Strategy Analysis & Choice: Strategic Management: Concepts & Cases 11 Edition Fred David

Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Ch 6 -1
Copyright 2007 Prentice Hall
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive
Strategy-Formulation Framework
The Input Stage
Ch 6 -2
Chapter Outline (cont’d)
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Ch 6 -3
Chapter Outline (cont’d)
The Politics of Strategy Choice
Governance Issues
Ch 6 -4
To acquire or not to acquire, that is the

question –
Robert J. Terry
Life is full of lousy options –

General P.X. Kelley
Ch 6 -5
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -6
Alternative Strategies Derive From --
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
Ch 6 -7
Generating Alternatives --
Participation in generating alternative

strategies should be as broad as
possible
Ch 6 -8
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -9
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile Matrix

(CPM)
Ch 6 -10
Stage 1: The Input Stage
Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Ch 6 -11
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -12
Stage 2: The Matching Stage
Match between organization’s internal

resources & skills and the opportunities & risks
created by its external factors
Ch 6 -13
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Ch 6 -14
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -15
SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -16
WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -17
ST Strategies
Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats ST reduce the impact
Strategies of external
threats
SWOT
Ch 6 -18
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT
Ch 6 -19
SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths

List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -20
SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies
Use strengths to take Overcoming weaknesses

List Opportunities advantage of by taking advantage of
opportunities opportunities
Threats – T ST Strategies WT Strategies
Use strengths to avoid Minimize weaknesses and

List Threats threats avoid threats
Ch 6 -21
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
20% annual growth in

Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)
Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors from 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
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -22
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
Ch 6 -23
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -24
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -25
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)

Competitive Advantage (CA)
Ch 6 -26
SPACE Matrix
Two External Dimensions
Environmental Stability (ES)

Industry Strength (IS)
Ch 6 -27
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -28
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
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Ch 6 -29
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 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, & IS
Ch 6 -30
Steps to Developing a SPACE Matrix
1. Plot the average score on the appropriate

axis
2. 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
3. Draw a directional vector from the origin
through the new intersection point.
Ch 6 -31
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 Competitive
-6
ES Ch 6 -32
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -33
BCG Matrix
Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
Ch 6 -34
BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an

industry to the market share held by the largest
rival firm in that industry
Ch 6 -35
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Stars Question Marks

II I
Medium
0
Cash Cows Dogs

III IV
Low
-20
Ch 6 -36
BCG Matrix
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or

divest
Ch 6 -37
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
Ch 6 -38
BCG Matrix
Cash Cows
High relative market share, competes 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 weakens—retrenchment or divestiture
Ch 6 -39
BCG Matrix
Dogs
Low relative market share & compete in slow or

no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -40
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -41
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
Ch 6 -42
Ch 6 -43
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
Ch 6 -44
Ch 6 -45
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -46
Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth
Ch 6 -47
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
Quadrant I
Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Ch 6 -49
Quadrant II
Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive strategy
Ch 6 -50
Quadrant III
Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Ch 6 -51
Quadrant IV
Strong competitive position

Slow-growth industry
Diversification to more promising growth areas
Ch 6 -52
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -53
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative

attractiveness of feasible alternative actions
Ch 6 -54
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 -55
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
Ch 6 -56
Steps to Develop a QSPM
4. Determine the Attractiveness Scores

5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness
Score
Ch 6 -57
QSPM
Limitations
Requires intuitive judgments & educated

assumptions
Only as good as the prerequisite inputs
Ch 6 -58
QSPM
Advantages
Sets of strategies considered simultaneously or

sequentially
Integration of pertinent external & internal
factors in the decision making process
Ch 6 -59
Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of

consistency with the firm’s culture
Ch 6 -60
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -61
Politics of Strategy Choice
Political Tactics for Strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -62
Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
Ch 6 -63
Corporate Governance Issues
Business Week’s “Principles of Good Governance”
1. No more than 2 directors are current or former company

executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director owns a large equity stake in the company
5. At least one outside director with extensive experience
6. Fully employed directors sit on no more than 4 boards –
Retirees on no more than 7
7. Each director attends at lest 75% of all meetings
Ch 6 -64
Corporate Governance Issues
Business Week’s “principles of good governance”
8. Board meets regularly without management present

9. Audit committee meets at least four times a year
10. Board is frugal on executive pay, diligent in CEO succession,
and prompt to act when trouble arises
11. CEO is not also the Chairperson of the Board
12. Shareholders have considerable power and information to
choose & replace directors
13. Stock options are considered a corporate expense
14. No interlocking directorships
Ch 6 -65
For Review (Chapter 6)
Key Terms & Concepts
Aggressive Quadrant Business Portfolio
Attractiveness Scores
Cash Cows
(AS)
Competitive Advantage
Boards of Directors
(CA)
Boston Consulting
Competitive Quadrant
Group (BCG) Matrix
Ch 6 -66
Conservative Quadrant Dogs
Environmental Stability
Culture
(ES)
Financial Strength
Defensive Quadrant
(FS)
Directional Vector Governance
Ch 6 -67
Internal-External (IE)
Matrix
Halo Error Matching
Industry Strength
Matching Stage
(IS)
Quantitative Strategic
Input Stage
Planning Matrix (QSPM)
Ch 6 -68
Question Marks Stars
Relative Market Share Strategic Position & Action

Position Evaluation (SPACE)
Sum Total Attractiveness

SO Strategies
Score (STAS)
ST Strategies Sustainability
Ch 6 -69
Strengths, Weaknesses
WO Strategies
Opportunities, Threats SWOT
Total Attractiveness
WT Strategies
Scores (TAS)
Ch 6 -70

Strategy Analysis & Choice: Strategic Management: Concepts & Cases 11 Edition Fred David

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strategy Analysis & Choice: Strategic Management: Concepts & Cases 11 Edition Fred David

Uploaded by

Copyright:

Available Formats

Chapter 6

Strategy Analysis & Choice

The Nature of Strategy & Choice

The Input Stage

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

The Politics of Strategy Choice

To acquire or not to acquire, that is the

Life is full of lousy options –

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

Participation in generating alternative

Stage 1: External Factor Evaluation

Competitive Profile Matrix

Basic input information for the matching &

Stage 2: BCG Matrix

Grand Strategy Matrix

Match between organization’s internal

Four Types of Strategies

Strengths Use a firm’s

Developing the SWOT

List firm’s key internal Strengths

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in

Exit of two major foreign Pursue horizontal integration

Decreasing numbers of Develop new products for

 Does not show how to achieve a competitive

Stage 2: BCG Matrix

Grand Strategy Matrix

Two Internal Dimensions

Financial Strength (FS)

Two External Dimensions

Environmental Stability (ES)

Financial Strength (FS) Environmental Stability (ES)

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

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

1. Plot the average score on the appropriate

Stage 2: BCG Matrix

Grand Strategy Matrix

Boston Consulting Group Matrix

Relative Market Share Position

Ratio of a division’s own market share in an

Stars Question Marks

Cash Cows Dogs

Decision to strengthen (intensive strategies) or

Substantial investment to maintain or

Maintain strong position as long as possible

Low relative market share & compete in slow or

Liquidation, divestiture, retrenchment

Stage 2: BCG Matrix

Grand Strategy Matrix

 Positions an organization’s various divisions

 Based on two key dimensions

Stage 2: BCG Matrix

Grand Strategy Matrix

Tool for formulating alternative strategies

Excellent strategic position