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Chapter 6 - Strategy Analysis & Choice
Chapter 6 - Strategy Analysis & Choice
Ch 6 -1
Asres Abitie (PhD)
Chapter Outline
A Comprehensive
Strategy-Formulation Framework
Ch 6 -2
Asres Abitie (PhD)
Chapter Outline (cont’d)
Ch 6 -3
Asres Abitie (PhD)
Chapter Outline (cont’d)
Governance Issues
Ch 6 -4
Asres Abitie (PhD)
Strategy Analysis & Choice
Ch 6 -5
Asres Abitie (PhD)
Strategy Analysis & Choice
Ch 6 -6
Asres Abitie (PhD)
Strategy Analysis & Choice
Alternative Strategies Derive From --
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Ch 6 -7
Asres Abitie (PhD)
Ch 6 -8
Asres Abitie (PhD)
Factors in Strategic Analysis
Product situation
Competitive situation
Distribution situation
Environmental factors
Opportunity and issue analysis
Ch 6 -9
Asres Abitie (PhD)
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -10
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Ch 6 -11
Asres Abitie (PhD)
Stage 1: The Input Stage
Ch 6 -12
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -13
Asres Abitie (PhD)
Stage 2: The Matching Stage
Ch 6 -14
Asres Abitie (PhD)
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Ch 6 -15
Asres Abitie (PhD)
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -16
Asres Abitie (PhD)
SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -17
Asres Abitie (PhD)
WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -18
Asres Abitie (PhD)
ST Strategies
Ch 6 -19
Asres Abitie (PhD)
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats avoiding
WT environmental
Strategies threats
SWOT
Ch 6 -20
Asres Abitie (PhD)
SWOT Matrix
Ch 6 -21
Asres Abitie (PhD)
SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Ch 6 -22
Asres Abitie (PhD)
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -23
Asres Abitie (PhD)
Limitations with SWOT Matrix
Ch 6 -24
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -25
Asres Abitie (PhD)
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -26
Asres Abitie (PhD)
SPACE Matrix
Ch 6 -27
Asres Abitie (PhD)
SPACE Matrix
Ch 6 -28
Asres Abitie (PhD)
SPACE Factors
Internal Strategic Position External Strategic Position
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -29
Asres Abitie (PhD)
SPACE Factors
Internal Strategic Position External Strategic Position
Ch 6 -30
Asres Abitie (PhD)
Steps to Developing a SPACE Matrix
Ch 6 -31
Asres Abitie (PhD)
Steps to Developing a SPACE Matrix
Ch 6 -32
Asres Abitie (PhD)
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-4
-5
Defensive Competitive
-6
Asres Abitie (PhD)
ES Ch 6 -33
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -34
Asres Abitie (PhD)
BCG Matrix
Ch 6 -35
Asres Abitie (PhD)
BCG Matrix
Ch 6 -36
Asres Abitie (PhD)
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Case generation is low
Ch 6 -38
Asres Abitie (PhD)
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Ch 6 -39
Asres Abitie (PhD)
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
Ch 6 -40
Asres Abitie (PhD)
BCG Matrix
Dogs
Ch 6 -41
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix (GE)
Ch 6 -42
Asres Abitie (PhD)
The Internal-External Matrix (GE Model)
Ch 6 -43
Asres Abitie (PhD)
Ch 6 -44
Asres Abitie (PhD)
IE Matrix
Ch 6 -45
Asres Abitie (PhD)
Ch 6 -46
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -47
Asres Abitie (PhD)
Grand Strategy Matrix
Ch 6 -48
Asres Abitie (PhD)
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
Ch 6 -49
Asres Abitie (PhD)
Grand Strategy Matrix
Quadrant I
Ch 6 -50
Asres Abitie (PhD)
Grand Strategy Matrix
Quadrant II
Ch 6 -51
Asres Abitie (PhD)
Grand Strategy Matrix
Quadrant III
Ch 6 -52
Asres Abitie (PhD)
Grand Strategy Matrix
Quadrant IV
Ch 6 -53
Asres Abitie (PhD)
Strategy-Formulation Analytical
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -54
Asres Abitie (PhD)
QSPM
Ch 6 -55
Asres Abitie (PhD)
QSPM 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
Ch 6 -56
Asres Abitie (PhD)
Steps to Develop a QSPM
Ch 6 -57
Asres Abitie (PhD)
Steps to Develop a QSPM
Ch 6 -58
Asres Abitie (PhD)
QSPM
Limitations
Ch 6 -59
Asres Abitie (PhD)
QSPM
Advantages
Ch 6 -60
Asres Abitie (PhD)
Cultural Aspects of Strategy
Choice
Organization Culture
Ch 6 -61
Asres Abitie (PhD)
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -62
Asres Abitie (PhD)
Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -63
Asres Abitie (PhD)