Professional Documents
Culture Documents
A Comprehensive
Strategy-Formulation Framework
Ch 6 -2
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Chapter Outline (cont’d)
Ch 6 -3
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Chapter Outline (cont’d)
Governance Issues
Ch 6 -4
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Strategy Analysis & Choice
Ch 6 -5
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Strategy Analysis & Choice
Ch 6 -6
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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
… Process of Generating and
Selecting Alternatives
In 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.
Ch 6 -9
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Strategy Analysis & Choice
… Process of Generating and
Selecting Alternatives
Alternative strategies proposed by
participants should be considered and
discussed in a meeting or series of
meetings.
Proposed strategies should be listed in
writing and get understood by participants.
Stage 2: Stage 3:
The Matching Stage The Decision Stage
SWOT
SPACE
BCG
QSPM
IE
GSM
Ch 6 -12
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Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Ch 6 -13
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Stage 1: The Input Stage
Ch 6 -14
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -15
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Stage 2: The Matching Stage
Ch 6 -16
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Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Ch 6 -17
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SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -18
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SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -19
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WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -20
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ST Strategies
Ch 6 -21
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WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT
Ch 6 -22
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SWOT Matrix
Ch 6 -23
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SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Ch 6 -24
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Matching Key Factors to Formulate Alternative Strategies
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -25
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Limitations with SWOT Matrix
Ch 6 -26
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -27
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SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -28
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SPACE Matrix
Ch 6 -29
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SPACE Matrix
Ch 6 -30
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SPACE Factors
Internal Strategic Position External Strategic Position
Ch 6 -32
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Steps to Developing a SPACE Matrix
1. Select a set of variables to define FS, CA, ES, &
IS
2. Assign a numerical value:
1. From +1(worst) to +7 (best) to each FS & IS
dimension
2. From -1 (best) to -7(worst) to each ES & CA
dimension
3. Compute an average score for each FS, CA, ES,
& IS (summing the values given to the variables of each
dimension and then by dividing by the number of variables
included in the respective dimension)
Ch 6 -33
Steps to Developing a SPACE Matrix
Ch 6 -34
Copyright 2007 Prentice Hall
SPACE Matrix
FS Aggressive
Conservative
+6 • Backward, forward, horizontal
• Market penetration +5 integration
• Market development +4 • Market penetration
• Product development +3 • Market development
• Related diversification
+2 • Product development
• Diversification (related or
+1 unrelated)
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
Defensive -2 Competitive
• Retrenchment -3 • Backward, forward, horizontal
• Divestiture integration
• Liquidation -4 • Market penetration
-5 • Market development
-6 • Product development
Ch 6 -36
Table: A SPACE Matrix for a
BankPosition (IP)
Industry Ratings
• Deregulation provides geographic and 4.0
product freedom.
• Deregulation increases competition in the
banking industry. 2.0
• Pennsylvania’s interstate banking law allows
the bank to acquire other banks in New
Jersey, Ohio, Kentucky, the District of
Columbia, and West Virginia. 4.0
10.0
Ch 6 -37
Table: A SPACE Matrix for a
BankPosition (SP)
Stability Ratings
• Less-developed countries are experiencing
high inflation and political instability. -4.0 -4.0
• Headquartered in Pittsburgh, the bank
historically has been heavily dependent on
the steel, oil, and gas industries.
• These industries are depressed. -5.0
• Banking deregulation has created instability
throughout the industry. -4.0 -4.0
-13.0
Ch 6 -38
Table: A SPACE Matrix for a
Bank Position (CP)
Competitive Ratings
• The bank provides data processing services
for more than 450 institutions in 38 states. -2.0
• Superregional banks, international banks,
and nonbanks are becoming increasingly
competitive. -5.0
• The bank has a large customer base. -2.0
-9.0
Ch 6 -39
Conclusion
SP Average is -13.0 ÷ 3 = -4.33
SPACE Matrix
IE Matrix
Ch 6 -41
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BCG Matrix
Ch 6 -43
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BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Decision to strengthen
(intensive strategies) or divest
Ch 6 -45
BCG Matrix
Stars
High relative market share and high
growth rate
Best long-run opportunities for growth &
profitability
Dogs
Ch 6 -48
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Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -49
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The Internal-External (IE) Matrix
Ch 6 -50
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Ch 6 -51
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IE Matrix
Ch 6 -52
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IE Matrix
Grow and build – Cells I, II, or IV
Backward, Forward, or Horizontal Integration
Market Penetration
Market Development
Product Development
Hold and maintain – Cells III, V, or VII
Market Penetration
Product Development
Harvest or divest – Cells VI, VIII, or IX
Retrenchment
Divestiture
Ch 6 -53
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Ch 6 -54
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
IE Matrix
Ch 6 -55
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Grand Strategy Matrix
Ch 6 -56
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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 -57
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Grand Strategy Matrix
Quadrant I
Ch 6 -58
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Grand Strategy Matrix
Quadrant II
Ch 6 -59
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Grand Strategy Matrix
Quadrant III
Ch 6 -60
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Grand Strategy Matrix
Quadrant IV
Ch 6 -61
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Strategy-Formulation Analytical
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -62
QSPM
Ch 6 -63
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 -64
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Steps to Develop a QSPM
Ch 6 -66
Copyright 2007 Prentice Hall
A QSPM for a Retail Computer Store
STRATEGIC
ALTERNATIVES
Buy New Fully
Land Renovate
and Build Existing
New Store
Larger
Store
Key Factors Weigh AS TAS AS TAS
t
Opportunities
1. Inventory turnover increased from 5.8 to 0.05 --- --- --- ---
6.7
2. Average customer purchase increased
from $97 to $128 0.07 2 0.14 4 0.28 0.07 2 0.14 4 0.28
3. Employee morale is excellent 0.10 — — 0.10 --- --- ---- ---
4. In-store promotions resulted in 20%
increase in sales 0.05 --- --- --- ---
5. Newspaper advertising expenditures
increased 10% 0.02 --- --- --- ---
A QSPM for a Retail Computer Store
STRATEGIC
ALTERNATIVES
Buy New Fully
Land Renovate
and Build Existing
New Store
Larger
Store
Key Factors Weigh AS TAS AS TAS
t
Strengths (Contd)
1. Revenues from software segment of store 0.10 --- --- --- ---
down 12%
2. Location of store negatively impacted by
new Hwy 34 0.15 4 0.60 1 0.15 0.15 4 0.60 1 0.15
3. Carpet and paint in store somewhat in
disrepair 0.02 1 0.02 4 0.08 0.02 1 0.02 4 0.08
4. Bathroom in store needs refurbishing 0.02
1 0.02 4 0.08 0.02 1 0.02 4 0.08
5. Revenues from businesses down 8% 0.04 3 0.12 4 0.16
A QSPM for a Retail Computer Store
STRATEGIC
ALTERNATIVES
Buy New Fully
Land Renovate
and Build Existing
New Store
Larger
Store
Key Factors Weigh AS TAS AS TAS
t
Weaknesses (Contd)
Limitations
Ch 6 -73
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QSPM
Advantages
Ch 6 -74
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Cultural Aspects of Strategy
Choice
Organization Culture
Ch 6 -75
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Politics of Strategy Choice
Politics in Organizations
In the absence of objectivity, political
factors sometimes dictate strategies,
and this is unfortunate.
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -76
Politics of Strategy Choice
Political Tactics for Strategists
Ch 6 -79
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Corporate Governance Issues
Ch 6 -80
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Corporate Governance Issues
Ch 6 -81
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For Review (Chapter 6)
Attractiveness Scores
Cash Cows
(AS)
Competitive Advantage
Boards of Directors
(CA)
Boston Consulting
Competitive Quadrant
Group (BCG) Matrix
Ch 6 -82
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For Review (Chapter 6)
Environmental Stability
Culture
(ES)
Financial Strength
Defensive Quadrant
(FS)
Ch 6 -83
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For Review (Chapter 6)
Internal-External (IE)
Grand Strategy Matrix
Matrix
Industry Strength
Matching Stage
(IS)
Quantitative Strategic
Input Stage
Planning Matrix (QSPM)
Ch 6 -84
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For Review (Chapter 6)
ST Strategies Sustainability
Ch 6 -85
Copyright 2007 Prentice Hall
For Review (Chapter 6)
Strengths, Weaknesses
WO Strategies
Opportunities, Threats SWOT
Total Attractiveness
WT Strategies
Scores (TAS)
Ch 6 -86
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