Strategy

Generation and
Selection

Chapter Eight

Copyright ©2017 Pearson Education, Limited 8-1

 Learning Objectives
1. Describe the strategy analysis and choice process.
2. Diagram and explain the three-stage strategy-
formulation analytical framework.
3. Diagram and explain the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix.
4. Diagram and explain the Strategic Position and
Action Evaluation (SPACE) Matrix.
5. Diagram and explain the Boston Consulting Group
(BCG) Matrix.

Copyright ©2017 Pearson Education, Limited 8-2

 Learning Objectives (cont.)
6. Diagram and explain the Internal-External (IE) Matrix.
7. Diagram and explain the Grand Matrix.
8. Diagram and explain the Quantitative Strategic
Planning Matrix (QSPM).
9. Discuss the role of organizational culture in strategic
analysis and choice.
10. Identify and discuss important political considerations
in strategy analysis and choice.
11. Discuss the role of a board of directors (governance)
in strategic planning.

Copyright ©2017 Pearson Education, Limited 8-3

A Comprehensive Strategic-
Management Model

Copyright ©2017 Pearson Education, Limited 8-4

 The Process of Generating and
Selecting Strategies
❖Strategists never consider all feasible
alternatives that could benefit the firm
because….
❖A manageable set of the most attractive
alternative strategies must be developed.
❖The advantages, disadvantages, trade-
offs, costs, and benefits of these strategies
should be determined.

Copyright ©2017 Pearson Education, Limited 8-5

 The Process of Generating and
Selecting Strategies
❖Identifying and evaluating alternative
strategies should involve many of the
managers and employees who earlier
assembled the organizational vision and
mission statements, performed the
external audit, and conducted the internal
audit.

Copyright ©2017 Pearson Education, Limited 8-6

 The Process of Generating and
Selecting Strategies
❖Alternative strategies proposed by
participants should be considered and
discussed in a series of meetings.
❖Proposed strategies should be listed in
writing.
❖When all feasible strategies identified by
participants are given and understood, the
strategies should be ranked in order of
attractiveness.
Copyright ©2017 Pearson Education, Limited 8-7
The Strategy-Formulation
Analytical Framework

Copyright ©2017 Pearson Education, Limited 8-8

 Strategy-Formulation Framework
❖ All techniques of strategy formulation analytical
framework require the integration of intuition and
analysis.
❖ Strategists themselves, not analytic tools are always
responsible and accountable for strategic decisions.
❖ Thus, they must use tools to facilitate rather than to
diminish communication.
❖ Without objective information and analysis, personal
biases, emotions, personalities, and halo error, can
affect strategy formulation process and undermine
effectiveness.

Copyright ©2017 Pearson Education, Limited 8-9

 A Comprehensive Strategy-
Formulation Framework
❖Stage 1 - Input Stage
❖summarizes the basic input information
needed to formulate strategies
❖consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM)

Copyright ©2017 Pearson Education, Limited 8-10

 A Comprehensive Strategy-
Formulation Framework
❖Stage 2 - Matching Stage
❖focuses on generating feasible alternative
strategies by aligning key external and internal
factors
❖techniques include the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix, the
Strategic Position and Action Evaluation
(SPACE) Matrix, the Boston Consulting Group
(BCG) Matrix, the Internal-External (IE) Matrix,
and the Grand Strategy Matrix
Copyright ©2017 Pearson Education, Limited 8-11
 Matching Stage

❖Strategy sometimes defined as the match an org.

makes between its internal resources and skills
and the opportunities and risks created by its
external factors.
❖Matching external and internal key factors is
essential for generating feasible alternative
strategies.
❖Successful matching depends on the fact that key
factors are specific actionable and divisional to
the extent possible.
Copyright ©2017 Pearson Education, Limited 8-12
 A Comprehensive Strategy-
Formulation Framework
❖Stage 3 - Decision Stage
❖involves the Quantitative Strategic Planning
Matrix (QSPM)
❖reveals the relative attractiveness of
alternative strategies and thus provides
objective basis for selecting specific strategies

Copyright ©2017 Pearson Education, Limited 8-13

Matching Key External and Internal Factors
to Formulate Alternative Strategies

Copyright ©2017 Pearson Education, Limited 8-14

 The Matching Stage
❖The Strengths-Weaknesses-Opportunities-
Threats (SWOT) Matrix helps managers
develop four types of strategies:
❖SO (strengths-opportunities) Strategies
❖WO (weaknesses-opportunities) Strategies
❖ST (strengths-threats) Strategies
❖WT (weaknesses-threats) Strategies
❖Matching key external and internal factors is
most difficult part in developing SWOT bec. It
requires good judgment and there is No one
best set of matches.

Copyright ©2017 Pearson Education, Limited 8-15

 The Matching Stage
❖ SO Strategies ❖ WO Strategies
❖ use a firm's internal ❖ aim at improving internal
strengths to take weaknesses by taking
advantage of external advantage of external
opportunities opportunities
❖ (All managers would like their e.g. insufficient capacity (W)
organization to be in that Exit of two competitors (O)
position, WO: horizontal integration by buying
competitors facilities)
❖ Org. generally will pursue WO,
ST, WT strategies to get into a
situation in which they can
apply SO strategies.
❖ e.g if org. has major W, it will
try to overcome it and turn it to
a S)

Copyright ©2017 Pearson Education, Limited 8-16

 The Matching Stage
❖ ST Strategies ❖ WT Strategies
❖ use a firm's strengths to ❖ defensive tactics directed
avoid or reduce the at reducing internal
impact of external weakness and avoiding
threats external threats
❖ (This does not mean that a strong ❖ (An organization faced with
organization should always meet numerous external threats and
threats in the external environment internal weaknesses may indeed be in
head-on) a difficult position,
❖ it may have to fight for its survival,
e.g. org has capital & human merge, retrench, or choose
resources to distribute its own liquidation)
products (S)
distributors are unreliable & costly (T) e.g. excess production capacity (W)
ST: forward integration Industry has declining sales and profits
(T)
WT: related diversification

Copyright ©2017 Pearson Education, Limited 8-17

 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.
5. Match internal strengths with external
opportunities, and record the resultant SO
strategies.

Copyright ©2017 Pearson Education, Limited 8-18

 SWOT Matrix (cont.)
6. Match internal weaknesses with external
opportunities, and record the resultant
WO strategies.
7. Match internal strengths with external
threats, and record the resultant ST
strategies.
8. Match internal weaknesses with external
threats, and record the resultant WT
strategies.
Copyright ©2017 Pearson Education, Limited 8-19
Copyright ©2017 Pearson Education, Limited 8-20
 Notes on SWOT matrix:
❖Be specific, actionable and divisional to the
extent possible.
❖Include S1, O2 type notation after each strategy
in SWOT Matrix.
❖Purpose of SWOT analysis is to generate feasible
alternative strategies, not to select or determine
which strategies are best!
❖Not all of strategies developed in the SWOT
matrix will be selected for implementation. (no org.
has sufficient capacities or resources to implement every strategy
formulated).

Copyright ©2017 Pearson Education, Limited 8-21

 SWOT analysis Limitations
❖SWOT doesn’t show how to achieve competitive
advantage.
❖SWOT is a static assessment (snapshot) in time.
❖SWOT may lead org. to overemphasize a single
internal or external factor in formulating
strategies.
❖There are no weights, ratings or numbers in a
SWOT analysis.
❖The relative attractiveness of alternative
strategies is not provided.

Copyright ©2017 Pearson Education, Limited 8-22

 The Grand Strategy Matrix
❖Grand Strategy Matrix
❖based on two evaluative dimensions:
competitive position and market (industry)
growth

Copyright ©2017 Pearson Education, Limited 8-23

The Grand Strategy Matrix

Copyright ©2017 Pearson Education, Limited 8-24

 The Grand Strategy Matrix
❖ Quadrant I (Strong Competitive position/Rapid Market Growth)
❖ are in an excellent strategic position
❖ continued concentration on current markets (market
penetration and market development) and products
(product development) is an appropriate strategy
❖ When org has excessive resources, then (backward,
forward, or horizontal integration) may be effective
strategies.
❖ When it is heavily committed to a single product, then
(related diversification) may reduce risks associated with a
narrow product line.
❖ Quadrant I firms can take adv. of external opportunities in
several areas, and they can take risks aggressively when
necessary.

Copyright ©2017 Pearson Education, Limited 8-25

 The Grand Strategy Matrix
❖Quadrant II (Weak Competitive position/Rapid Market Growth)
❖need to evaluate their present approach to the
marketplace seriously
❖Although their industry is growing, they are unable to
compete effectively.
❖need to determine why the firm's current approach is
ineffective and how the company can best change to
improve its competitiveness.
❖Intensive strategies should be considered first. But if
org. lacks a distinctive competence, or competitive
adv., then horizontal integration is desirable.
❖At last, divestiture or liquidation may be used to
provide funds needed to acquire other businesses.

Copyright ©2017 Pearson Education, Limited 8-26

 The Grand Strategy Matrix
❖Quadrant III(weak Competitive position/Slow Market Growth)
❖ must make some drastic changes quickly to avoid
further decline and possible liquidation
❖Extensive cost and asset reduction
(retrenchment) should be pursued first.
❖Alternative strategy is to shift resources away
from current business to different areas (diversify)
❖If all else fails, final option are divestiture and
liquidation.

Copyright ©2017 Pearson Education, Limited 8-27

 The Grand Strategy Matrix
❖Quadrant IV (Strong Competitive position/Slow Market Growth)

❖They have the strength to launch diversified

programs into more promising growth areas.
❖have characteristically high cash-flow levels and
limited internal growth needs and often can pursue
related or unrelated diversification successfully

Copyright ©2017 Pearson Education, Limited 8-28

 The Grand Strategy Matrix
❖Whenever possible, state your alternative
strategies in specific actionable and divisional
terms to the extent possible.
❖Avoid using strategy name only (divestiture,
market development, )instead, specify exactly
the division to be sold, or the place will you
open new stores,..

Copyright ©2017 Pearson Education, Limited 8-29