Strategies Analysis

Lecture Notes of Strategic Planning and Decision Making
Topic # 7
Strategy Analysis
and Choice
Resource Person
Dr. Muhammad Wasif
Assistant Professor
Deptt. of Industrial and Manufacturing Engg.
NED University of Engineering and Technology.
Strategic Management Framework
External
Audit
Strategy
Types Vision
Generation Strategy Strategy Strategy
of and
And Implementation Execution Monitoring
Strategies Mission
Selection
Internal
Audit
Strategic Planning Strategy Implementation Evaluation
Topic 7 ‐ Strategy Analysis and Choice © Dr. Muhammad Wasif, PMP 2 2
(c) Dr. M. Wasif, PMP 1
Highlights of topic
 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
Topic 7 ‐ Strategy Analysis and Choice © Dr. Muhammad Wasif, PMP 3
3
Strategy Analysis & Choice

 It determine alternative courses of action that
could best enable the firm to achieve its mission
and objectives.
 The firm’s present strategies, objectives, and
mission, coupled with the external and internal
audit information, provide a basis for generating
and evaluating feasible alternative strategies.
 Alternative strategies are derived from the firm’s
vision, mission, objectives, external audit, and
internal audit; they are consistent with, or build
on, past strategies that have worked well.
4
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
5
Alternative strategies derive from –
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
6
Strategy-Formulation Analytical Framework

Participation in generating alternative
strategies should be broad
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
7
Formulation Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation
The Input Stage Matrix (EFE)
Competitive Profile
Matrix
8
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
9
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching BCG Matrix
Stage
IE Matrix
Grand Strategy Matrix
10
Matching Stage
 Matching external opportunities and threats with
internal strength and weaknesses.
 Match between organization’s internal resources and
skills and the opportunities and risks created by its
external factors.
 Generate feasible alternative strategies.
 Developing
 Strategies that use strengths to capitalize on
opportunities could be considered an offense, whereas
strategies designed to improve upon weaknesses
while avoiding threats could be termed defensive.
11
Matching Stage
 For example, a firm with excess working

capital (an internal strength) could take
advantage of the cell phone industry’s
12
Matching Stage
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 form the = by buying competitorʹs
(weakness)
industry (opportunity) facilities
Decreasing numbers of Develop new products for
Strong R&D (strength) + =
young adults (threat) older adults
Poor employee morale Develop a new employee
+ Strong union activity =
(weakness) (threat) benefits package
13
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
14
Matching Stage – SWOT Matrix
SWOT Matrix
 Strengths
 Weaknesses
 Opportunities
 Threats
15
Develop four types of strategies

 Strengths‐Opportunities (SO)
 Weaknesses‐Opportunities (WO)
 Strengths‐Threats (ST)
 Weaknesses‐Threats (WT)
16
Matching Stage – SO Strategies
Strengths Use a firm’s
Weaknesses SO internal strengths
Opportunities Strategies to take advantage
Threats of external
(SWOT) opportunities
17
Matching Stage – WO Strategies
Strengths Improving internal
Weaknesses WO weaknesses by
Opportunities Strategies taking advantage
Threats of external
(SWOT) opportunities
18
Matching Stage – ST Strategies
Strengths Using firm’s
Weaknesses strengths to avoid
ST or reduce the
Opportunities Strategies impact of external
Threats threats.
(SWOT)
19
Matching Stage – WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses WT internal
Opportunities Strategies weaknesses and
Threats avoiding
(SWOT) environmental
threats.
20
Steps in developing the SWOT Matrix

1. List the firm’s key external opportunities
2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
21

Steps in developing the SWOT Matrix
1. Match internal strengths with external
opportunities and record the resultant SO
Strategies
2. Match internal weaknesses with external
opportunities and record the resultant WO
Strategies
3. Match internal strengths with external threats
and record the resultant ST Strategies
4. Match internal weaknesses with external threats
and record the resultant WT Strategies
22

Leave Blank Strengths‐S Weaknesses‐W
List Strengths List Weaknesses
Opportunities‐O SO Strategies WO Strategies
List Opportunities Use strengths to take advantage Overcome weaknesses by

of opportunities taking advantage of
opportunities
Threats‐T ST Strategies WT Strategies
List Threats Use strengths to avoid threats Minimize weaknesses and

avoid threats
23
Leave Blank Strengths‐S Weaknesses‐W

1. Inventory turnover up 5.8 to 6.7 1. Software revenues in store down 12%
2. Average customer purchase up $97 to $128 2. Location of store hurt by new H34
3. Employee morale is excellent 3. Carpet and paint in store in disrepair
4. In‐store promotions = 20% increase in sales 4. Bathroom in store needs refurbish.
5. Newspaper advertising expenditures down 5. Total store revenues down 8%
10% 6. Store has no Web site
6. Revenues from repair/service in‐store up 7. Supplier on‐time‐delivery up to 2.4
16% 8. Customer checkout process too slow

1. Population of city growing 10% 1. Add 4 new in‐store promotions 1. Purchase land to build new
2. Rival computer store opening 1 monthly (S4,O3) store (W2, O2)
mile away 2. Add 2 new repair/servicepersons 2. Install new
3. Vehicle traffic passing store up (S6, O5) carpet/paint/bath(W3, W4, O1)
12% 3. Send flyer to all seniors overage 55 3. Up Web site services by
4. Vendors average six new (S5, O5) 50%(W6, O7, O8)
products/yr
4. Launch mail out to all Realtors
8. Desire for Web sites up 12%
in city (W5, O7)
by small firms

1. Best Buy opening new store in 1. Hire two more repair persons and
1yr nearby market these new services(S6, S7, 1. Hire 2 new cashiers(W8, T1, T4)
2. Local university offers T1) 2. Install new carpet/paint/bath
computer repair 2. Purchase land to build new store (W3, W4, T1)
3. New bypass Hwy 34 in 1 yr (S8, T3)
will divert traffic 3. Raise out‐of‐store service calls from
4. New mall being built nearby $60 to $80 (S6, T5)
5. Gas prices up 14%
24
SWOT Matrix – Limitations
 SWOT does not show how to achieve a

competitive advantage.
 SWOT is a static assessment (or snapshot)
in time.
 SWOT analysis may lead the firm to
overemphasize a single internal or external
factor in formulating strategies.
25
SWOT Matrix Strengths‐S Weaknesses‐W

1. Inventory turnover up 5.8 to 6.7 1. Software revenues in store down 12%
For 2.
3.
Average customer purchase up $97 to $128
Employee morale is excellent
2.
3.
Location of store hurt by new H34
Carpet and paint in store in disrepair
PIA 4.
5.
In‐store promotions = 20% increase in sales
Newspaper advertising expenditures down
4.
5.
Bathroom in store needs refurbish.
Total store revenues down 8%
10% 6. Store has no Web site
6. Revenues from repair/service in‐store up 7. Supplier on‐time‐delivery up to 2.4
16% 8. Customer checkout process too slow

1. Population of city growing 10% 1. Add 4 new in‐store promotions 1. Purchase land to build new
2. Rival computer store opening 1 monthly (S4,O3) store (W2, O2)
mile away 2. Add 2 new repair/servicepersons 2. Install new
3. Vehicle traffic passing store up (S6, O5) carpet/paint/bath(W3, W4, O1)
12% 3. Send flyer to all seniors overage 55 3. Up Web site services by
4. Vendors average six new (S5, O5) 50%(W6, O7, O8)
products/yr
4. Launch mail out to all Realtors
8. Desire for Web sites up 12%
in city (W5, O7)
by small firms

1. Best Buy opening new store in 1. Hire two more repair persons and
1yr nearby market these new services(S6, S7, 1. Hire 2 new cashiers(W8, T1, T4)
2. Local university offers T1) 2. Install new carpet/paint/bath
computer repair 2. Purchase land to build new store (W3, W4, T1)
3. New bypass Hwy 34 in 1 yr (S8, T3)
will divert traffic 3. Raise out‐of‐store service calls from
4. New mall being built nearby $60 to $80 (S6, T5)
5. Gas prices up 14%
26
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
27
SPACE Matrix
Strategic Position and Action Evaluation

Matrix
 Four quadrant framework
 Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive
28
SPACE Matrix
29
SPACE Matrix
Overall Strategic position determined by
Two Internal Dimensions
 Financial Strength [FS]
 Competitive Advantage [CA]
Two External Dimensions

 Environmental Stability [ES]
 Industry Strength [IS]
30
SPACE Matrix - Procedure
 Select variables to define FS, CA, ES, & IS

 Assign numerical ranking from +1 (worst) to
+6 (best) for FS and IS;
 Assign numerical ranking from –1 (best) to
–6 (worst) for ES and CA.
 Compute average score for FS, CA, ES, & IS
31
SPACE Matrix - Procedure
 Plot the average scores on the Matrix

 Add the two scores on the x‐axis and plot
point on X.
 Add the scores on the y‐axis and plot Y. Plot
the intersection of the new xy point.
 Draw a directional vector from origin
through the new intersection point.
32
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
 Return on investment  Technological changes
 Leverage  Rate of inflation
 Liquidity  Demand variability
 Working capital  Price range of competing products
 Cash flow  Barriers to entry
 Ease of exit from market  Competitive pressure
 Risk involved in business  Price elasticity of demand
33
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage (CA) Industry Strength (IS)
 Market share  Growth potential
 Product quality  Profit potential
 Product life cycle  Financial stability
 Customer loyalty  Technological know‐how
 Competition’s capacity utilization  Resource utilization
 Technological know‐how  Capital intensify
 Control over suppliers &  Ease of entry into market
distributors  Productivity, capacity utilization
34
SPACE Factors
Financial Position (FP) Ratings
1 The bank’s primary capital ratio is 7.23 percent, which is 1.23 percentage points 1
over the generally required ratio of 6 percent.
2 The bank’s return on assets is negative 0.77, compared to a bank industry 1
average ratio of positive 0.70.
3 The bank’s net income was $183 million, down 9 percent from a year earlier. 3
4 The bank’s revenues increased 7 percent to $3.46 billion. 4
Total 9
Industry Position (IP) Ratings
1 Deregulation provides geographic and product freedom. 4
2 Deregulation increases competition in the banking industry. 2
3 Pennsylvania’s interstate banking law allows the bank to acquire other banks in 4
New Jersey, Ohio, Kentucky, the District of Columbia, and West Virginia.
Total 4
35
SPACE Factors
Stability Position (SP) Ratings
1 Less‐developed countries are experiencing high inflation and political ‐4
instability.
2 Headquartered in Pittsburgh, the bank historically has been heavily ‐5
dependent on the steel, oil, and gas industries. These industries are depressed.
3 Banking deregulation has created instability throughout the industry. ‐4
Total ‐13
Competitive Position (CP) Ratings
1 The bank provides data processing services for more than 450 institutions in 38 ‐2
states.
2 Superregional banks, international banks, and nonbanks are becoming ‐5
increasingly competitive.
3 The bank has a large customer base. ‐2
Total ‐9
36
IP Average CP Average FP Average SP Average
10 / 3 = 3.33 ‐9 / 3 = ‐ 3.00 9 / 4 = 2.25 ‐13 / 3 = ‐4.33

X‐axis Y‐axis
IP+CP = 3.33+(‐3.00) = 0.33 FP+SP = 2.26+(‐4.33) = ‐2.08
FS
Conservative +6
Aggressive
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
The bank should pursue Competitive
-3 Strategies.
-4
-5
Defensive -6 Competitive
ES
37
38
39
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
40
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
41
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
42
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.
43
BCG Matrix
44
BCG Matrix
Question Marks:
Low relative market share position yet compete in high‐growth industry.
 Cash needs are high

 Cash generation is low
Decision to strengthen (intensive strategies) or divest
Stars
 High relative market share and high industry growth rate.

 Best long‐run opportunities for growth and profitability
 Substantial investment to maintain or strengthen dominant position

 Integration strategies, intensive strategies, joint ventures
45
BCG Matrix
Cash Cows
 High relative market share position, but compete in low‐growth

industry
 Generate cash in excess of their needs
 Milked for other purposes
 Maintain strong position as long as possible
 Product development, concentric diversification
 If becomes weak—retrenchment or divestiture
Dogs
 Low relative market share position and compete in slow or no market
growth
 Weak internal and external position
 Decision to liquidate, divest, retrenchment
46
 The size of the circle corresponds to the proportion of corporate revenue generated by that business unit,
 The pie slice indicates the proportion of corporate profits generated by that division.
47
BCG Matrix – Limitations
 Viewing every business as either a Star, Cash Cow,

Dog, or Question Mark is an oversimplification;
many businesses fall right in the middle of the BCG
Matrix and thus are not easily classified.
 BCG Matrix does not reflect whether or not various
divisions or their industries are growing over time.
 Other variables besides relative market share position
and industry growth rate in sales, such as size of the
market and competitive advantages, are important in
making strategic decisions about various divisions.
48
BCG Matrix
49
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
50
IE Matrix
 The Internal‐External (IE) Matrix positions an
organization’s various divisions in a nine cell
display.
 Both BCG & IE tools involve plotting
organization divisions in a schematic diagram;
this is why they are both called “portfolio
matrices.”
 A common practice is to develop a BCG Matrix
and an IE Matrix for the present and then
develop projected matrices to reflect
expectations of the future.
51
IE Matrix
52
53
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix
The Matching Stage
IE Matrix
54
 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
55
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
7. Concentric diversification
WEAK 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
56

Quadrant I
 Excellent strategic position
 Concentration on current markets and products
 Take risks aggressively when necessary
Quadrant II
 Evaluate present approach seriously
 How to change to improve competitiveness
 Rapid market growth requires intensive strategy
57

Quadrant III
 Compete in slow‐growth industries
 Weak competitive position
 Drastic changes quickly
 Cost and asset reduction indicated (retrenchment)
Quadrant II
 Strong competitive position
 Slow‐growth industry
 Diversification indicated to more promising growth areas
58
Stage 3: Quantitative Strategic
The Decision Planning Matrix
Stage (QSPM)
59
QSPM
Quantitative Strategic Planning Matrix
Only technique designed to determine the

relative attractiveness of feasible alternative
actions
60
QSPM
Quantitative Strategic Planning Matrix

Only technique designed to determine the relative
attractiveness of feasible alternative actions
 Tool for objective evaluation of alternative
strategies
 Based on identified external and internal crucial
success factors
 Requires good intuitive judgment
61
QSPM
 List the firm’s key external opportunities & threats;

 List the firm’s key internal strengths and
weaknesses
 Assign weights to each external and internal
critical success factor
 Examine the Stage 2 (matching) matrices and
identify alternative strategies that the organization
should consider implementing
62
QSPM
 Determine the Attractiveness Scores (AS)

 Compute the total Attractiveness Scores
 Compute the Sum Total Attractiveness Score
63
Strategic Alternatives
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
64
Scores is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive, and 4 = highly attractive
65
66
QSPM
Limitations
 Requires intuitive judgments and educated
assumptions
 Only as good as the prerequisite inputs
Positives
 Sets of strategies examined simultaneously or
sequentially
 Requires the integration of pertinent external and
internal factors in the decision‐making process
67
Strategy Implementation
Culture:
Successful strategies depend on degree of support from
a firm’s culture
Politics in organizations:
 Management hierarchy
 Career aspirations
 Allocation of scarce resources
68
Strategy Implementation
Duties and Responsibilities:

 Control and oversight over management
 Adherence to legal prescriptions
 Consideration of stakeholder interests
 Advancement of stockholders’ rights
69
Solve
21. What types of strategies would you

recommend for an organization that achieves
total weighted scores of 3.6 on the IFE and 1.2 on
the EFE Matrix?
70
Solve
22. Given the following information, develop a

SPACE Matrix for the XYZ Corporation:
FP = +2; SP = ‐6; CP = ‐2; IP = +4.
71

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Strategies Analysis

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Lecture Notes of Strategic Planning and Decision Making

Strategic Management Framework

Strategic Planning Strategy Implementation Evaluation

Strategy Analysis & Choice

Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice

 Establishing long‐term objectives

Strategy Analysis & Choice

Alternative strategies derive from –

Strategy-Formulation Analytical Framework

 Provides basic input information for the

 For example, a firm with excess working

Matching Stage – SWOT Matrix

Matching Stage – SWOT Matrix

Develop four types of strategies

Matching Stage – SO Strategies

Matching Stage – WO Strategies

Matching Stage – ST Strategies

Matching Stage – WT Strategies

Matching Stage – SWOT Matrix

Steps in developing the SWOT Matrix

Matching Stage – SWOT Matrix

Matching Stage – SWOT Matrix

Opportunities‐O SO Strategies WO Strategies

List Opportunities Use strengths to take advantage Overcome weaknesses by

Threats‐T ST Strategies WT Strategies

List Threats Use strengths to avoid threats Minimize weaknesses and

Leave Blank Strengths‐S Weaknesses‐W

Opportunities‐O SO Strategies WO Strategies

Threats‐T ST Strategies WT Strategies

SWOT Matrix – Limitations

 SWOT does not show how to achieve a

SWOT Matrix Strengths‐S Weaknesses‐W

Opportunities‐O SO Strategies WO Strategies

Threats‐T ST Strategies WT Strategies

Strategic Position and Action Evaluation

Two External Dimensions

SPACE Matrix - Procedure

 Select variables to define FS, CA, ES, & IS

SPACE Matrix - Procedure

 Plot the average scores on the Matrix

IP Average CP Average FP Average SP Average

10 / 3 = 3.33 ‐9 / 3 = ‐ 3.00 9 / 4 = 2.25 ‐13 / 3 = ‐4.33

Boston Consulting Group Matrix

Boston Consulting Group Matrix

Relative market share position defined:

Ratio of a division’s own market share in a

Low relative market share position yet compete in high‐growth industry.

 Cash needs are high

Decision to strengthen (intensive strategies) or divest

 High relative market share and high industry growth rate.

 Substantial investment to maintain or strengthen dominant position

 High relative market share position, but compete in low‐growth

BCG Matrix – Limitations

 Viewing every business as either a Star, Cash Cow,

Grand Strategy Matrix

 Popular tool for formulating alternative

Grand Strategy Matrix

Grand Strategy Matrix

Quantitative Strategic Planning Matrix

Only technique designed to determine the

Quantitative Strategic Planning Matrix

 List the firm’s key external opportunities & threats;

 Determine the Attractiveness Scores (AS)