Chapter VII

Strategic Analysis & Choice

Strategic 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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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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 Input Stage

External Factor Evaluation (EFE) Matrix

(See chapter- II)

Internal Factor Evaluation (IFE) matrix

[It is similar to EFE Matrix, only difference is it uses
internal factors( strengths and weaknesses) rather than
external factors (opportunities and threats)]

Competitive Profile Matrix (CPM)/Competitive

Strength Assessment
(See chapter – V)

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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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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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 SWOT Matrix
Numerous environmental
Opportunities

Cell 3: Supports
Cell 1: Supports
a turnaround
an aggressive
oriented
strategy
strategy Substantial
Critical
Internal Internal
Weaknesses Strengths
Cell 4: Supports Cell 2: Supports
defensive a diversification
strategy strategy

Major environmental Threats

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Limitations with SWOT Matrix

Does not show how to achieve a competitive

advantage
Provides a static assessment in time
May lead the firm to overemphasize a single
internal or external factor in formulating
strategies

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 BCG Matrix
Boston Consulting Group Matrix

Assists multidivisional firm in formulating strategies

Analyze autonomous divisions (business portfolio).
However, divisions may compete in different
industries
It focuses on relative market-share position &
Market/ industry growth rate

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BCG Matrix

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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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 BCG Matrix Limitations
Though BCG matrix is an important visual tool to
analyze corporate strategy, strategist must recognize
its limitations:
Clearly defining a “Market” is often difficult. As a
result, accurately measuring “share” and “growth rate”
can be a problem.
Dividing the matrix into four cells based on a high/low
classification is somewhat simplistic. It does not
recognize the markets with average growth rates.
The BCG matrix is not particularly helpful in
comparing relative investment opportunities across
different business units in the corporate portfolio.
Strategic evaluation of a set of businesses requires
examination of more than relative market shares and
market growth.
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A Study suggests a preference for such strategy
labels as build, hold, harvest, and withdraw rather
than Star, cash cow, question mark, and dog in the
strategic planning activities of the major
multibusiness firm. The reasons are:
Some of the BCG terms are seen as negative and
unnecessarily graphic.
The BCG terms are somewhat “Static”, while
“build/hold/harvest” are more dynamic and action
oriented.
Terms like “dog/star/cash cow” have meaning only
within a BCG context while “build/hold/harvest” have
universal validity and clarity of strategic intent.

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 The GE Nine-cell Planning Grid
(GEC’S Matrix)
General Electric’s nine cell matrix attempts to
overcome some of the limitations of BCG matrix.
First, GE grid uses multiple factors to assess
industry attractiveness and business strength,
rather than the single measures (market share and
market growth).
Second, GE expanded the matrix from four cells to
nine- replacing the high/low axes with
high/medium/low axes to make finer distinction
between business portfolio positions.

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 The Industry Attractiveness-Business Strength Matrix
(GE Nine-cell Matrix)

Industry Attractiveness
Description of
High Medium Low Dimensions
Industry
Selective Grow or Attractiveness:
Invest Growth Subjective assessment
High Let Go
based on broadest
possible range of
Business Strength

external opportunities
and threats beyond the
Selective Grow or Harvest strict control of
Medium Growth Let Go management
Business Strength:
Subjective assessment
of how strong a
Grow or competitive advantage
Low Harvest Divest is created by a broad
Let Go range of the firm’s
internal strengths and
weaknesses

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 Advantages of the Industry Attractiveness-Business
Strength Matrix Over the BCG Matrix

Terminology is less offensive and more

understandable
Multiple measures associated with each dimension
tap many factors relevant to business strength and
market attractiveness
Allows for broader assessment during both
strategy formulation and implementation for a
multi business company

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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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Grand Strategy Matrix

 Tool for formulating alternative

strategies
 Based on two dimensions
 Competitive position
 Market growth

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 RAPID MARKET GROWTH

Quadrant II Quadrant I
1. Market development 1. Market development
2. Concentrated growth 2. Concentrated growth
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Related diversification
WEAK 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 GROWTH

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Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary

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 Grand Strategy Matrix

Quadrant II

Evaluate present approach

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

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Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)

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 Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification to more promising growth areas

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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 actions

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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
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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QSPM

Advantages

Setsof strategies considered

simultaneously or sequentially
Integration of pertinent external &
internal factors in the decision-
making process

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 QSPM
Limitations

Requires intuitive judgments &

educated assumptions
Betterto use only when all the
prerequisite information are available

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 Wish you every success in your
future endeavor . . .
Always be creatively active and be devoted
in the field of your interest.
I know you can definitely achieve what you
aspire for.
I’m waiting for that special day
when you will share that
greatest achievement of your
life with tears in your eyes and
smile in your face!
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All the best for
your exam…

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Thank You

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