Strategy Analysis

&
Choice
Strategy Analysis & choice involves
making subjective decision based on
objective information.

It seeks to determine alternative

courses of actions that could best
enable an organization to achieve its
mission and objective.
 SUBJECTIVE

 Based on your own ideas and

opinions rather than facts
 Not impartial

OBJECTIVE

 Not influenced by personal feelings

or opinions
 Considering only facts
 ALTERNATIVE STRATEGIES

Are derived from org’s

mission, objective ,external
audit and internal audit.
 GENERATING & SELECTING
STRATEGIES PROCESS
Universal participation external & internal
audit info
Manageable set of most attractive
alternate strategies
ATTRACTIVE ALTERNATE STRATEGIES
 Advantages
 Disadvantages
 Trade- offs
 Costs
 Benefits
 IDENTIFIED STRATEGIES
ORDER OF ATTRACTIVENESS

RANKING.
 Should not be implemented.
 Possibly should be implemented.
 Probably should be implemented.
 Definitely should be implemented.
Long-Term Objectives.
Objectives
 Long term objectives represent the
result expected from pursuing certain
strategies.

 Strategies represent action to be taken

to accomplish long-term objectives.

 Time frame for objective and strategies

should be consists, usually from 2-5
Years.
LONG-TERM OBJECTIVES.
Clearly stated & communicated.
Quantitative.
Measurable.
 Realistic.
Understandable.
Challenging.
Obtainable.
Hierarchical.
Congruent among org’s units.
STRATEGY FORMULATION

Stage 1 : Input Stage

Stage 2 : Matching Stage
Stage 3 : Decision Stage
 INPUT STAGE

Summarizes the basic input

information needed to formulate
strategies.

EFE Matrix
IFE Matrix
Competitive Profile Matrix (CPM)
 MATCHING STAGE
Focuses upon generating
feasible alternative strategies
by aligning key external and
internal factors.

Tows Matrix
Strategic Position & Action Evaluation
(SPACE) Matrix
Boston Consulting Group (BCG) Matrix
Grand Strategy Matrix
 DECISION STAGE
Choosing the best of alternative
strategic.
Quantitative strategic planning
Matrix (QSPM)
 TOWS MATRIX
Strengths
Weaknesses
S W

OPPORTUNITIES
SO WO
O

THREATS ST
WT
T
 TOWS MATRIX
CONSTRUCTION
There are 8 steps:
1.List key external opportunities.
2.List key external threats.
3.List key internal strengths.
4.List key internal weaknesses.
5.Match # 3 with # 1 & record resultant SO
strategies.
6.Match # 4 with # 1 & record resultant WO
strategies.
7.Match # 3 with # 2 & record resultant ST
strategies.
8.Match # 4 with # 2 & record resultant WT
strategies.
SO Strategy : Use Strength to take Advantages
of opportunities

WO Strategy: Overcome weakness by taking

advantages of opportunities

ST Strategy : Use Strength to avoid threats

WT Strategy: Minimize weakness and avoid

threats.
 TOWS MATRIX
Result

The purpose of TOWS matrix is to

generate feasible alternative
strategies and not to determine (and
select) which strategies are best.

Not all of the strategies developed in

tows matrix will be selected for
implementation
 SPACE MATRIX
DIEMENSIONS
Internal:
Financial Strength –FS
Competitive Advantages-CA

 External:
Industry Strength –IS
Environmental Stability -ES
FINANCIAL STRENGTH –FS

 Return on investment
 Liquidity
 Leverage
 Working capital
Cash flow
Risk involves in business
Ease of exit from market
COMPETITIVE ADVANTAGE – CA

• Market share
• Product quality
• Product life cycle
• Customer loyalty
• Competitions capacity utilization
• Technological know-how
• Control over suppliers and distributions
INDUSTRY STRENGTH-IS
 Growth potential
 Profit potential
 Financial stability
 Technological know-how
 Resource utilization
 Capital intensity
 Ease of entry into market
 Productivity capacity utilization
ENVIRONMENTAL STABILITY - ES

 Technological changes
 Rate of inflation
 Demand variability
 Prices range of competing
products
 Barriers to entry into markets
 Competitive pressure
 Prices elasticity
 SPACE MATRIX

FS
CONSERVATIVE AGGRESSIVE
+6

+5

+4

+3
+2
-6 -5 -4 -3 -2 -1 +1

CA IS
-6
+1 +2 +3 +4 +5 +6

-5

DEFENSIVE -4 COMPETITIVE
-3

-2

-1

ES
 VALUES
FS & IS
+ 1 Worst ……….+6 Best
CA & ES
- 1 Best…………. -6 Worst
 Strategic Position and action
Evaluation (SPACE) MATRIX.
FS
FS POSITIVE FS / IS BOTH
CA NEGATIVE + POSITIVE

.
CONSERVATIVE AGGRESSIVE
POSTURE POSTURE
+
CA IS

Zero
CA / ES BOTH IS POSITIVE
NEGATIVE NEGATIVE
DEFENSIVE COMPETITIVE
POSTURE POSTURE
ES
 SPACE MATRIX WORKING

1.Select a set factors in FS, CA, ES & IS.

2.Assign a numerical value (+1 to +6) to
FS & IS factors.
3.Assign a numerical value (-1 to -6) to CA
& ES factors.
4.Calculate average scores.
5.Add FS & ES for Vertical axis.
6.Add CA & IS for Horizontal axis.
7.Plot on chart to determine profile.
 SPACE MATRIX
Air Blue Airline
FINANCIAL STRENGTH
Airline’s primary capital ratio is 7.5%, which
is 1.5% higher than required ratio 6% 1.0

Airline’s return on assets is 0.77, compared to

industry Average of 0.7 1.0

Airline’s net income is 180 million, 9% more

from A year earlier. 3.0

Airline’s revenues increased by 7% during the

last year 4.0
INDUSTRY STRENGTH RATINGS

Deregulation provides geographic 4.0

and product freedom.

Deregulation increase competition 2.0

in the airline industry.

Pakistan aviation laws allow the 4.0

airline to acquire other airlines

Total 10.0
ENVIRONMENTAL STABILITY

Less-developed countries are experiencing

high inflation and political instability.
-4.0
Headquartered in Karachi, the airline
historically has been dependent on the
steel, oil, and gas industries. These
industries are depressed.
-5.0
Airline deregulation has created
instability throughout the industry.
-4.0

Total -13.0
COMPETITIVE ADVANTAGE

The airline provides data processing services

to more than 250 institutions in the country.
-2.0
International, Regional and small airlines
are becoming increasingly competitive. -5.0.

The airline has a large customer base -2.0

Total -9.0
CONCLUSION

ES Average is -13.0/ 3 = -4.33 IS Average is + 10.0 /

3 = 3.33
CA Average is -9.0 / 3 =-3.00 FS Average is + 9.0 / 4
= 2.25

Directional Vector Coordinates: H-axis: -3.00 +

(+3.33)= +0.33
V-axis: -4.33+
(+2.25)= -2.08

The airline should pursue Competitive Strategies.

 BOSTON CONSULTING
GROUP (BCG) MATRIX
Autonomous divisions (or profit centers)
of an org make up a business portfolio.
BCG matrix allows a multidivisional org to
manage its business portfolio.
 Market share

High Medium
1.0 Low
0.5 0.0
High
+20
II I
Stars Question Mark
Sales
Growth
rate

III IV
Cash Cows Dogs
Low
-20
I : Question Marks : low market share,
compete in high growth
industry

II: Stars : high market share, high growth rate

III: Cash cow : high market share, low growth

rate

IV: Dogs : Low market share, low or no growth

industry.
INTERNAL – EXTERNAL MATRIX
 Similar to BCG Matrix
IFE
SCORE
STRONG AVERAGE WEAK
3.0 – 4.0 2.0 – 2.99 1.0 – 1.99

High
3.0-
I II III
4.0

Medium
EFE 2.9- IV V VI
SCORE 2.99

Low
1.0-
VII VIII IX
1.99
INTERNAL – EXTERNAL MATRIX

IFE

I II III

EFS IV V VI

VII VIII IX
Conti…
 * IFE Average to strong Grow & Build
Cell I,II,IV A EFE Medium to High

* IFE Weak to Average

Cell III,V,VII B EFE Low to Medium Hold & Maintain

* IFE Weak
Cell VI, VIII,IX C EFE Weak to Average Harvest & Divest
 GRAND STRATEGY MATRIX
GSM is based on two evaluative
dimensions : Competitive position and market
growth . Rapid market growth

II I
Market growth position Excellent
Weak in growing industry strategic position strong
competitive competitive
position III IV position
Weak competitive competitive position
position must make drastic But in slow growth industry
decisions changes

Slow market growth

QUADRANT I RAPID GROWTH AND STRONG COMP. POSITION (A)

EXCELLENT STRATEGIC POSITION

 Market Development
 Market Penetration
 Product Development
 Forward Integration
 Backward Integration
 Backward Integration
 Horizontal Integration
 Concentric Diversification
QUADRANT II RAPID GROWTH BUT WEAK COMP. POSITION (B)

NEED FOR EVALUATION

Market Development
 Market Penetration
 Product development
 Horizontal Integration
 Divestiture
 Liquidation
QUADRANT III SLOW GROWTH & WEAK COMP. POSITION (C)

NEED FOR DRASTIC CHANGES

 Retrenchment
 Concentric diversification
 Horizontal Diversification
 Conglomerate Diversification
 Divestiture
 Liquidation
QUADRANT IVSLOW GROWTH BUT STRONG COMP. POSITION (D)

DIVERSIFICATION
 Concentric Diversification
 Horizontal Diversification
 Conglomerate Diversification
 Joint Ventures
 DECISION STAGE
Analysis and intuition provide
a basis for making strategy
formulation decision.
 QUANTITATIVE STRATEGIC
PLANNING MATRIX
QSPM

QSPM determines the relative

attractiveness of various strategies.
Like other strategy formulation
analytical tools QSPM requires good
intuitive judgment.
 QSP MATRIX
Strategic Alternatives
Key Factors Weight Strategy Strategy Strategy
1 2 3
External
P
E
S
T
C
Internal
Management
Marketing
Finance / Account
R&D
MIS / CIS
 QSPM STEPS
1. Make a list of key external
opportunities / threats and
internal strength / weaknesses
in the left column of matrix.
2. Assign weights to each factor
and note under weight column
3. Record strategies.
 QSPM STEPS
4. Determine the Attractive Score (AS)
of the strategic and record them
under each strategy.

ATTRACTIVE SCORES
1. Not attractive
2. Somewhat attractive
3. Reasonable attractive
4. Highly attractive
 QSPM STEPS
5. Multiply weight and AS to record Total
Attractive Score (TAS) for each
strategy.

6. Compute the sum TAS for each

strategy
The magnitude indicates the relative
desirability of one strategy over
another.
FACTORS INFUENCING STRATEGY CHOICE

• CULTURAL ASPECTS
• ORG POLITICS
• BOARD OF DIRECTOR’S ROLE
 BOD’S CHOICE

 SFA Test
 Intuition
 Experience