Chapter 6

Strategy Analysis And Choice

Strategic Management:
Concepts and Cases. 9th edition
Fred R. David

PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6-1
Fred R. David
Prentice Hall
 Chapter Outline

The Nature of Strategy Analysis and

Choice

A Comprehensive Strategy-Formulation
Framework

The Input Stage

Ch 6-2
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 Chapter Outline
The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

Ch 6-3
Fred R. David
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 Chapter Outline

The Politics of Strategy Choice

The Role of a Board of Directors

Ch 6-4
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 Strategy Analysis & Choice

Whether its broke or not, fix itmake it

better. Not just products, but the whole
company if necessary.

-- Bill Saporito

Ch 6-5
Fred R. David
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 Strategy Analysis & Choice

Strategic analysis and choice largely

involves making subjective decisions
based on objective information.

Ch 6-6
Fred R. David
Prentice Hall
 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

Ch 6-7
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 Strategy Analysis & Choice
Alternative strategies derive from

Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Ch 6-8
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 Strategy Analysis & Choice

Participation in generating alternative

strategies should be broad

Ch 6-9
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Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch 6-10
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 Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix

Ch 6-11
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 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

Ch 6-12
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-13
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 Matching Stage

Match between organizations internal

resources and skills and the opportunities
and risks created by its external factors.

Ch 6-14
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 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in the

Excess working capacity
+ cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)

Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form the = by buying competitor's
(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

Ch 6-15
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-16
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 Matching Stage

TOWS Matrix

Threats
Opportunities
Strengths
Weaknesses

Ch 6-17
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 TOWS Matrix

Develop four types of strategies

Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

Ch 6-18
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 SO Strategies

Threats Use a firms

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities

Ch 6-19
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 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities

Ch 6-20
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 ST Strategies

Threats Using firms

ST strengths to
Opportunities
avoid or reduce
Weaknesses Strategies the impact of
Strengths external threats.
(TOWS)

Ch 6-21
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 WT Strategies

Defensive
Threats tactics aimed at
Opportunities WT reducing
internal
Weaknesses Strategies
weaknesses
Strengths and avoiding
(TOWS) environmental
threats.

Ch 6-22
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 TOWS Matrix

Steps in developing the TOWS Matrix

1. List the firms key external opportunities

2. List the firms key external threats
3. List the firms key internal strengths
4. List the firms key internal weaknesses

Ch 6-23
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 TOWS Matrix
Developing the TOWS Matrix

5. Match internal strengths with external opportunities

and record the resultant SO Strategies
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

Ch 6-24
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 TOWS Matrix
Leave Blank Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Ch 6-25
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-26
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 SPACE Matrix
Strategic Position and Action Evaluation Matrix

Four quadrant framework

Determines appropriate strategies
Aggressive
Conservative
Defensive
Competitive

Ch 6-27
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 SPACE Matrix

Two Internal Dimensions

Financial Strength [FS]
Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]
Industry Strength [IS]

Ch 6-28
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 SPACE Matrix
Overall Strategic position determined by:

Financial Strength [FS]

Competitive Advantage [CA]
Environmental Stability [ES]
Industry Strength [IS]

Ch 6-29
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 SPACE Matrix
Developing the SPACE Matrix:

EFE Matrix
IFE Matrix
Financial Strength
Competitive Advantage
Environmental Stability
Industry Strength
Ch 6-30
Fred R. David
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 SPACE Matrix

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

Ch 6-31
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 SPACE Matrix

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.

Ch 6-32
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 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

Ch 6-33
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 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
Competitions capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization

Ch 6-34
Fred R. David
Prentice Hall
 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 -6 Competitive
ES Ch 6-35
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-36
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 BCG Matrix
Boston Consulting Group Matrix

Enhances multidivisional firms efforts to

formulate strategies
Autonomous divisions (or profit centers)
constitute the business portfolio
Firms divisions may compete in
different industries requiring separate
strategy
Ch 6-37
Fred R. David
Prentice Hall
 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
Ch 6-38
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 BCG Matrix
Relative market share position defined:

Ratio of a divisions own market share

in a particular industry to the market
share held by the largest rival firm in
that industry.

Ch 6-39
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 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
Industry Sales Growth Rate

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
-20 Ch 6-40
Fred R. David
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 BCG Matrix

Question Marks
Stars
Cash Cows
Dogs

Ch 6-41
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 BCG Matrix
Question Marks

Low relative market share position yet

compete in high-growth industry.
Cash needs are high
Case generation is low

Decision to strengthen (intensive

strategies) or divest

Ch 6-42
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 BCG Matrix
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
Ch 6-43
Fred R. David
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 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 weakretrenchment or divestiture

Ch 6-44
Fred R. David
Prentice Hall
 BCG Matrix
Dogs

Low relative market share position and

compete in slow or no market growth
Weak internal and external position

Decision to liquidate, divest, retrenchment

Ch 6-45
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-46
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 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

Ch 6-47
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 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 6-48
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 Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets and
products
Take risks aggressively when necessary

Ch 6-49
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 Grand Strategy Matrix

Quadrant II

Evaluate present approach seriously

How to change to improve competitiveness
Rapid market growth requires intensive
strategy

Ch 6-50
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 Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated
(retrenchment)

Ch 6-51
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 Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification indicated to more promising
growth areas

Ch 6-52
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 Formulation Framework

Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)

Ch 6-53
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 QSPM

Quantitative Strategic Planning Matrix

Only technique designed to determine the

relative attractiveness of feasible
alternative actions

Ch 6-54
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 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

Ch 6-55
Fred R. David
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 QSPM

Quantitative Strategic Planning Matrix

List the firms key external opportunities &

threats; list the firms key internal strengths
and weaknesses

Assign weights to each external and internal

critical success factor

Ch 6-56
Fred R. David
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 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)

Ch 6-57
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 QSPM

Quantitative Strategic Planning Matrix

Compute the total Attractiveness

Scores

Compute the Sum Total Attractiveness

Score

Ch 6-58
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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 6-59
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 QSPM

Limitations:

Requires intuitive judgments and

educated assumptions

Only as good as the prerequisite inputs

Ch 6-60
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 QSPM

Positives:

Sets of strategies examined simultaneously

or sequentially

Requires the integration of pertinent external

and internal factors in the decision-making
process

Ch 6-61
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 Cultural Aspects of Strategy
Choice

Culture:

The set of shared values, beliefs,

attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm

Ch 6-62
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 Cultural Aspects of Strategy
Choice

Culture:

Successful strategies depend on

degree of support from a firms culture

Ch 6-63
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 Politics of Strategy Choice

Politics in organizations:

Management hierarchy
Career aspirations
Allocation of scarce resources

Ch 6-64
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 Politics of Strategy Choice

Political tactics for strategists:

Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues

Ch 6-65
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 Role of A Board of Directors

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stockholders rights

Ch 6-66
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 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
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 Key Terms

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

Ch 6-69
Fred R. David
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 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
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 Key Terms

Sum total attractiveness scores

Threats-Opportunities-Weaknesses-
Strengths (TOWS) Matrix
Total Attractiveness Scores (TAS)
WO strategies
WT strategies

Ch 6-71
Fred R. David
Prentice Hall