strategic management chapter 06
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -1
Chapter 6Strategy Analysis & Choice
Strategic Management: Concepts & Cases
13th Edition
Fred David
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -2
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -3
“Whether it’s broke or not, fix it – make it better. Not just products, but the whole company if necessary.”
– Bill Saporito
Strategy Analysis & Choice
“Life is full of lousy options.” – General P.X. Kelley
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -4
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
Strategy Analysis & Choice
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Ch 6 -5
Strategy Analysis & Choice
Generating Alternatives –
Participation in generating alternative strategies should be as broad as possible
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Ch 6 -6
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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Ch 6 -7
Strategy-Formulation Framework
External Factor EvaluationMatrix (EFE)
Internal Factor EvaluationMatrix (IFE)
Competitive Profile Matrix(CPM)
Stage 1:The Input Stage
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Ch 6 -8
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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Ch 6 -9
Strategy-Formulation FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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Ch 6 -10
Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
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Ch 6 -11
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
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Ch 6 -12
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
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -13
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
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -14
Strategy-Formulation FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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Ch 6 -15
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
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Ch 6 -16
SPACE Matrix
Internal dimensions Financial position (FP) Competitive position (CP)
External dimensions Environmental position (EP) Industry position (IP)
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Ch 6 -17
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -18
Strategy-Formulation FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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Ch 6 -19
BCG Matrix
Boston Consulting Group Matrix
Assists multidivisional firm in formulating strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on relative market-share position & industry growth rate
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Ch 6 -20
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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Ch 6 -21
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -22
Strategy-Formulation FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -23
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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Ch 6 -24
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -25
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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Ch 6 -26
Strategy-Formulation FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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Ch 6 -27
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions Competitive position
Market growth
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Ch 6 -28
Quadrant IV
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Quadrant III
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK COMPETITIVE
POSITION
STRONGCOMPETITIVE
POSITION
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Ch 6 -29
Grand Strategy Matrix
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Quadrant I
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Ch 6 -30
Grand Strategy Matrix
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Quadrant II
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Ch 6 -31
Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Quadrant III
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Ch 6 -32
Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
Quadrant IV
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Ch 6 -33
Strategy-Formulation Analytical Framework
Stage 3:The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
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Ch 6 -34
QSPM
Technique designed to determine the relative attractiveness of feasible alternative actions
Quantitative Strategic Planning Matrix
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Ch 6 -35
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information Systems
Strategy 3Strategy 2Strategy 1WeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
Strategic Alternatives
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Ch 6 -36
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
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 6 -37
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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Ch 6 -38
QSPM
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision-making process
Advantages
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Ch 6 -39
QSPM
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Limitations
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Ch 6 -40
Cultural Aspects of Strategy Choice
A set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm
Successful strategies depend on support of the firm’s culture
Organization Culture
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Ch 6 -41
Politics of Strategy Choice
Hierarchy of command
Career aspirations
Allocation of scarce resources
Politics in Organizations
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Ch 6 -42
Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Political Tactics for Strategists
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Ch 6 -43
Governance Issues
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholders’ interests
Advancement of stockholders’ rights
Board of Directors Roles & Responsibilities
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Ch 6 -44
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