Chapter 6

Strategy Analysis & Choice

Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Strategy Analysis & Choice
Alternative Strategies Derive From --

• Vision
• Mission
• Objectives

• External audit
• Internal audit

• Past successful strategies

Comprehensive Strategy-Formulation
Framework

Stage 1:
The Input Stage

Stage 2: Stage 3:
The Matching Stage The Decision Stage
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)

Stage 1: Competitive Profile Matrix

The Input Stage (CPM)

External Factor Evaluation

Matrix (EFE)

Note: EFE and CPM form external and IFE from internal (assessment)
Stage 1: The Input Stage

Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Strategy-Formulation Analytical
Framework
SWOT Matrix

Stage 2: BCG Matrix

The Matching Stage

Grand Strategy Matrix

Stage 2: The Matching Stage

Match between organization’s internal

resources & skills and the opportunities & risks
created by its external factors
E.g. internal: strong R and D function
External changing demographics
(population getting older)
Strategy: Develop new products for older
adults (related to long term objectives
financial or strategic)
Stage 2: The Matching Stage: SWOT Matrix
Four Types of Strategies

Strengths-Opportunities (SO):
Use a firm’s internal strengths to take advantage of external
opportunities

Weaknesses-Opportunities (WO):
Improving internal weaknesses by taking advantage
of external opportunities

Strengths-Threats (ST):
Use a firm’s strengths to avoid or reduce the impact of external
threats.

Weaknesses-Threats (WT):
Defensive tactics aimed at reducing internal weaknesses and
avoiding external threats
 SWOT Matrix
Leave Blank Strengths – S Weaknesses – W

List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses
List Opportunities advantage of by taking advantage of
opportunities opportunities

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and
List Threats threats avoid threats
 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in

Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)

Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors from the = by buying competitor's
(weakness)
industry (opportunity) facilities

Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults

Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package

Which types of strategies, e.g. intensive diversification…, are referred to above 12

 Strengths: Weaknesses:

1. R and D almost complete 1. Over dependent on borrowings -

2. Basis for strong management team Insufficient cash resources
3. Key first major customer acquired 2. Board of Directors is too narrow
4. Initial product can evolve into range of 3. Lack of awareness amongst
offerings prospective customers
5. Located near a major centre of 4. Need to relocate to larger premises
excellence 5. Absence of strong sales/marketing
6. Very focused management/staff expertise
7. Well-rounded and managed business 6. Overdependence on few key staff
7. Emerging new technologies may
move market in new directions

Threats: Opportunities:

1. Major player may enter targeted 1. Market segment is poised for rapid
market segment growth
2. New technology may make products 2. Export markets offer great potential
obsolescent 3. Distribution channels seeking new
3. Economic slowdown could reduce products
demand 4. Scope to diversify into related market
4. Euro/Yen may move against $ segments
5. Market may become price sensitive
6. Market segment's growth could attract
major competition
 Key Strategies
1. Accelerate product launches by strengthening R and D
team
2. Extend links with key technology centres
3. Raise additional venture capital
4. Expand senior management team in sales/marketing
5. Recruit non-executive directors
6. Strengthen human resources function and introduce
share options for staff
7. Appoint advisers for intellectual property and finance
8. Seek new market segments/applications for products
 SWOT Matrix
Leave Blank Strengths – S Weaknesses – W

List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Match and determine
strategy Match and determine
List Opportunities
strategy

Threats – T ST Strategies WT Strategies

Match and determine Match and determine
List Threats strategy strategy

Inset key strategies into correct box element of the Matrix

 Limitations with SWOT Matrix

• Does not show how to achieve a

competitive advantage
• Provides a static assessment in time
• May lead the firm to overemphasize a
single internal or external factor in
formulating strategies
BCG Matrix

Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
BCG Matrix

Relative Market Share Position

Ratio of a division’s own market share in an

industry to the market share held by the largest
rival firm in that industry
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
a S yrt s udnI

Low
-20
19
BCG Matrix

Question Marks
Low relative market share – 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 growth rate
Best long-run opportunities for growth & profitability

Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
BCG Matrix

Cash Cows
High relative market share, competes 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 weakens—retrenchment or divestiture
BCG Matrix

Dogs

Low relative market share & compete in slow or

no market growth
Weak internal & external position

Liquidation, divestiture, retrenchment

Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth
 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
25
Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Which type of strategy would you suggest?
Grand Strategy Matrix

Quadrant II

Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive
strategy
Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification to more promising growth
areas
Strategy-Formulation Analytical
Framework

Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)

Technique designed to determine the relative

attractiveness of feasible alternative actions
 Steps to Develop a QSPM
1. Make a list of the firm’s key external
opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and internal
factor
3. Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the organization
should consider implementing
4. Determine the Attractiveness Scores (A.S)
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
 QSPM : information from IFE and
Strategic Alternatives
EFE
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
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
Sum total A.S.
32
AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS
QSPM

Limitations
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs

Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal
factors in the decision making process
Example of a QSPM for Dell
 Questions
• Discuss 3 techniques that can be used by
organisations to choose alternative paths
to achieve their long term objectives.
• Discuss how to choose the best of a set of
alternative strategies.