Chapter 6

Strategy Analysis & Choice

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A Comprehensive Strategic-Management Model

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 Nature of Strategy Analysis & Choice

 Establishing long-term objectives.

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

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 Nature of Strategy Analysis & Choice…

Alternative strategies derive from:

• Vision,

• Mission,

• Objectives,

• External audit,

• Internal audit, and

• Past successful strategies.

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Comprehensive Strategy-Formulation Framework

Stage 1:
The Input Stage

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

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Stage 1: The Input Stage

Internal Factor Evaluation

Matrix (IFE)

Stage 1: Competitive Profile Matrix

(CPM)
The Input Stage
External Factor Evaluation
Matrix (EFE)

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Stage 2: The Matching Stage

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

Grand Strategy Matrix

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Stage 2: The Matching Stage

Match between organization’s internal resources & skills

and the opportunities & risks created by its external
factors.
E.g. internal: strong R & D function.
External: changing demographics (population getting
older).
Strategy: Develop new products for older adults
(related to long term objectives: financial or
strategic).

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Stage 2: The Matching Stage: SWOT Matrix

Four Types of Strategies:

• Strengths-Opportunities (SO):
 Use a firm’s internal strengths to take advantage
of external opportunities.
• Weaknesses-Opportunities (WO):
 Improving internal weaknesses by taking advantage
of external opportunities.
• Strengths-Threats (ST):
 Use a firm’s strengths to avoid or reduce the
impact of external threats.
• Weaknesses-Threats (WT):
 Defensive tactics aimed at reducing internal
weaknesses and avoiding external threats.

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 Matching Key Factors to Formulate Alternative
Strategies
Key Internal Factor
Key External Factor Resultant Strategy

20% annual growth

Excess working in the cell phone
+ = Acquire Cellfone, Inc.
capacity (strength) industry
(opportunity)

Exit of two major Pursue horizontal

Insufficient capacity foreign competitors integration by buying
+ =
(weakness) from the industry competitor's
(opportunity) facilities.

Decreasing numbers
Develop new products
Strong R&D (strength) + of young adults =
for older adults.
(threat)

Strong union Develop a new

Poor employee morale
+ activity = employee benefits
(weakness)
(threat) package.

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 Strengths: Weaknesses:

1. Over dependent on borrowings -

1. R and D almost complete
Insufficient cash resources
2. Basis for strong management team
2. Board of Directors is too narrow
3. Key first major customer acquired
3. Lack of awareness amongst
4. Initial product can evolve into range
prospective customers
of offerings
4. Need to relocate to larger premises
5. Located near a major centre of
5. Absence of strong sales/marketing
excellence
expertise
6. Very focused management/staff
6. Overdependence on few key staff
7. Well-rounded and managed
7. Emerging new technologies may
business
move market in new directions
Threats: Opportunities:

1. Major player may enter targeted

market segment 1. Market segment is poised for rapid
2. New technology may make products growth
obsolescent 2. Export markets offer great potential
3. Economic slowdown could reduce 3. Distribution channels seeking new
demand products
4. Euro/Yen may move against $ 4. Scope to diversify into related
5. Market may become price sensitive market segments
6. Market segment's growth could
attract major competition 11
 Key Strategies

1. Accelerate product launches by strengthening R and D

team.
2. Extend links with key technology centres.
3. Raise additional venture capital.
4. Expand senior management team in sales/marketing.
5. Recruit non-executive directors.
6. Strengthen human resources function and introduce
share options for staff.
7. Appoint advisers for intellectual property and
finance.
8. Seek new market segments/applications for products.

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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.

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

to the market share held by the largest rival firm in
that industry… Market Share Position.

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 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
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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
divestiture.

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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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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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BCG Matrix

Dogs

Low relative market share & compete in slow or no

market growth.
Weak internal & external position.

Liquidation, divestiture, retrenchment strategies.

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Strategic Position and Action Evaluation (SPACE) Matrix

• Four-quadrant framework indicates whether aggressive,

conservative, defensive, or competitive strategies are
most appropriate for a given organization.
• Two internal dimensions (financial position [FP] and
competitive position [CP]).
• Two external dimensions (stability position [SP] and
industry position [IP]).
• Most important determinants of an organization’s overall
strategic position.

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20
The SPACE Matrix

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Grand Strategy Matrix

Tool for formulating alternative strategies.

Based on two dimensions:
Competitive position
Market growth

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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. Forward integration
4. Horizontal
5. Backward integration
integration
6. Horizontal integration
5. Divestiture 7. Concentric
6. Liquidation diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric
2. Concentric diversification
diversification 2. Horizontal
3. Horizontal diversification
diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH 23
Grand Strategy Matrix

Quadrant I
Excellent strategic position.
Concentration on current markets/products.
Take risks aggressively when necessary.

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Grand Strategy Matrix

Quadrant II

Evaluate present approach.

How to improve competitiveness.
Rapid market growth requires intensive strategy.

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Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries.

Weak competitive position.
Drastic changes quickly.
Cost & asset reduction (retrenchment).

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Grand Strategy Matrix

Quadrant IV

Strong competitive position.

Slow-growth industry.
Diversification to more promising growth areas.

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 Stage 3: The Decision Stage

Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage (QSPM)

Technique designed to determine the relative

attractiveness of feasible alternative actions.

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 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.
4. Determine the Attractiveness Scores (A.S).
5. Compare the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.

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 QSPM : information from IFE and EFE 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
Sum total A.S.

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AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS
QSPM

Limitations

Requires intuitive judgments & educated assumptions.

Only as good as the prerequisite inputs.

Advantages

Sets of strategies considered simultaneously or

sequentially.
Integration of pertinent external & internal factors in
the decision making process.

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Thank You!

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