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OUTLINE ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ The Nature of Strategy Analysis and Choice A Comprehensive Strategy-Formulation Framework The Input Stage The Matching Stage The Decision Stage Cultural Aspects of Strategy Choice The Politics of Strategy Choice The Role of a Board of Directors

OBJECTIVES After studying this paper, you should be able to do the following: 1. 2. 3. 4. 5. 6. Describe a three-stage framework for choosing among alternative strategies. Explain how to develop a TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and QSPM. Identify important behavioral, political, ethical, and social responsibility considerations in strategy analysis and choice. Discuss the role of intuition in strategic analysis and choice. Discuss the role of organizational culture in strategic analysis and choice. Discuss the role of a board of directors in choosing among alternative strategies.

PAPER OVERVIEW Strategic analysis and choice largely involve making subjective decisions based on objective information. This paper introduces important concepts that can help strategists generate feasible alternatives, evaluate those alternatives, and choose a specific course of action. Behavioral aspects of strategy formulation are described, including politics, culture, ethics, and social responsibility considerations. EXTENDED PAPER OUTLINE WITH TEACHING TIPS I. THE NATURE OF STRATEGY ANALYSIS AND CHOICE

A.

Focus on establishing long-term objectives, generating alternative strategies, and selecting strategies to pursue.

B. The Process of Generating and Selecting Strategies 1. Strategists never consider all feasible alternatives that could benefit the firm, because there are an infinite number of possible actions and an infinite number of ways to

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The framework described above has three stages: a. Stage 3: The Decision Stage 3. Planning templates are provided. III. a manageable set of the most attractive alternative strategies must be developed.85 Chapter 6: Strategy Analysis and Choice implement those actions. The tools presented in this framework are applicable to all sizes and types of organizations and can help strategists identify. Procedures for developing an EFE Matrix.csuchico. performed the external audit.html} provides more than 30 pages of narrative about how and why to do strategic planning. Important strategy-formulation techniques can be integrated into a three-stage decision-making framework. VTN (Visit the Net): http://www. C. Therefore. 2. Stage 1: The Input Stage b. 2. evaluate.htm cautions against planners usurping the responsibility of line managers in strategic planning. the Competitive Profile Matrix (CPM). and the Internal Factor Evaluation (IFE) Matrix. VTN (Visit the Net): http://www. A COMPREHENSIVE STRATEGY-FORMULATION FRAMEWORK A. 3. and select strategies. Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to generate and evaluate alternative strategies more effectively. The Matching Stage .edu/mgmt/strategy/module1/sld022. II. Important Strategy-Formulation Techniques 1.edu/mgmt/strategy/module1/sld050. All nine techniques included in the strategy-formulation framework require integration of intuition and analysis. B.htm gives the purpose and characteristics of objectives.csuchico.mindtools. IV. THE INPUT STAGE A. and conducted the internal audit. an IFE Matrix. Tip: The Mindtools website {http://www. Stage 2: The Matching Stage c. Alternative strategies proposed by participants should be considered and discussed in a meeting or series of meetings. The Input Stage includes the External Factor Evaluation (EFE) Matrix.com/planpage. The input tools require strategists to quantify subjectively during early stages of the strategy-formulation process. and a CPM were presented in earlier documents. THE MATCHING STAGE A. Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational mission statement.

Match internal weaknesses with external threats and record the resulting WT strategies. g.htm gives example objectives. b. A schematic representation of the TOWS Matrix is provided in the other planning documents. the Boston Consulting Group (BCG) Matrix. The Matching Stage includes the Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix. WO strategies—are aimed at improving internal weaknesses by taking advantage of external opportunities. VTN (Visit the Net): http://www. Match internal strengths with external opportunities and record the resulting SO strategies in the appropriate cell. 3.org/strategicsample. and the Grand Strategy Matrix. WT strategies—are defensive tactics directed at reducing internal weaknesses and avoiding external threats. the Internal-External (IE) Matrix. product-oriented. List the firm’s key external opportunities. ST strategies—use a firm’s strengths to avoid or reduce the impact of external threats.edu/mgmt/strategy/module1/sld024. The TOWS Matrix is an important matching tool that helps managers develop four types of strategies: a. C. Match internal strengths with external threats and record the resultant ST strategies. SO strategies—use a firm’s internal strengths to take advantage of external opportunities. c. f. B. The SPACE Matrix .planware. List the firm’s key internal weaknesses. d. List the firm’s key external threats. b. e.csuchico. c. service-oriented. 2. Match internal weaknesses with external opportunities and record the resulting WO strategies. Any organization. 2. List the firm’s key internal strengths. The TOWS Matrix 1. VTN (Visit the Net): http://www. the Strategic Position and Action Evaluation (SPACE) Matrix. d. or even athletic must develop and execute good strategies to win. h.Chapter 6: Strategy Analysis and Choice 86 1. There are eight steps to construct a TOWS Matrix: a. governmental. whether military.htm provides a sample strategic plan as well as the basis for a TOWS matrix.

defensive. 3. 2. 3. The steps to develop a SPACE Matrix: a. d. The BCG Matrix graphically portrays differences among divisions (of a firm) in terms of relative market share position and industry growth rate. f. e. Aggressive Competitive Defensive Conservative . 3. The BCG Matrix 1. IS.87 Chapter 6: Strategy Analysis and Choice 1. Assign a number between –1 (best) to –6 (worst) for variables that make up the ES and CA dimensions. cash cows. c. 1. Generally these firms’ cash needs are high and their cash generation is low. and ES by summing the values given to the variables and dividing by the number of variables included in each dimension. Plot the average scores for FS. environmental stability (ES). stars. Its four-quadrant framework indicates whether aggressive. b. Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make up the FS and IS dimensions. Select a set of variables to define financial strength (FS). and CA on the appropriate axis in the SPACE Matrix. and industry strength (IS). CA. This vector reveals the type of strategies recommended for the organization. conservative. The SPACE Matrix. b. Plot the intersection of the new xy point. D. 4. Add the two scores on the x-axis and plot the resultant point on X. Draw a directional vector from the origin of the SPACE matrix through the new intersection point. 2. Compute an average score for FS. Question Marks—Divisions in Quadrant I have a low relative market share position. numerous variables could make up each of the dimensions represented on the axes of the SPACE Matrix. another important Stage 2 matching tool. The four quadrants represent the following: a. yet compete in a high-growth industry. 2. Depending on the type of organization. and dogs. ES. Add the two scores on the y-axis and plot the resultant point on Y. or competitive strategies are more appropriate for a given organization. These businesses have a high relative market share and compete in high growth rate industries. IS. Stars—Quadrant II businesses represent the organization’s best long-run opportunities for growth and profitability. The BCG Matrix: Divisions in the respective circles in the BCG Matrix are called question marks. competitive advantage (CA).

this is why they are called portfolio matrices. 2. V. IE Matrix requires more information about divisions than BCG c. 1. which comprises Stage 3 of the strategy-formulation analytical framework. The Grand Strategy Matrix 1. they are Dogs in a firm’s portfolio. The Grand Strategy Matrix is pictured in the other planning documents. Assign weights to each key external and internal factor. Called cash cows because they generate cash in excess of their needs. Strategic implications of each matrix are different F. . THE DECISION STAGE A. &3. This technique objectively indicates which alternative strategies are best. All organizations can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants. 3. but compete in a low-growth industry. The IE Matrix positions an organization’s various divisions in a nine-cell display. Differences between the IE Matrix and the BCG Matrix a. E. there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions. This technique is the QSPM. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. Dogs—Quadrant IV divisions of the organization have a low relative market share position and compete in a slowed or no-growth industry. Determine the Attractiveness Scores (AS). It is based on two evaluative dimensions: competitive position and market growth. c. Axes are different b. The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organization divisions in a schematic diagram. The Quantitative Strategic Planning Matrix (QSPM) 1. SPACE Matrix. the Grand Strategy Matrix has become a popular tool for formulating alternative strategies. BCG Matrix. Compute the total AS. In addition to the TOWS Matrix. The IE Matrix. 3. Six steps to developing a QSPM: a. b. and IE Matrix. 4. d. d. Other than ranking strategies to achieve the prioritized list. Examine the Stage 2 matrices and identify alternative strategies that the organization should consider implementing. 2.Chapter 6: Strategy Analysis and Choice 88 c. Cash Cows—Divisions positioned in Quadrant III have a high relative market position. e.

and heroines then managers often can implement changes swiftly and easily. beliefs. Compute the sum Total AS. A positive feature of the QSPM is that sets of strategies can be examined sequentially or simultaneously. The QSPM is not without some limitations. stories. heroes. A director is one of a group of persons entrusted with the overall direction of a corporate enterprise. Culture includes the set of shared values. norms. All Organizations Have a Culture 1. VIII. heroes. 4. language. In the absence of objective analyses. and heroines that describe a firm. B. strategy decisions too often are based on the politics of the moment. Equifinality Satisfying Generalization Focus on Higher-Order Issues Provide Political Access on Important Issues THE ROLE OF A BOARD OF DIRECTORS A.89 Chapter 6: Strategy Analysis and Choice f. THE POLITICS OF STRATEGY CHOICE A. 3. If a firm’s strategies are supported by cultural products such as values. Another positive feature of the QSPM is that it requires strategists to integrate pertinent external and internal factors into the decision process. B. ceremonies. A board of directors is a group of persons elected by the ownership of a corporation to have oversight and guidance over management and to look out for the shareholders’ interests. beliefs. rituals. VI. attitudes. VII. 2. With development of improved strategy-formulation tools. 2. it can only be as good as the prerequisite information and matching analyses upon which it is based. political factors become less important in making strategic decisions. Second.&B. customs. It is beneficial to view strategic management from a cultural perspective because success often rests on the degree of support that strategies receive from a firm’s culture. 5. 3. personalities. rites. B. Developing a QSPM makes it less likely that key factors will be overlooked or weighted inappropriately. . symbols. Strategies that require fewer cultural changes may be more attractive because extensive changes can take considerable time and effort. Tactics to aid in strategy: 1. 2. it always requires intuitive judgment. Positive Features and Limitations of the QSPM 1. First. CULTURAL ASPECTS OF STRATEGIC CHOICE A.

there are more variables to analyze and forecast. Evaluate long-range strategy. VTN (Visit the Net): http://www.gov/financenet/fed/docs/strat. Ban interlocking directorships. Answer: This is an interesting exercise for strategists.2 2 $15 $50 0.csuchico. Evaluate board performance. 7. develop a BCG Matrix and an IE Matrix: Divisions Profits High (3-4) Sales Relative Market Share EFE Industry Growth Rate Medium (2-2. ISSUES FOR REVIEW AND DISCUSSION 1. 3. 5.apeo. IS = +4. 2.99) High (20) Medium (0) Low (1-1. 11.Chapter 6: Strategy Analysis and Choice 90 C. Limit the number of other boards a member can serve on. 4. This makes the strategy-formulation process more complex.8 2 3 2 3 1 1 . Given the information in the table below. 8. Ensure no more that two board members are insiders. 4. ES = -6.2 on the EFE Matrix. CA = -2. 2. 12. The directional vector of the SPACE Matrix lies in the lower right quadrant. Business Week’s annual board of directors’ evaluation posited that good boards of directors actively perform the following responsibilities: 1.6 on the IFE Matrix and 1. in large organizations.org/guide/. Ban directors who draw consulting fees or other monies from the company. develop a SPACE Matrix for the XYZ Corporation: FS = +2. Given the following information. 9. The website. However. 6.2 on the EFE Matrix? Answer: Hold-and-maintain-type strategies are appropriate for an organization that scores 3. 10. provides details about strategic planning in a church and http://www. 3.edu/mgmt/strategy/module1/sld054. What types of strategies would you recommend for an organization that achieves total weighted scores of 3. How would application of the strategy-formulation framework differ from a small to a large organization? Answer: The strategy-formulation framework is conceptually identical for both small and large organizations.6 on the IFE and 1.financenet. www. Require directors to retire at age seventy.htm elaborates on the role of the board of directors. Link the CEO’s pay to specific goals.99) Low (-20) 1 $10 $100 0.htm gives the strategic plan for many government agencies. Require each director to own a large amount of company stock. Evaluate the CEO annually. indicating that competitive-type strategies are most appropriate. Place the entire board up for election every year.5 3 $25 $100 0. Compensate board member only in company stock.

What do you think is the appropriate role of a board of directors in strategic management? Why? . Explain the steps involved in developing a QSPM.10 3.99) EFE Low (1-1.1 1. an external and internal audit performed.91 Chapter 6: Strategy Analysis and Choice Industry Growth Rate IFE Total Weighted Success EFE Total Weighted Success Answer: BCG Matrix: +.6 2. 5.2 3.99) 3 1 2 This assignment works well as a take-home exercise. That is. ∗ Assign weights to each key external and internal factor.20 1. ∗ Compute the sum Total AS. ∗ Determine the AS.50) Low (0.8 -.0) 2 IE Matrix: Strong (3-4) Avg (2-2.99) IFE High (3-4) Medium (2-2.10 2. How would you develop a set of objectives for a school of business? Answer: A school of business should develop a set of objectives and strategies in the same way as any other type of organization.3 Relative Market Share High (1.0) Medium (. ∗ Examine the Stage 2 matrices and identify alternative strategies that the organization should consider implementing.5 +. 6.99) Weak (1-1. a mission statement would need to be established. Answer: There are six basic steps involved in applying QSPM: ∗ Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. and strategy-formulation techniques used to effectively develop a set of objectives and strategies. ∗ Compute the total AS. 7.

and Grand Strategy Matrices are applicable to all organizations. Strategists must go beyond the numbers to the meaning and implications. SPACE. Consideration should also be given to whether cultural changes could be achieved readily. As described in the paper. being held personally liable for failed strategies in organizations. BCG Matrix. An organization’s unique culture represents the heart of work. IE Matrix. consideration should be given to the different levels of support that proposed strategies would receive from existing cultural products. Answer: Cultural factors are an integral part of everyday life in organizations. 9. and Grand Strategy Matrix are similar in that all are matching tools in stage two of the strategy-formulation framework. SPACE Matrix. board members are. BCG Matrix. Discuss the limitations of various strategy-formulation analytical techniques. Emphasize to strategists that discussion of the implications of the various matrices for a particular firm is exceptionally important. suggestions. Answer: All analytical techniques have limitations. the BCG and IE Matrices generally apply only to a multidivisional firm. and Grand Strategy Matrix similar? How are they different? Answer: The TOWS Matrix. . Board members should provide input. Limitations of strategy-formulation techniques are described in the paper. and evaluation reports. Thus. although the nature of variables would differ for each type of organization. and comments about strategic-management activities. SPACE Matrix. Explain why cultural factors should be an important consideration in analyzing and choosing among alternative strategies. 8. in that they focus on different variables. Also. How are the TOWS Matrix. However. in choosing among alternative strategies for an organization. 11. analytical techniques are greatly helpful in assimilating and organizing information in a way that enhances strategic decision making. These analytical tools differ. implementation. advice. 10. whereas the TOWS. such techniques are helpful. As long as strategists do not allow analytical tools to dictate decisions. How would profit and nonprofit organizations differ in their applications of the strategyformulation framework? Answer: The strategy-formulation framework is conceptually identical for both profit and nonprofit organizations. more and more. IE Matrix.Chapter 6: Strategy Analysis and Choice 92 Answer: Board members should review strategy formulation.

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