Chapter 6

Strategy Analysis And Choice

Strategic Management:
Concepts and Cases. 9th edition
Fred R. David

PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6-1
Fred R. David
Prentice Hall
 Chapter Outline

• The Nature of Strategy Analysis and Choice

• A Comprehensive Strategy-Formulation
Framework

• The Input Stage

Ch 6-2
Fred R. David
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 Chapter Outline
• The Matching Stage

• The Decision Stage

• Cultural Aspects of Strategy Choice

Ch 6-3
Fred R. David
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 Chapter Outline

• The Politics of Strategy Choice

• The Role of a Board of Directors

Ch 6-4
Fred R. David
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 Strategy Analysis & Choice

Whether it’s broke or not, fix it—make it

better. Not just products, but the whole
company if necessary.

-- Bill Saporito

Ch 6-5
Fred R. David
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 Strategy Analysis & Choice

Strategic analysis and choice largely

involves making subjective decisions
based on objective information.

Ch 6-6
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 Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice –

– Establishing long-term objectives

– Generating alternative strategies
– Selecting strategies to pursue
– Best alternative to achieve mission and objectives

Ch 6-7
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 Strategy Analysis & Choice
Alternative strategies derive from –

– Vision
– Mission
– Objectives
– External audit
– Internal audit
– Past successful strategies
Ch 6-8
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 Strategy Analysis & Choice

Participation in generating alternative

strategies should be broad –

Ch 6-9
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Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch 6-10
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 Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix

Ch 6-11
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 Input Stage

• Provides basic input information for the

matching and decision stage matrices
• Requires strategists to quantify subjectivity
early in the process
• Good intuitive judgment always needed

Ch 6-12
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-13
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 Matching Stage

• Match between organization’s internal resources and skills

and the opportunities and risks created by its external factors.

Ch 6-14
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 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in the

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

Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form 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

Poor employee morale Develop a new employee

+ Strong union activity =
(weakness) (threat) benefits package

Ch 6-15
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-16
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 Matching Stage

TOWS Matrix

– Threats
– Opportunities
– Strengths
– Weaknesses

Ch 6-17
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 TOWS Matrix

Develop four types of strategies

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

Ch 6-18
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 SO Strategies

Threats Use a firm’s

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities

Ch 6-19
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 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities

Ch 6-20
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 ST Strategies

Threats Using firm’s

ST strengths to
Opportunities
avoid or reduce
Weaknesses Strategies the impact of
Strengths external threats.
(TOWS)

Ch 6-21
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 WT Strategies

Defensive
Threats tactics aimed at
Opportunities WT reducing internal
Weaknesses Strategies weaknesses
Strengths and avoiding
(TOWS) environmental
threats.

Ch 6-22
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 TOWS Matrix

Steps in developing the TOWS Matrix

1. List the firm’s key external opportunities

2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses

Ch 6-23
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 TOWS Matrix
Developing the TOWS Matrix

5. Match internal strengths with external opportunities

and record the resultant SO Strategies
6. Match internal weaknesses with external opportunities
and record the resultant WO Strategies
7. Match internal strengths with external threats and
record the resultant ST Strategies
8. Match internal weaknesses with external threats and
record the resultant WT Strategies

Ch 6-24
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 TOWS Matrix
Leave Blank Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Ch 6-25
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-26
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 SPACE Matrix
Strategic Position and Action Evaluation Matrix

 Four quadrant framework

 Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive

Ch 6-27
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 SPACE Matrix

Two Internal Dimensions

 Financial Strength [FS]
 Competitive Advantage [CA]

Two External Dimensions

 Environmental Stability [ES]
 Industry Strength [IS]

Ch 6-28
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 SPACE Matrix
Overall Strategic position determined by:

– Financial Strength [FS]

– Competitive Advantage [CA]
– Environmental Stability [ES]
– Industry Strength [IS]

Ch 6-29
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 SPACE Matrix
Developing the SPACE Matrix:

• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength
Ch 6-30
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 SPACE Matrix
• Select variables to define FS, CA, ES,
& IS
• Assign numerical ranking from +1
(worst) to +6 (best) for FS and IS;
Assign numerical ranking from –1 (best)
to –6 (worst) for ES and CA.
• Compute average score for FS, CA,
ES, & IS
Ch 6-31
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 SPACE Matrix
• Plot the average scores on the Matrix
• Add the two scores on the x-axis and
plot point on X. Add the scores on the
y-axis and plot Y. Plot the intersection
of the new xy point.
• Draw a directional vector from origin
through the new intersection point.

Ch 6-32
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 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Ease of exit from market Competitive pressure
Risk involved in business Price elasticity of demand

Ch 6-33
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 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

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 Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization

Ch 6-34
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 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

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

-2
-3

-4
-5
Defensive -6 Competitive
ES Ch 6-35
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-36
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 BCG Matrix
Boston Consulting Group Matrix

• Enhances multidivisional firms’ efforts

to formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in
different industries requiring separate
strategy
Ch 6-37
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 BCG Matrix
Boston Consulting Group Matrix

• Graphically portrays differences among

divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through
relative market share position and
industry growth rate

Ch 6-38
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 BCG Matrix
Relative market share position defined:

• Ratio of a division’s own market share in a

particular industry to the market share held by
the largest rival firm in that industry.

Ch 6-39
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 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
s udnI

-20 Ch 6-40
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 BCG Matrix

• Question Marks
• Stars
• Cash Cows
• Dogs

Ch 6-41
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 BCG Matrix
Question Marks

• Low relative market share position yet

compete in high-growth industry.
• Cash needs are high
• Case generation is low

• Decision to strengthen (intensive

strategies) or divest

Ch 6-42
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 BCG Matrix
Stars

• High relative market share and high

industry growth rate.
• Best long-run opportunities for growth and
profitability

• Substantial investment to maintain or

strengthen dominant position
• Integration strategies, intensive strategies, joint
ventures
Ch 6-43
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 BCG Matrix
Cash Cows

• High relative market share position, but compete

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 becomes weak—retrenchment or divestiture

Ch 6-44
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 BCG Matrix
Dogs

• Low relative market share position and

compete in slow or no market growth
• Weak internal and external position

• Decision to liquidate, divest, retrenchment

Ch 6-45
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-46
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 Grand Strategy Matrix
• Popular tool for formulating alternative
strategies

• All organizations (or divisions) can be

positioned in one of four quadrants

• Based on two evaluative dimensions:

– Competitive position
– Market growth

Ch 6-47
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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. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch 6-48
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 Grand Strategy Matrix

Quadrant I

• Excellent strategic position

• Concentration on current markets and
products
• Take risks aggressively when necessary

Ch 6-49
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 Grand Strategy Matrix

Quadrant II

• Evaluate present approach seriously

• How to change to improve competitiveness
• Rapid market growth requires intensive
strategy

Ch 6-50
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 Grand Strategy Matrix

Quadrant III

• Compete in slow-growth industries

• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction indicated
(retrenchment)

Ch 6-51
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 Grand Strategy Matrix

Quadrant IV

• Strong competitive position

• Slow-growth industry
• Diversification indicated to more promising
growth areas

Ch 6-52
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 Formulation Framework

Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)

Ch 6-53
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 QSPM

Quantitative Strategic Planning Matrix

• Only technique designed to determine the

relative attractiveness of feasible
alternative actions

Ch 6-54
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 QSPM

Quantitative Strategic Planning Matrix

• Tool for objective evaluation of

alternative strategies
• Based on identified external and
internal crucial success factors
• Requires good intuitive judgment

Ch 6-55
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 QSPM

Quantitative Strategic Planning Matrix

• List the firm’s key external opportunities &

threats; list the firm’s key internal strengths
and weaknesses

• Assign weights to each external and internal

critical success factor

Ch 6-56
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 QSPM

Quantitative Strategic Planning Matrix

• Examine the Stage 2 (matching) matrices

and identify alternative strategies that the
organization should consider implementing

• Determine the Attractiveness Scores (AS)

Ch 6-57
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 QSPM

Quantitative Strategic Planning Matrix

• Compute the total Attractiveness

Scores

• Compute the Sum Total Attractiveness

Score

Ch 6-58
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QSPM Strategic Alternatives
Key External Factors Weight Strategy Strategy Strategy 3
Economy 1 2
Political/Legal/Governmen
tal
Social/Cultural/Demograp
hic/Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and
Development
Computer Information
Systems
Ch 6-59
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 QSPM

Limitations:

• Requires intuitive judgments and

educated assumptions

• Only as good as the prerequisite inputs

Ch 6-60
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 QSPM

Positives:

• Sets of strategies examined simultaneously

or sequentially

• Requires the integration of pertinent external

and internal factors in the decision-making
process

Ch 6-61
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 Cultural Aspects of Strategy
Choice

Culture:

• The set of shared values, beliefs,

attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm

Ch 6-62
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 Cultural Aspects of Strategy
Choice

Culture:

• Successful strategies depend on

degree of support from a firm’s culture

Ch 6-63
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 Politics of Strategy Choice

Politics in organizations:

• Management hierarchy
• Career aspirations
• Allocation of scarce resources

Ch 6-64
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 Politics of Strategy Choice

Political tactics for strategists:

• Equifinality
• Satisfying
• Generalization
• Focus on Higher-Order Issues
• Provide Political Access on Important Issues

Ch 6-65
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 Role of A Board of Directors

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stockholders’ rights

Ch 6-66
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 Key Terms
• Aggressive quadrant
• Attractiveness Scores (AS)
• Board of Directors
• Boston Consulting Group (BCG) Matrix
• Business portfolio
• Cash cows
• Champions
• Competitive Advantage (CA)

Ch 6-67
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 Key Terms
• Competitive quadrant
• Conservative quadrant
• Culture
• Decision stage
• Defensive quadrant
• Directional vector
• Dogs
• Environmental Stability (ES)
• Financial Strength (FS)
Ch 6-68
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 Key Terms
• Grand Strategy Matrix
• Halo error
• Industry Strength (IS)
• Input stage
• Internal-External (IE) Matrix
• Long-term objectives
• Matching
• Matching stage
• Quantitative Strategic Planning Matrix
(QSPM)
Ch 6-69
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 Key Terms
• Question marks
• Relative market share position
• SO strategies
• ST strategies
• Stars
• Strategic Position and Action Evaluation
(SPACE) Matrix
• Strategy-formulation framework

Ch 6-70
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 Key Terms

• Sum total attractiveness scores

• Threats-Opportunities-Weaknesses-
Strengths (TOWS) Matrix
• Total Attractiveness Scores (TAS)
• WO strategies
• WT strategies

Ch 6-71
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