Chapter 6

Strategy Analysis & Choice

Strategic Management:
Concepts & Cases
11th Edition
Fred David

Ch 6 -1
 Comprehensive strategic management model
External
Audit

Chapter 3

Long-Term Generate, Implement Implement Measure &

Vision
Objectives Evaluate, Strategies: Strategies: Evaluate
&
Select Mgmt Issues Marketing, Performance
Mission
Strategies Fin/Acct,
R&D, CIS
Chapter 2 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

Internal
Audit

Chapter 4

Ch 6 -2
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive
Strategy-Formulation Framework
The Input Stage
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
The Politics of Strategy Choice
Governance Issues
Ch 6 -3
Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives

Ch 6 -4
Strategy Analysis & Choice
Alternative Strategies Derive From --

1. Vision
2. Mission
3. Objectives
4. External audit
5. Internal audit
6. Past successful strategies

Ch 6 -5
Strategy Analysis & Choice

Generating Alternatives --
Participation in generating alternative
strategies should be as broad as
possible
The strategies should be ranked!!!

Ch 6 -6
Comprehensive Strategy-Formulation
Framework

Stage 1:
The Input Stage

Stage 2: Stage 3:
The Matching Stage The Decision Stage

Ch 6 -7
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 -8
Stage 1: The Input Stage
Internal Factor Evaluation
Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile Matrix

(CPM)

Ch 6 -9
Stage 2: The Matching Stage

Match between organization’s internal

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

Ch 6 -10
Strategy-Formulation Analytical
Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -11
Stage 2: The Matching Stage

SWOT Matrix

Strengths
Weaknesses
Opportunities
Threats

Ch 6 -12
SWOT Matrix

Four Types of Strategies

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

Ch 6 -13
SO Strategies

Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT

Ch 6 -14
WO Strategies

Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT

Ch 6 -15
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 -16
WT Strategies

Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT

Ch 6 -17
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 -18
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 -19
 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 -20
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 -21
 Example SWOT Matrix
Yasar Unv
Strengths – S
1. Strong relationship with Yasar Holding as
a strong conglomerate in Turkey
2. The 100% student enrollment in the last
Weaknesses – W
1. Limited campus area – limited
physical space for education, cultural
and social activities

Leave Blank three years (11.000 students as of 2016)

3. The strong financial structure
4. The 30% of academic staff have
M.Sc.,MBA, or PhD degrees at
American/European universities
2. Problems at organizational structure
to ensure coordination
3. The relatively low ranking at the
university innovation and technology
index
4. The low level of cohesiveness among
graduates

Opportunities – O SO Strategies WO Strategies

1. Growing youth population in Turkey.
2. Education is culturally viewed as a medium
of upward class change in society.
Use strengths to take Overcoming weaknesses
3. EU provides various research and education
funding mechanisms for universities. advantage of opportunities by taking advantage of
4. Advanced technology facilitates new opportunities
methods of education

Threats – T ST Strategies WT Strategies

1. The country is politically instable
2. Increasing competition due to many private
and public universities in Turkey
3. The troubles in EU-Turkey relations
Use strengths to avoid Minimize weaknesses
4. The strict legal framework threats and avoid threats
Ch 6 -22
5. The unemployment rate at young people is
around 20% in Turkey
 Example SWOT Matrix
Yasar Unv
Leave Blank
Opportunities – O
1. Growing youth population in Turkey.
2. Education is culturally viewed as a medium
of upward class change in society.
3. EU provides various research and education
funding mechanisms for universities.
4. Advanced technology facilitates new
methods of education
Threats – T
1. The country is politically instable
2. Increasing competition due to many private
and public universities in Turkey
3. The troubles in EU-Turkey relations
4. The strict legal framework
5. The unemployment rate at young people is
around 20% in Turkey
Strengths – S
1. Strong relationship with Yasar Holding as
a strong conglomerate in Turkey
2. The 100% student enrollment in the last
three years (11.000 students as of 2016)
3. The strong financial structure
4. The 30% of academic staff have
M.Sc.,MBA, or PhD degrees at
American/European universities
SO Strategies
Provide training for project
development/implementation for
academicians and practitioners of
Yasar Group employees to develop
joint projects for EU funds (S1, S4,
O3)
ST Strategies
Design an employment support
programme for the successful
graduates of Yasar University by
providing jobs at the opening
positions in Yasar Holding (S1, S3,
T5)
Weaknesses – W
1. Limited campus area – limited
physical space for education, cultural
and social activities
2. Problems at organizational structure
to ensure coordination
3. The relatively low ranking at the
university innovation and technology
index
4. The low level of cohesiveness among
graduates
WO Strategies
Develop long-distance learning
programmes for young
population living in towns and
small cities in Turkey (O1, O4,
W1)
WT Strategies
Initiate an industry intership
programme in which students
spend one semester at a partner
company to develop their
Ch (T5,
business-related skills 6 -23W1,
W3)
Strategy-Formulation Analytical
Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -24
SPACE Matrix

Two Internal Dimensions

Financial Position (FP)
Competitive Position (CP)

Two External Dimensions

Stability Position (SP)
Industry Position (IP)

Ch 6 -25
SPACE Matrix
Strategic Position & Action Evaluation Matrix

Aggressive
Conservative
Defensive
Competitive

Ch 6 -26
SPACE Matrix

Factors that were included earlier in the

firm’s EFE and IFE Matrices should be
considered in developing SPACE Matrix.

Ch 6 -27
 SPACE Matrix
FP
Conservative +7 Aggressive
+6
+5
+4
+3
+2
+1
CP IP
-7 -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 +7

-2
-3

-4
-5
Defensive Competitive
-6
-7 Ch 6 -28
SP
Steps to Developing a SPACE Matrix

1. Select a set of variables to define FP, CP,

SP, & IP
2. Assign a numerical value:
1. From +1 (worst) to +7 (best) to each FP & IP
dimension
2. From -1 (best) to -7 (worst) to each SP & CP
dimension
3. Compute an average score for each FP,
CP, SP, & IP
Ch 6 -29
 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Position (FP) Stability Position (SP)

From +1 to +7 From -1 to -7
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 -30
 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Position (CP) Industry Position (IP)

From -1 to -7 From +1 to +7
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 -31
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 -32
Ch 6 -33
Ch 6 -34
Ch 6 -35
 X=+0.33 Y=-2.08
FD
+7
+6
+5
+4
+3
+2
+1
RD SD
-7 -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 +7

-2
-3

-4
-5
-6
-7 Ch 6 -36
İD