Chapter 6

Strategy Analysis & Choice

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Copyright © 2011 Pearson Education, Inc. Ch 6 -2
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Strategy Analysis & Choice

 Subjective decisions based on objective

information
 Generating alternative strategies
 Selecting strategies to pursue
 Best alternative course of action to achieve
mission & objectives
 Derived from vision, mission, objectives,
external audit, and internal audit
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Strategy Analysis & Choice

Generating Alternatives –

Participation in generating alternative

strategies should be as broad as
possible

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Comprehensive Strategy-
Formulation Framework
 Stage 1 - Input Stage
 EFE Matrix
 IFE matrix
 CPM
 Stage 2 - Matching Stage
 SWOT
 SPACE matrix
 BCG matrix
 IE Matrix
 Grand strategy matrix
 Stage 3 - Decision Stage
 QSPM
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Comprehensive Strategy-
Formulation Framework
 As shown in the previous PowerPoint,
strategy formulation techniques can be
integrated into a three-stage decision-making
framework. The tools presented in this
framework are applicable to all sizes and
types of organizations and can help
strategists identify, evaluate, and select
strategies

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The Strategy-Formulation Analytical
Framework
 Stage 1 (Input Stage) summarizes the basic
input information needed to formulate
strategies.
 Stage 2 (Matching Stage) focuses on
generating feasible alternative strategies by
aligning key external and internal factors.
 Stage 3 (Decision Stage) uses the QSPM to
objectively evaluate feasible alternative
strategies identified in Stage 2.
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Strategy-Formulation Framework

External Factor Evaluation

Matrix (EFE)

Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)

Competitive Profile Matrix

(CPM)

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Stage 2: The Matching Stage

Match between organization’s internal

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

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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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Stage 2: The Matching Stage

SWOT Matrix

Strengths

Weaknesses

Opportunities

Threats

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SWOT Matrix

Four Types of Strategies

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

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SWOT Matrix

 SO strategies use a firm’s internal strengths

to take advantage of external opportunities
 WO strategies improve internal weaknesses
by taking advantage of external opportunities
 ST strategies use a firm’s strengths to avoid
or reduce the impact of external threats
 WT strategies defensive tactics aimed at
reducing internal weakness and avoiding
external threats
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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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Strategic Position and Action
Evaluation (SPACE) Matrix
 The SPACE matrix’s four-quadrant
framework indicates whether aggressive,
conservative, defensive, or competitive
strategies are most appropriate for a given
organization. Its axes represent two internal
dimensions (financial strength [FS] and
competitive advantage [CA]) and two external
dimensions (environmental stability [ES] and
industry strength [IS]).

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SPACE Matrix
 Depending upon the type of organization,
numerous variables could make up each of
the dimensions represented on the axes of
the SPACE matrix. Variables that were
included in the firm’s EFE and IFE matrices
should be considered in developing a SPACE
matrix.

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SPACE Matrix

 Internal dimensions
 Financial strength (FS)
 Competitive advantage (CA)

 External dimensions
 Environmental stability (ES)
 Industry strength (IS)

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Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA,

ES, and IS.
2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS,
CA, ES, and IS.

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Steps to Developing a SPACE Matrix
4. Plot the average score on the appropriate
axis.
5. Add the two scores on the x-axis and plot
the point. Add the two scores on the y-axis
and plot the point. Plot the intersection of the
new xy point.
6. Draw a directional vector from the origin
through the new intersection point. This
vector reveals the type of strategies
recommended for the organization.

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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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BCG Matrix

 The BCG matrix helps multi-divisional firms

formulate strategies. It graphically portrays
differences among divisions in terms of
relative market share position and industry
growth rate. Relative market share position is
defined as the ratio of a division’s own market
share (or revenues) in a particular industry to
the market share (or revenues) held by the
largest rival firm in that industry.
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BCG Matrix

 Relative market share position is given on the

x-axis. The mid-point on the x-axis usually is
set at .50, corresponding to a division that
has half the market share of the leading firm
in the industry. The y-axis represents the
industry growth rate in sales, measured in
percentage terms. The growth rate
percentages on the y-axis could range from
-20 to +20%, with 0.0 being the mid-point.
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BCG Matrix
 An example of a BCG matrix appears in the next
Power Point. Each circle represents a separate
division. The size of the circle corresponds to the
proportion of corporate revenue generated by that
business unit, and the pie slice indicates the
proportion of corporate profits generated by that
division. Divisions located in Quadrant I are called
“Question Marks;” Quadrant II, “Stars;” Quadrant III,
“Cash Cows;” and Quadrant IV, “Dogs.”

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BCG Matrix

 Question Marks – low relative market share

in a high-growth industry
 Stars – high relative market share in a high-
growth industry
 Cash Cows – high relative market share in a
low-growth industry
 Dogs – Low relative market share in a slow
or no growth industry

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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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The Internal-External Matrix

 Positions an organization’s various divisions

in a nine-cell display
 Similar to BCG Matrix except the IE Matrix:
 Requires more information about the divisions
 Strategic implications of each matrix are different

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IE Matrix

 Based on two key dimensions

 The IFE total weighted scores on the x-axis
 The EFE total weighted scores on the y-axis
 Divided into three major regions
 Grow and build – Cells I, II, or IV
 Hold and maintain – Cells III, V, or VII
 Harvest or divest – Cells VI, VIII, or IX

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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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Grand Strategy Matrix

 Tool for formulating alternative

strategies
 Based on two dimensions
 Competitive position
 Market (industry) growth

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 RAPID MARKET (INDUSTRY) 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. Related diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation

SLOW MARKET (INDUSTRY) GROWTH

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Strategy-Formulation Analytical
Framework

Quantitative Strategic
Stage 3: Planning Matrix
The Decision Stage (QSPM)

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QSPM

Quantitative Strategic Planning Matrix

Technique designed to determine

the relative attractiveness of feasible
alternative strategies.

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Quantitative Strategic Planning
Matrix (QSPM)
 The QSPM is an analytical technique designed to determine the
relative attractiveness of feasible alternative strategies.
Information from each of the matrices in Stages 1 and 2 is used
to construct the QSPM.
 The left column of a QSPM consists of key internal and external
factors (from Stage 1), and the top row consists of feasible
alternative strategies (from Stage 2). Specifically, the left column
consists of strengths, weaknesses, opportunities, and threats
obtained directly from the IFE and EFE matrices. In the column
to the right of the key factors, the respective weights received by
each factor in the IFE matrix and EFE matrix are recorded.

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Quantitative Strategic Planning Matrix
(QSPM)
 The top row of a QSPM consists of alternative
strategies derived from each matrix in Stage 2.
These matching techniques usually generate
similar feasible alternatives. However, not every
strategy suggested by the matching techniques
has to be evaluated in a QSPM. Strategists
should use good intuitive judgment in selecting
strategies to include in a QSPM.
 The basic format of the QSPM is illustrated in
the following Power Point.
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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
Management Information
Systems

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Steps to Develop a QSPM

1. Make a list of the firm’s key external

opportunities/threats and internal.
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor.

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Steps to Develop a QSPM

3. Examine the Stage 2 (matching) matrices,

and identify alternative strategies that the
organization should consider implementing.
4. Determine the Attractiveness Scores.
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness
Score.

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Steps to Develop a QSPM
6. (Continued) Add Total Attractiveness
Scores in each strategy column of the
QSPM. The Sum Total Attractiveness
Scores reveal which strategy is most
attractive in each set of alternatives.
Higher scores indicate more attractive
strategies, considering all the relevant
external and internal factors that could
affect the strategic decisions.

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