Isaac due to some intangible factors. you will be rlands Pepsi at the right-hand side of the matrix." "What are the pros and cons of Frank Advantages and portfolio planning tools like the Bacchus . This is because market expansion is a dynamic process that responds to identified opportunities and there are other basic factors that influence investment decisions and market expansion. but currently do not. Sometimes. Clearly layouts the structure of SBU's PLC and BCG dia and their expectations in the business Matrix product life cycle.U Lack of Question "If a business has no Question Marks (or SA Marks? just one).

It's merely plotting the products you Not useful for arya . Similarly.India Matrix needed." useless! Grand Strategy Steps Summary . But one thing that we need to Marty . In that sense. For example. the strategy should be appropriate. the matrix is a good tool to see where is the business that a company should focus on to grow. if a cash cow in the market share matrix shifts to dog in the margin matrix. It will depend on your analysis Analysis though where you'll take it forward but for most cases it's totally junk for competition mapping." Shreya . we may decide to closely observe the product and restrict support for the same.'?' to star(between the Srinivasan Use of two matrices). for a portfolio of products in a firm. For example.Real consider using the matrix is that real business is not 7 Korea business simple to be explained by a 2x2 matrix. a business can make more money and be more profitable than other businessses in a company's portfolio even if the market growth and the relative market share of the business is low. The variables can then be changed to margins vs growth rate and the products relocated.In BCG Matrix in "Which industries or Firms in India are 10 dia India using the BCG Matrix?" "i am not sure if this matrix works to create a competition map.. Likewise." "Use it for a basic analysis. It does not replace our thought process but certainly structures the process of decision making. one can locate them in a 2 by 2 matrix on the Market Share vs Growth rate variables.T. we may like to explore the possibilities of investing Kannan .UA the in it's growth.But other metrics are Manoj BCG required if a deeper insight in business is 16 Sinha . If we notice a shift in the location of a product from say. to address a particular situation. ." "This model is extremely useful if adapted suitably. This model is a useful tool if used appropriately.Greece business tool).. if a low share/low growth product." "One important thing in business would be how to allocate and manage limited resource to achieve maximum results. has E Model high margins and consequently shifts between matrices.Indo have within your company for evaluation Competitive 10 nesia purpose. it does not work like swot chart.

especially if you're in a quickly changing business environment. You're probably thinking – "that would be great. Step Six. Beliefs. Attitudes and Capabilities. Translate goals into KPMs and Perform Gap Analysis. This issue came up in a discussion with leading business writer and consultant Seth Godin. Adjust. Step Twelve. You may wonder whether such a strategy formulation is worth your time and effort. So if you're interested. energy. let's find out how. Answer "what's your Theory of Business?" Step Two. but you better believe that to grow Starbucks like he has he had to have a business strategy. Step Eight. We concluded that business strategy drives growth and prosperity for businesses. could have decided to open and run only a few stores. Seek Performance Breakthroughs. Perform an Environmental Scan. Step Eleven. Step Nine. founder and head of Starbucks Coffee. both large and small. Step Seven. Achieving this level of performance requires a deliberate strategy with a performance management and measurement system that enables you to scan the business horizon. Identify your Values. Prepare a Scorecard to track and drive Your Grand Strategy. Write your Mission Statement. Develop a Strategy Map. Step Ten. Execute. focus your time. knowledge. Determine your Strategic Focus. minimize your risks and achieve performance breakthroughs. Step Five. Execute. Grand Strategy: building your foundation for performance breakthroughs by Daniel J. how do I do it?" Well it's simple but this simplicity demands critical thinking and diligent effort. Step Four. . lowest costs and easiest implementation trajectory. Step Three. Godin said that for example Howard Shultz. relationships and resources and execute courses of action that possess the highest pay-off.• • • • • • • • • • • • Step One. Understand and Apply Cause and Effect Relationships. Perform a SWOT Analysis. Knight Imagine you were able to maximize your opportunities.

• • • What are your Values. Execute" requires strong top management commitment. These intangibles form an intellectual and emotional grounding for your Grand Strategy. There are 12 steps to this Grand Strategy process. if we provide excellent products and services that please our customers at a competitive price. For example. Let's call it a "Grand Strategy" because it equates to a necessary precursor for all subordinate strategies and systems whether they be marketing. you won't be able to commit the time. technological expertise and customer relationships fit here. "Execute.key principles that state your assumptions about the cause and effect relationships that drive you and your business. Beliefs. charity and goodwill toward others. Step One. there is nothing as practical as good theory. Ask "what's your 'Theory of Business'?" As philosophers tell us. And step twelve. and in turn how they react to you and your business. Adjust. Attitudes and Capabilities? List them. What business are you in and where are you now? • • • Where are you going? How will you get there? How will you know you've arrived? Step Two. Some examples are family well being. The first 11 steps of this process are best developed as a living document with your top management team and a facilitator at an off-site meeting to avoid distractions. These intangibles are: • Values – high level concepts that you pour your life into regardless of financial return because they define you and your business. Without them. Attitudes – emotional orientations exhibited by you and your business toward others that affects how you view them and treat them. support and involvement. Attitudes result in either positive or negative expressions such as "most people tend to be fair if treated fairly" or "most people will take advantage of you if you let them. honesty and integrity. sales force knowledge. we will be a profitable business." Capabilities – inherent knowledge and relationships that support getting work done for you and your business. They drive your business and business relationships. energy and tangible resources that move your business forward. Create a clear expression of your intangible business resources. knowledge about competitors. production processes.So with that as introduction let's go through a step-by-step process for developing a business strategy with a performance management and measurement system for your business. . and making a difference in the world. suppliers and customer data bases. Briefly answer these four questions to uncover yours. innovation or otherwise. For example. such things as patents. Beliefs .

ethnics. how much do they costs and how much profit do you expect to make from them? Answer these questions and notice the power of their focusing affect on your business. finance. costs of labor and materials.Step Three. customers. consumer demand. Perform an "Environmental Scan" by asking and answering the following questions: • What industry are you in (retail. if anyone. Write a "Mission Statement. manufacturing. • • • • Why are you in business? What does your business do and how does it do it? Who does your business. suffers from it? How many different kinds of resources are involved in your business. investors and community) and what are their expectations? • • • • • • • • . durable or non-durable goods and so on) and what are its trends? What is the economic situation (interest rates. unemployment levels. inflation and prices) and how will it affect your business? Who are your competitors and potential competitors? What relevant advantages and disadvantages do they possess? Who are your suppliers and potential suppliers? What mutual interests do you share with them? What natural conflicts exist? Who are your customers and potential customers and who are their customers? What segments do they fall in? What are the demographics that impact your business – age groups. From your answers. economic status? What are their differences in terms of needs and preferences? What is the regulatory environment and how does it affect your business? What are the emerging technologies and how might they affect your business? Who are your stakeholders (employees. suppliers." This statement provides you with the articulation of your business purpose or reason for being. wholesale. Step Four. Answering the following four questions in a satisfying amount of detail provides compelling background information from which you can extract a hard hitting mission statement to move your business and Grand Strategy forward. who supports it. who benefits from it and who. develop a condensed and hard hitting Mission Statement.

" From it we see the time lapse between finding a competitive edge and having it copied shrinking. Generate as many as ideas as possible. then perform a SWOT Analysis. select the top six ideas in terms of relevance and importance for improving the performance and competitiveness of your business. For example. brainstorm to generate ideas under each category/area. Using your best judgment. The areas for you to explore under each SWOT Analysis category are: Strengths or Weaknesses         Customer Service Products Systems and Processes R&D Cash Flow Employee Training Employee Loyalty Others? Opportunities or Threats        Emerging Products and Services Technological Change New Markets Competitive Pressures Supplier Relationships Economic Conditions Others? Now. a goal statement would look like this: "Increase customer satisfaction in order to reduce customer losses and defections. SWOT stands for "Strengths. Next. HyperCompetition demands that you differentiate. Otherwise your products and services become commoditized. This differentiation starts with you selecting a Strategic Focus for your business. Let's call this phenomenon "Hyper-Competition." Business is becoming more and more competitive." Step Six. use the following format: action verb + (restated idea) in order to (object)." "Opportunities" and "Threats. For this translation process. After you complete your scan.Answer these Environmental Scan questions in order to possess the necessary business intelligence and insight to proceed to the next step. Step Five. translate the top six selected ideas into goal statements. Strategic Focus breaks down into the following three disciplines: . Determine your "Strategic Focus." "Weaknesses. Your Opportunities and Threats are external." Your Strengths and Weaknesses are internal.

These are: • Administrative and Operations – the time you spend keeping the routine day to day business running Crisis – the time you spend solving unanticipated problems Breakthrough – the deliberate time you spend on creative efforts to improve performance • • What happens is that the first two time categories grow to occupy all your time and they push out your breakthrough time.• Customer Intimacy . Product Leadership – emphasizes R&D and providing the best technology and quality available in products. If you look at the time you spend on your business. Intel and Starbucks lead with this discipline. Operational Excellence – emphasizes efficient operations and costs controls to provide the lowest costs. You begin this process by selecting your Strategic Focus and limiting your goal statements to the top six. This imperative does not mean that you don't try to do well in the other two. Values. Step Seven. not to be beaten service and solutions. Understand and apply "Cause and Effect Relationships. and then make a judgment call. Beliefs. So now look at your: Theory of Business. incorporate this thinking into the succeeding steps of your Grand Strategy process.emphasizes paying close attention to customers desires and providing them with total. Maintaining a Strategic Focus combined with developing Strategic Goals to execute amounts to the only workable solution to this challenge. you find it can be broken down into three categories. • • Picking one of these as your lead focus represents a smart thing to do. Wal-Mart and Southwest Airlines lead with this discipline." Let's discuss the dynamics of Cause and Effect Relationships among your Strategic Goals. Pick your Strategic Focus and lead with it. Mission Statement. Attitudes and Capabilities. Now. Trying to be all things for all customers puts you on a path to failure because customers will not behave in a way that profits your business. These top six goals represent your "Strategic Goals" for achieving performance breakthroughs. Seek performance breakthroughs. It means that you don't try to do all three equally well. Step Eight. Environmental Scan and SWOT Analysis. Business is just too hyper-competitive for you to succeed doing all three better than anyone else. Ritz Carlton Hotels and Nordstroms lead with this discipline. There are four .

Shop and Invest" Strategy Map .basic "Perspectives" that provide the framework for linking your goals in to your Grand Strategy. Given this superior Human Capital. might you not be able to improve and create superior Customer Capital which in turn would improve and create superior Financial Performance? What we have described here equates to a virtuous cycle which enables you to make more money for you and your owners and at the same time invest more in your Human Capital. reputation. This virtuous cycle in turn starts succeeding rounds of improvement which should cause an upward spiral to higher and higher levels of performance. an extraction of the Strategy Map for Sears follows: Mission Statement "Be a compelling place to Work. Jan-Feb 1998. might you not be able to improve and create superior Structural Capital? And with superior Human and Structural Capital." Let's start by looking at an example. The Employee – Customer Profit Chain at Sears. Performance under this perspective is also compared to alternative investments like T-Bills. training and retaining top talent and acquiring excellent people support systems. chronicled a transformation of Sears. It stays in the organization when you turn off the lights. Develop a "Strategy Map. These Perspectives are: • Human Capital – the people talent in your organization and the systems and process that directly enable them to be productive. potential for referrals and loyalty which your organization enjoys with its customers. level of satisfaction. A good way to look at the people part is that it's what goes home at night. • • • So imagine that you possess superior Human Capital by recruiting. structures and strategies that the organization owns and produces value with. Step Nine. Based on this article. Financial Performance – the level of economic return provided to you and your owners relative to investment. Structural Capital – the systems. Customer Capital – the relationship. A Harvard Business Review article. You will learn how to develop these Perspectives and link them in the next step.

)  . This would increase employee competence and satisfaction.o Financial Performance Goals – Increase Revenues and Profitability (What would it take to accomplish these strategic goals? Their answer was to increase customer satisfaction to cause increased revenues and profitability) Customer Capital Goal .Create and Maintain Well Stocked and Attractive Shelves and Provide Friendly and Helpful Service   (What would it take to accomplish these Strategic Goals? Their answer was to increase employee training and development in relevant areas. And this in turn would make employees able and willing to create and maintain well stocked and attractive shelves and provide friendly and helpful service)   Human Capital Goals .)     Structural Capital Goals .Increase Customer Satisfaction (What would it take to accomplish this Strategic Goal? Their answer was to create and maintain well stocked and attractive shelves and provide friendly and helpful service that causes increased customer satisfaction.Increase Employee Training and Development in the Relevant Areas in order to cause an Increase in Employee Competence and Satisfaction.   (What would it take to accomplish these Strategic Goals? The answer was top management belief in the complete series of Cause and Effect Relationships and top management commitment of the time and resources for successful accomplishment.

Next.3 percent increase in customer satisfaction resulted which in turn resulted in a .you take a clean sheet of paper and place your Mission Statement at the top. Sears developed and validated a predictive model that showed that for each 5 percent increase in employee satisfaction a 1.Financial Performance (Place Goals here) Example: Increase Revenue and Profits Customer Capital (Place Goals here) Example: Reduce Customer Losses and Defections by Increasing Customer Satisfaction Structural Capital (Place Goals here) Human Capital (Place Goals here) As proof of this Cause and Effect Relationship. Lay out the four Perspectives underneath to form a Strategy Map framework. . use your best judgment and assign your top Strategic Goals to one of the four Strategy Map Perspectives (see example below).5 percent increase in revenue. And Sears realized a 4 percent increase in customer satisfaction in the 12 month period before the article was published and they were expecting revenues to increase by $200 million. So how do you develop a Strategy Map? The answer .

In fact. For example." You may find out that you don't care about all these customer losses and defections." Financial Performance Goals are usually stated in measurable terms so use these terms for your Financial Performance KPMs as appropriate. ask "Are there other goals (enabling goals) that should be developed and penned in to move the Customer Capital and Financial Performance Goals in the direction we want them to move?" If there are. the Structural Capital Goal of "Create and Maintain Well Stocked and Attractive Shelves" may be broken down and restated as the KPM "Mystery Shoppers Rating for Store Product Display and Appeal. then generate these enabling goals and draw in the cause and effect relationship between them and the other goals. Step Ten.$xxx -Profit . some of these customers may not be profitable so you indeed want to loss them. Suddenly. who cares?" helps you validate and refine your goals? It's an extremely value tool. you probably won't get much change on the Financial Performance Strategic Goals because these drive the train. a goal may already be stated in measurable terms. translate your goals into measurable terms. Structural and Human Capital Goals. percentage or ranking.$xxx -Cash Flow . who cares?" Using this question.Mission Statement: (Briefly state your Mission here) Start with the Financial Perspective and work your way down in order to validate your Strategic Goals. Some examples of KPMs follow: Financial Perspective KPMs: -Revenue . Next move to the Structural Capital Perspective and then the Human Capital Perspective and repeat the process. In some cases." Do you see how the questions "So what. Translate your Strategy Map goals into "Key Performance Measures" (KPMs) and perform a "Gap Analysis. You do this by asking for each goal "So what. It reads in part "Reduce Customer Losses and Defections. But take for example the above Strategy Map Strategic Goal under Customer Capital. But you often have to break goals down and restate them in measurable terms. On Customer. you find yourself restating this part of the goal to the more useful "Reduce Losses and Defections of Our Most Profitable Customers. Continuing in the Customer Capital Perspective. you usually have to restate them in KPM terms with a number." First. Often the Human Capital Perspective Goals don't surface in your SWOT Analysis so they have to be generated as enabling goals to make your Strategy Map provide a viable basis to support your Grand Strategy.$xxx .

Now you're ready to perform your Gap Analysis. use your available financial .x% Highly Satisfied. Satisfied and so on -Number of Suggestions Submitted .$xxx Structural Capital KPMs: -Ratio of Sales Persons to General and Administrative . For the status on Financial KPMs.xx -Number of Suggestions Adopted – xx -Number of Employees Fully Qualified for Their Position – xx So translate all of your Strategy Map goals into KPMs.$xxx Segment 2 .$xxx -Return on Investment – x% Customer Capital KPMs: -Customer Retention – x% -Customer Satisfaction – x% -Customer Profitability Segment 1 .x/y -Time to Market for New Products – x months -Inventory Turnover – 100% every x months • • -Mystery Shoppers Rating of Store Product Display and Appeal – Grade -Mystery Shoppers Rating of Employee Helpfulness – Grade Human Capital KPMs: -Employee Turnover .x% per period -Average Days missed per Employee – x% -Employee Satisfaction . Start this process by determining where you are on each KPM.-Revenue per Employee .

Grand Strategy Scorecard Perspective/ Goals KPM Quarterly Target Actual Status* Data Source/ Owner Financial Performance Increase Profitability ROI 12% 13% (+) CFO Customer Capital Increase Customer Satisfaction Service Structural Capital Create and Maintain Well Stocked and Attractive Shelves Human Capital Grade AA(0) Mystery Shopper Sat Rating 95% 94% (-) Customer . Step Eleven. but for the status on Customer. These initial estimates are okay because you want to put a stake in the ground. You then break these Targets down into quarterly aiming points to begin to close the gaps. Prepare a "Scorecard" to keep track and drive your Grand Strategy. this initially amounts to an estimating process based on your best judgment and level of ambition. Structural and Human Capital KPMs. Again you'll want to put in place a research. But you'll also want to put in place a process to collect data and refine these KPMs as you move forward. Again. Here's a format with examples to illustrate how to prepare one. analysis and benchmarking process to collect data and refine these Targets as you move forward.numbers. percentages or rankings. you usually have to create estimated numbers. Next develop your desired "Targets" for each KPM.

Things really have not changed much since then. Otherwise improvement won't occur and things might even get worse. That is only technique designed to determine the relative attractiveness of feasible alternative action.Increase Employee Satisfaction Sat Rating 90% 90% (0) Human Resources * (+) = ahead of target / (0) = on target / (-) = behind target Once you have this Scorecard you have the centerpiece of your Grand Strategy. innovation and performance improvement." Don't confuse creating your Grand Strategy with taking action. Adjust. Execution and appropriate adjustments are imperative or you've only done an academic exercise. to keep your Grand Strategy and Scorecard up to date and on track. And with this linkage and alignment. Mike Kipp. A Fortune Magazine study in June 1999 found that many CEOs were fired because they failed to execute their strategy. you form a small team of high performers. Now the Grand Strategy process demands real work and organizational change. says "All organizations are perfectly designed to achieve the results they are getting. This stage contains QSPM that is only tool for objective evaluation of alternative strategies. This technique objectively indicates which alternative strategies are best. a consultant from Nashville. This team should be prepared to facilitate and help you with implementation across and down through the organization. As a friend. Tennessee. Now move on to implementation. The Quantitative Strategic Planning Matrix (QSPM) The last stage of strategy formulation is decision stage. you'll realize strategic goal linkage and alignment from the top to the bottom of your organization. And with your strong leadership combined with openness to involvement and feedback. Execute. In this stage it is decided that which way is most appropriate or which alternative strategy should be select. It same as important as BCG. This chapter enables you to understand the preparation of GS matrix. It is based on identified internal and external crucial success factors. . you'll get your total organization's brainpower and energy behind your Grand Strategy. Finally. In this way. People tend to support what they help build. Execute. Learning objective Grand strategy matrix is a last matrix of matching strategy formulation framework. IE and other matrices. Step Twelve. your Grand Strategy will move forward and achieve the breakthroughs you desire in marketing. A quantitative method used to collect data and prepare a matrix for strategic planning.

Compute the Total Attractiveness Scores 6. It relates to previously IFE and EFE in which weight to all factors. An internal factor contains (strength and weakness) and external factor include (opportunities and threats). IE Matrix. The sum of weight must be equal to one. The top row of a QSPM consists of alternative strategies derived from the TOWS Matrix. SPACE Matrix. IE Matrix. coupled with the TOWS Matrix. First it contains key internal and external factors. BCG Matrix. Preparation of matrix Now the question is that how to prepare QSPM matrix.The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. Weight means importance to internal and external factor. However. That is. Steps in preparation of QSPM 1. Determine the Attractiveness Scores (AS) 5. and Grand Strategy Matrix that make up Stage 2. Assign weights to each key external and internal factor 3. the EFE Matrix. not every strategy suggested by the matching techniques has to be evaluated in a QSPM. These matching tools usually generate similar feasible alternatives. 2. BCG Matrix. provide the needed information for setting up the QSPM (Stage 3). The highest total attractiveness score strategy is most feasible. SPACE Analysis. and Competitive Profile Matrix that make up Stage 1. List of the firm's key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. After assigning the weights examine stage-2 matrices and identify alternatives strategies that the organization should consider implementing. Compute the Sum Total Attractiveness Score . determine the attractiveness score of each and afterwards total attractiveness score. and Grand Strategy Matrix. IFE Matrix. After assigning the weight to strategy. Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing 4. Strategists should use good intuitive judgment in selecting strategies to include in a QSPM.

111 Limitations 1. Only strategies within a given set are evaluated relative to each other Advantages 1. Integration of pertinent external and internal factors in the decision making process Key Internal Factors Research and Development Computer Information Finance/Accounting Production/Operations Management Marketing Systems Key External Factors Economy conditions Social/Cultural/Demographic /Environmental Political/Legal/Governmental Competitive Technological Consumer attitude Strategy 1 AS TAS Strategy 2 AS TAS Strategy 3 Weight AS TAS . Sets of strategies considered simultaneously or sequentially 2. Only as good as the prerequisite inputs 3. Requires intuitive judgments and educated assumptions 2.

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