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Ch 6 -1
Chapter 6Strategy Analysis & Choice
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Ch 6 -2
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive Strategy-Formulation Framework
The Input Stage
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Ch 6 -3
Chapter Outline (cont’d)
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
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Ch 6 -4
Chapter Outline (cont’d)
The Politics of Strategy Choice
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Ch 6 -5
-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives
Nature of Strategy Analysis & Choice
Strategy Analysis & Choice
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Ch 6 -6
Vision Mission Objectives External audit Internal audit Past successful strategies
Providing a basis for generating and evaluating feasible alternative strategies
Strategy Analysis & Choice
Alternative Strategies Derive From --
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Ch 6 -7
Strategy Analysis & Choice
Generating Alternatives --
Participation in generating alternative strategies should be as broad as possible
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Ch 6 -8
Comprehensive Strategy-Formulation Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
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Ch 6 -9
Comprehensive Strategy-Formulation Framework
All techniques included in the strategy-formulation framework require the integration of intuition and analysis
Strategists themselves, not analytic tools, are always responsible and accountable for strategic decisions.
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Ch 6 -10
Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
External Factor EvaluationMatrix (EFE)
Competitive Profile Matrix(CPM)
Stage 1:The Input Stage
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Ch 6 -11
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
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Ch 6 -12
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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Ch 6 -13
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 -14
Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
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Ch 6 -15
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
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Ch 6 -16
WO Strategies
Improving internalweaknesses by
taking advantageof external
opportunities
WOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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Ch 6 -17
ST Strategies
Use a firm’s strengthsto avoid or
reduce the impactof external
threats
STStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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WT Strategies
Ch 6 -18
Defensive tacticsaimed at reducing
internal weaknesses &
avoidingenvironmental
threats
WTStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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Ch 6 -19
SO Strategies
Use a firm’sinternal strengthsto take advantage
of external opportunities
SOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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Ch 6 -20
SWOT Matrix
Leave Blank
Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies
Use strengths to take advantage of opportunities
WO Strategies
Overcoming weaknesses by taking advantage of
opportunities
Threats – T
List Threats
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize weaknesses and avoid threats
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Ch 6 -22
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
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Ch 6 -23
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)
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Ch 6 -24
SPACE Matrix
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
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Ch 6 -25
Steps to Developing a SPACE Matrix
1. Select a set of variables depending on the type of organizations to define FS, CA, ES, & IS
2. Assign a numerical value:1. From +1(worst) to +6 (best) to each FS & IS
dimensions2. From -1 (best) to -6 (worst) to each ES & CA
dimensions
3. Compute an average score for each FS, CA, ES, & IS
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Ch 6 -26
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.
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Ch 6 -27
SPACE MatrixFS
+6
+1
+5+4+3
+2
-6
-5
-4
-3
-2
-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
ES
CA IS
Conservative Aggressive
Defensive Competitive
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Ch 6 -28
Aggressive Profiles
An organization is in an excellent position to use its internal strengths to Take advantage of external opportunities Overcome internal weaknesses Avoid external treats
Market penetration ; market development; product development; integration; diversification; combination strategy all can be feasible
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Ch 6 -29
Conservative Profiles
The directional vector appear in the upper-left quadrant ,which implies staying close to the firm’s basic competencies and not taking excessive risks
Market penetration; market development; product development; concentric diversification
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Ch 6 -30
Defensive Profiles
The directional vector may be located in the lower-left quadrant, which suggests that the firm should focus on rectifying internal weaknesses and avoiding external threats
Harvest , Retrenchment; divestiture; liquidation; concentric diversification
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Ch 6 -31
Competitive Profiles
The directional vector may be located in the lower-right quadrant, indicating that the firm who has financial problem competes in an unstable but growing industry, should focus on strengthening its finance by taking advantage the industry growth
Backward, forward, and horizontal integration; Market penetration; market development; product development; and joint venture
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Ch 6 -32
+ 1 + 2 + 3 + 4 + 5 + 6- 1- 2- 3
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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
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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
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Ch 6 -35
BCG Matrix
Dogs
IV
Cash Cows
III
Question Marks
I
Stars
II
Relative Market Share PositionHigh1.0
Medium.50
Low0.0
Ind
us
try
Sa
les
Gro
wth
Ra
te
High+20
Low-20
Medium0
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Ch 6 -36
BCG Matrix
Question Marks
Low relative market share – compete in high-growth industry
Cash needs are high
Cash generation is low
Decision to strengthen (intensive strategies) or divest
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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
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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
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Ch 6 -39
BCG Matrix
Dogs
Low relative market share & compete in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
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Ch 6 -40
Limitations of BCG Matrix Viewing every business as either a star, cash
cow, dog, or question mark is an oversimplification
It is a snapshot of an organization at a given point in time, and has no temporal qualities
Other variables besides relative market share and industry growth rate in sales, are important in making strategic decisions about various divisions
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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
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Ch 6 -42
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 -43
QSPM
Technique designed to determine the relative attractiveness of feasible alternative actions
The only one analytical technique in the literature Quantitative Strategic Planning Matrix
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Ch 6 -44
QSPM The QSPM uses input ( critical success
factors) from Stage1 analyses and matching results from Stage2 analyses to decide objectively among alternative strategies
The QSPM, like other strategy-formulation analytical tools, requires good intuitive judgment
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Ch 6 -45
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 ( this information should be taken directly from the EFE and IFE Matrices)
2. Assign weights to each key external and internal factor ( these weights are identical to those in the EFE and IFE Matrices)
3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing
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Ch 6 -46
Steps to Develop a QSPM
4. Determine the Attractiveness Scores (AS indicate the relative attractiveness of each strategy in a given set of alternatives)
1. Does this factor affect the choice of strategies being made?
2. The answer—YES, strategies should be compared relative to that key factor, then assign Attractiveness Scores
3. The answer—NO, key factor has not effect upon the specific choice being made, then do not assign Attractiveness Scores to all of the strategies in the same set
4. Double 4s,3s,2s,1s, are never in a give row
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Ch 6 -47
QSPM
Range for Attractiveness Scores 1= not attractive 2= somewhat attractive 3= reasonably attractive 4= highly attractive
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Ch 6 -48
QSPM
5. Compute the Total Attractiveness Scores Multiplying the weights by the attractiveness scores Indicating the relative attractiveness of each alternative
strategy, considering only the impact of the adjacent key factor
6. Compute the Sum Total Attractiveness Score Adding TAS in each strategy column of the QSPM Revealing which strategy is most attractive in each set of
alternatives considering all the factors
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Copyright 2007 Prentice Hall Ch 6 -49