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**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

Fred R. David Prentice Hall

Ch 6-2

Chapter Outline

• The Matching Stage • The Decision Stage • Cultural Aspects of Strategy Choice

Fred R. David Prentice Hall

Ch 6-3

David Prentice Hall Ch 6-4 .Chapter Outline • The Politics of Strategy Choice • The Role of a Board of Directors Fred R.

David Prentice Hall Ch 6-5 .Strategy Analysis & Choice Whether it’s broke or not. -. fix it—make it better. but the whole company if necessary. Not just products.Bill Saporito Fred R.

Fred R. David Prentice Hall Ch 6-6 .Strategy Analysis & Choice Strategic analysis and choice largely involves making subjective decisions based on objective information.

Strategy Analysis & Choice The Nature of Strategy Analysis and Choice – – – – – Establishing long-term objectives Generating alternative strategies Selecting strategies to pursue Best alternative to achieve mission and objectives Fred R. David Prentice Hall Ch 6-7 .

David Prentice Hall Ch 6-8 .Strategy Analysis & Choice Alternative strategies derive from – – Vision – Mission – Objectives – External audit – Internal audit – Past successful strategies Fred R.

David Prentice Hall Ch 6-9 .Strategy Analysis & Choice Participation in generating alternative strategies should be broad – Fred R.

David Prentice Hall Ch 6-10 .Strategy-Formulation Analytical Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage Fred R.

Formulation Framework Internal Factor Evaluation Matrix (IFE) External Factor Evaluation Matrix (EFE) Competitive Profile Matrix Fred R. David Prentice Hall Ch 6-11 Stage 1: The Input Stage .

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 Fred R. David Prentice Hall Ch 6-12 .

David Prentice Hall Ch 6-13 .Formulation Framework TOWS Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Fred R.

David Prentice Hall Ch 6-14 .Matching Stage • Match between organization’s internal resources and skills and the opportunities and risks created by its external factors. Fred R.

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) Fred R. David Prentice Hall = Develop a new employee benefits package Ch 6-15 .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.

Formulation Framework TOWS Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Fred R. David Prentice Hall Ch 6-16 .

Matching Stage TOWS Matrix – Threats – Opportunities – Strengths – Weaknesses Fred R. David Prentice Hall Ch 6-17 .

TOWS Matrix Develop four types of strategies – Strengths-Opportunities (SO) – Weaknesses-Opportunities (WO) – Strengths-Threats (ST) – Weaknesses-Threats (WT) Fred R. David Prentice Hall Ch 6-18 .

David Prentice Hall Ch 6-19 .SO Strategies Threats Opportunities Weaknesses Strengths (TOWS) SO Strategies Use a firm’s internal strengths to take advantage of external opportunities Fred R.

WO Strategies Threats Opportunities Weaknesses Strengths (TOWS) WO Strategies Improving internal weaknesses by taking advantage of external opportunities Ch 6-20 Fred R. David Prentice Hall .

David Prentice Hall Ch 6-21 . Fred R.ST Strategies Threats Opportunities Weaknesses Strengths (TOWS) ST Strategies Using firm’s strengths to avoid or reduce the impact of external threats.

Ch 6-22 Fred R.WT Strategies Threats Opportunities Weaknesses Strengths (TOWS) WT Strategies Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats. David Prentice Hall .

2. List the firm’s key external opportunities List the firm’s key external threats List the firm’s key internal strengths List the firm’s key internal weaknesses Fred R. 4. 3. David Prentice Hall Ch 6-23 .TOWS Matrix Steps in developing the TOWS Matrix 1.

TOWS Matrix Developing the TOWS Matrix 5. 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 Fred R. David Prentice Hall . 8. 6. 7.

David Prentice Hall WT Strategies Minimize weaknesses and avoid threats Ch 6-25 .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 Fred R.

David Prentice Hall Ch 6-26 .Formulation Framework TOWS Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Fred R.

David Prentice Hall Ch 6-27 .SPACE Matrix Strategic Position and Action Evaluation Matrix Four quadrant framework Determines appropriate strategies Aggressive Conservative Defensive Competitive Fred R.

David Prentice Hall Ch 6-28 .SPACE Matrix Two Internal Dimensions Financial Strength [FS] Competitive Advantage [CA] Two External Dimensions Environmental Stability [ES] Industry Strength [IS] Fred R.

SPACE Matrix Overall Strategic position determined by: – – – – Financial Strength [FS] Competitive Advantage [CA] Environmental Stability [ES] Industry Strength [IS] Fred R. David Prentice Hall Ch 6-29 .

David Prentice Hall Ch 6-30 .SPACE Matrix Developing the SPACE Matrix: • • • • • • EFE Matrix IFE Matrix Financial Strength Competitive Advantage Environmental Stability Industry Strength Fred R.

ES. CA.SPACE Matrix • • • Select variables to define FS. ES. CA. & IS Fred R. David Prentice Hall Ch 6-31 . Compute average score for FS. & 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.

Plot the intersection of the new xy point. Add the scores on the y-axis and plot Y. Fred R. David Prentice Hall Ch 6-32 .SPACE Matrix • • • Plot the average scores on the Matrix Add the two scores on the x-axis and plot point on X. Draw a directional vector from origin through the new intersection point.

David Prentice Hall Ch 6-33 .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 Fred R.

David Prentice Hall Ch 6-34 .SPACE Factors Internal Strategic Position External Strategic Position Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competition’s 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 Fred R.

David Prentice Hall ES Competitive Ch 6-35 .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 Fred R.

David Prentice Hall Ch 6-36 .Formulation Framework TOWS Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Fred R.

David Prentice Hall Ch 6-37 .BCG Matrix Boston Consulting Group Matrix • • • Enhances multidivisional firms’ efforts to formulate strategies Autonomous divisions (or profit centers) constitute the business portfolio Firm’s divisions may compete in different industries requiring separate strategy Fred R.

David Prentice Hall Ch 6-38 .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 Fred R.

David Prentice Hall Ch 6-39 .BCG Matrix Relative market share position defined: • Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry. Fred R.

50 Low 0.0 Stars II Question Marks I Medium 0 Cash Cows III s udn I Low -20 Fred R.BCG Matrix Relative Market Share Position High 1. David Prentice Hall Dogs IV Ch 6-40 .0 High +20 Medium .

BCG Matrix • • • • Question Marks Stars Cash Cows Dogs Fred R. David Prentice Hall Ch 6-41 .

• • Cash needs are high Case generation is low • Decision to strengthen (intensive strategies) or divest Fred R.BCG Matrix Question Marks • Low relative market share position yet compete in high-growth industry. David Prentice Hall Ch 6-42 .

BCG Matrix Stars • High relative market share and high industry growth rate. joint ventures Fred R. David Prentice Hall Ch 6-43 . • Best long-run opportunities for growth and profitability • Substantial investment to maintain or strengthen dominant position • Integration strategies. intensive strategies.

concentric diversification If becomes weak—retrenchment or divestiture Fred R.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. David Prentice Hall Ch 6-44 .

divest. retrenchment Fred R. David Prentice Hall Ch 6-45 .BCG Matrix Dogs • Low relative market share position and compete in slow or no market growth • Weak internal and external position • Decision to liquidate.

Formulation Framework TOWS Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Fred R. David Prentice Hall Ch 6-46 .

David Prentice Hall Ch 6-47 .Grand Strategy Matrix • Popular tool for formulating alternative strategies All organizations (or divisions) can be positioned in one of four quadrants Based on two evaluative dimensions: – – • • Competitive position Market growth Fred R.

2. 4. 5. 3. 4. 2. Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification Quadrant III Quadrant IV Retrenchment 1. 6.RAPID MARKET GROWTH 1. 5. Conglomerate diversification Conglomerate diversification 4. David Prentice Hall STRONG COMPETITIVE POSITION Ch 6-48 . 2. WEAK COMPETITIVE POSITION 1. Joint ventures Liquidation SLOW MARKET GROWTH Fred R. 3. Concentric diversification Concentric diversification 2. 4. Horizontal diversification Horizontal diversification 3. 5. 6. 7. Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation 1. 3.

**Grand Strategy Matrix
**

Quadrant I

• • •

Excellent strategic position Concentration on current markets and products Take risks aggressively when necessary

Fred R. David Prentice Hall

Ch 6-49

**Grand Strategy Matrix
**

Quadrant II

• Evaluate present approach seriously • How to change to improve competitiveness • Rapid market growth requires intensive strategy

Fred R. David Prentice Hall

Ch 6-50

**Grand Strategy Matrix
**

Quadrant III

• • • • Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost and asset reduction indicated (retrenchment)

Fred R. David Prentice Hall

Ch 6-51

David Prentice Hall Ch 6-52 .Grand Strategy Matrix Quadrant IV • • • Strong competitive position Slow-growth industry Diversification indicated to more promising growth areas Fred R.

David Prentice Hall Ch 6-53 .Formulation Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Fred R.

David Prentice Hall Ch 6-54 .QSPM Quantitative Strategic Planning Matrix • Only technique designed to determine the relative attractiveness of feasible alternative actions Fred R.

David Prentice Hall Ch 6-55 .QSPM Quantitative Strategic Planning Matrix • • • Tool for objective evaluation of alternative strategies Based on identified external and internal crucial success factors Requires good intuitive judgment Fred R.

list the firm’s key internal strengths and weaknesses Assign weights to each external and internal critical success factor • Fred R.QSPM Quantitative Strategic Planning Matrix • List the firm’s key external opportunities & threats. David Prentice Hall Ch 6-56 .

QSPM Quantitative Strategic Planning Matrix • Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing Determine the Attractiveness Scores (AS) • Fred R. David Prentice Hall Ch 6-57 .

David Prentice Hall Ch 6-58 • .QSPM Quantitative Strategic Planning Matrix • Compute the total Attractiveness Scores Compute the Sum Total Attractiveness Score Fred R.

QSPM Key External Factors Economy Political/Legal/Governmen tal Social/Cultural/Demograp hic/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 Fred R. David Prentice Hall Ch 6-59 .

David Prentice Hall .QSPM Limitations: • Requires intuitive judgments and educated assumptions Only as good as the prerequisite inputs Ch 6-60 • Fred R.

David Prentice Hall Ch 6-61 .QSPM Positives: • Sets of strategies examined simultaneously or sequentially Requires the integration of pertinent external and internal factors in the decision-making process • Fred R.

heroes.Cultural Aspects of Strategy Choice Culture: • The set of shared values. David Prentice Hall Ch 6-62 . beliefs. and heroines that describe a firm Fred R. personalities. attitudes. customs. norms.

Cultural Aspects of Strategy Choice Culture: • Successful strategies depend on degree of support from a firm’s culture Fred R. David Prentice Hall Ch 6-63 .

David Prentice Hall .Politics of Strategy Choice Politics in organizations: • • • Management hierarchy Career aspirations Allocation of scarce resources Ch 6-64 Fred R.

Politics of Strategy Choice Political tactics for strategists: • • • • • Equifinality Satisfying Generalization Focus on Higher-Order Issues Provide Political Access on Important Issues Fred R. David Prentice Hall Ch 6-65 .

Control and oversight over management Adherence to legal prescriptions Consideration of stakeholder interests Advancement of stockholders’ rights Fred R. David Prentice Hall Ch 6-66 . 4. 2. 3.Role of A Board of Directors Duties and Responsibilities: 1.

Key Terms • • • • • • • • Aggressive quadrant Attractiveness Scores (AS) Board of Directors Boston Consulting Group (BCG) Matrix Business portfolio Cash cows Champions Competitive Advantage (CA) Ch 6-67 Fred R. David Prentice Hall .

Key Terms • • • • • • • • • Competitive quadrant Conservative quadrant Culture Decision stage Defensive quadrant Directional vector Dogs Environmental Stability (ES) Financial Strength (FS) Fred R. David Prentice Hall Ch 6-68 .

David Prentice Hall Ch 6-69 .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) Fred R.

Key Terms • • • • • • • Question marks Relative market share position SO strategies ST strategies Stars Strategic Position and Action Evaluation (SPACE) Matrix Strategy-formulation framework Ch 6-70 Fred R. David Prentice Hall .

Key Terms • • • • • Sum total attractiveness scores Threats-Opportunities-WeaknessesStrengths (TOWS) Matrix Total Attractiveness Scores (TAS) WO strategies WT strategies Fred R. David Prentice Hall Ch 6-71 .

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