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CHAPTER 6 - Strategy Analysis and Choice decision stage matrices is provided by the
True/False information derived from SPACE, TOWS and
BCG matrices.
The Nature of Strategy Analysis and Choice Ans: F Page: 198
An organization’s present strategies, objectives Strategists themselves, not analytical tools, are
and mission provide a basis for generating and always responsible and accountable for strategic
evaluating feasible alternative strategies, decisions.
coupled with the external and internal audit Ans: T Page: 199
information.
Ans: T Page: 196-197 The divisions of an organization should utilize
strategy-formulation analytical tools to develop
Strategic analysis and choice largely involves their own strategies and objectives.
making objective decisions based on subjective Ans: T Page: 199
information.
Ans: F Page: 197 Good intuitive judgment is always needed to
determine appropriate weights and ratings in the
Identifying and evaluating alternative strategies input stage matrices.
shouldn’t involve the managers and employees Ans: T Page: 199
who earlier assembled the organizational vision
and mission statements, performed the external The Matching Stage
audit and conducted the internal audits.
Ans: F Page: 198 The number of internal factors and external
factors in the matching stage is reduced to
A Comprehensive Strategy-Formulation generate feasible strategies.
Framework Ans: F Page: 199
The first stage of the strategy-formulation The purpose of matching key factors is to
framework is the input stage, followed by the generate feasible alternative strategies.
matching stage. Ans: T Page: 199
Ans: T Page: 198
To effectively formulate competitive strategies, an
Stage 2 in the strategy-formulation framework organization should match its external
involves a single technique, the Quantitative opportunities and threats.
Strategic Planning Matrix. Ans: F Page: 199
Ans: F Page: 198
SO strategies are based on using a firm’s internal
The Internal Factor Evaluation Matrix and the strengths to take advantage of external
External Factor Evaluation Matrix are part of the opportunities and threats.
final stage of the strategy formulation framework. Ans: F Page: 200
Ans: F Page: 198
Matching strengths with weaknesses is how SW
The Threats-Opportunities-Weaknesses- strategies are created.
Strengths (TOWS) Matrix, the Strategic Position Ans: F Page: 200
and Action Evaluation (SPACE) Matrix, the Boston
Consulting Group (BCG) Business Portfolio A TOWS Matrix is composed of four cells for four
Matrix, the Internal-External (IE) Business types of strategies it creates.
Portfolio Matrix and the Grand Strategy Matrix are Ans: F Page: 200
included in stage two of the strategy-formulation
framework. The purpose of each stage 2 matching tool is to
Ans: T Page: 198 generate feasible alternative strategies, not
to select or determine which strategies are best.
The Input Stage Ans: T Page: 200
Only to get into a situation where they can work Relative market share position is given on the x-
from strengths to take advantage of opportunities, axis of the BCG Matrix.
organizations generally will pursue the other three Ans: T Page: 206
types of strategies (WO, ST, or WT).
Ans: T Page: 200-202 The midpoint on the x-axis of a BCG Matrix, which
corresponds to a division that has half the market
From matching an internal weakness with an share of the leading firm in the industry, is typically
external threat, a WT strategy in the TOWS Matrix set at 0.05.
could result. Ans: F Page: 206
Ans: F Page: 201
In performing SPACE analysis, barriers to entry
WT strategies are defensive tactics. into market are best categorized as a competitive
Ans: T Page: 201 advantage (CA) variable.
Ans: F Page: 206
Matching techniques include both the SPACE
Matrix and the TOWS Matrix. In the SPACE Matrix, growth potential, profit
Ans: T Page: 203 potential and financial stability could all fall under
the category of industry strength.
The ES and CA dimension variables in a SPACE Ans: T Page: 206
Matrix are assigned a numerical value ranging
from –1 (best) to –6 (worst). By examining the relative market share and
Ans: T Page: 204 industry growth rate of each division relative to all
other divisions with the BCG matrix, a
The most important determinants of an multidivisional organization is allowed to manage
organization’s overall strategic position are its portfolio of businesses.
considered to be the two internal dimensions, Ans: T Page: 206
financial strength (FS) and competitive advantage
(CA), and the two external dimensions, industry Product quality is an important consideration in the
strength (IS) and environmental stability (ES). BCG Matrix.
Ans: F Page: 206
Ans: T Page: 204
The SPACE Matrix axes are labeled aggressive, Technical know-how, market share and product
conservative, defensive and competitive. life cycle are some examples of areas to consider
Ans: F Page: 204 when evaluating a company’s competitive
advantage.
The four strategies of the SPACE Matrix are Ans: T Page: 206
aggressive, conservative, offensive and defensive.
Ans: F Page: 204 The Boston Consulting Group Matrix is good for
firms with many “profit centers.”
The appropriate strategies are intensive, Ans: T Page: 206
integration, defensive and diversification when a
firm’s directional vector is located in the The company’s total sales and number of
aggressive quadrant of the SPACE Matrix. employees are key considerations in the Boston
Ans: F Page: 205 Consulting Group Matrix.
Ans: F Page: 206
Conservative strategies in a SPACE Matrix most
often include intensive strategies The firm should pursue conservative strategies if
and concentric diversification. the coordinates of a SPACE directional vector are
Ans: T Page: 205 (1,4).
Ans: F Page: 207
Integration and diversification strategies are most
often included in competitive strategies in a A firm should pursue defensive strategies if
SPACE Matrix. the coordinates of a SPACE directional vector are
Ans: F Page: 205 (2,3).
Ans: F Page: 207
The firm should pursue aggressive strategies if The BCG Matrix does not reflect whether or not
the coordinates of a SPACE directional vector are various divisions or their industries are growing
(5,4). over time.
Ans: T Page: 207 Ans: T Page: 211
A firm should pursue competitive strategies if Having no temporal qualities, the BCG Matrix is a
the coordinates of a SPACE directional vector are snapshot of an organization at a given point in
(4,6). time.
Ans: T Page: 211
Ans: F Page: 207
Both IE and BCG Matrices are called portfolio
Star, question mark, cash cow and dogs are the matrices.
four quadrants exhibited by the SPACE Matrix. Ans: T Page: 211
Ans: F Page: 208
On the x-axis of the IE Matrix, an internal factor
The size of the circle in a BCG Matrix corresponds evaluation score of 2.5 represents a weak internal
to the proportion of corporate revenue generated position.
by that business unit. The pie slice indicates the Ans: F Page: 212
proportion of corporate profits generated by that
division. BCG Matrix requires more information about the
Ans: T Page: 208 divisions than the IE Matrix.
Ans: F Page: 212
Divisions with a low relative market share position
and a high industry growth are called question The IE Matrix can be divided into three major
marks in the BCG Matrix. regions that have different strategy implications:
Ans: T Page: 208 grow and build, hold and maintain and harvest or
divest.
Cash cows represent the organization’s best long- Ans: T Page: 212-213
run opportunities for growth and profitability.
Ans: F Page: 209 The Grand Strategy Matrix is based on two
evaluative dimensions, market share and market
Divisions in Quadrant IV are called dogs because growth.
the organization must decide whether to Ans: F Page: 213
strengthen them by pursuing intensive strategies
or engaging in joint venture. Positioned in or around cell IX in the IE Matrix,
Ans: F Page: 210 successful organizations are able to achieve a
portfolio of businesses.
The major overall benefit of the BCG Matrix is that Ans: F Page: 213
it draws attention to the cash flow, investment
characteristics and needs of an organization’s According to the Grand Strategy Matrix, when a
various divisions. Quadrant I firm is too heavily committed to a
Ans: T Page: 210 single product, then concentric diversification
may reduce the risks associated with a narrow
Dogs on the BCG Matrix usually become stars product line.
after market penetration. Ans: T Page: 214
Ans: F Page: 210
Quadrant III organizations compete in rapid-
Generally, the BCG Matrix and the IE Matrix are growth industries and have weak competitive
used only in formulating strategies in positions, according to the Grand Strategy
multidivisional firms. Matrix.
Ans: T Page: 211 Ans: F Page: 214
Viewing businesses as star, cash cow, dog, or The Decision Stage
question mark is an oversimplification.
Ans: T Page: 211 The Quantitative Strategic Planning Matrix is an
excellent decision stage analytical tool.
Ans: T Page: 215 Ans: T Page: 219
Small companies could skip Stages 1 and 2 of the One positive feature of OSPM is that it does not
strategy-formulation framework and develop a require intuitive judgments and educated
QSPM. assumptions.
Ans: F Page: 216 Ans: F Page: 219
The Role of a Board of Directors 95. Strategy analysis and choice largely
involves making __________ decisions based
Now averaging 18 members rather than 12 as on __________ information.
they did a few years ago, the trend in America is a. long-term; short-term
toward larger boards. b. subjective; objective
Ans: F Page: 222 c. short-term; long-term
d. subjective; short-term
Boards of directors are composed mostly of e. objective; subjective
outsiders who are becoming more involved in an Ans: b Page: 196
organization’s strategic management.
Ans: T Page: 222 A Comprehensive Strategy-
Formulation Framework
Business Week recommends board
members retire at age 65. Stage 1 consists of IFE, EFE and CPM. What
Ans: F Page: 223 stage is this in the
strategy formulation framework?
Business Week recommends the entire board of a. Output
directors be up for election annually. b. Decision
Ans: T Page: 223 c. Input
d. Matching
The board of directors of Trans Union e. Functional
Corporation, according to a ruling by the Ans: c Page: 198
Supreme Court of Delaware in 1985, violated the
interests of shareholders when they hastily Which stage in the strategy-
accepted a takeover bid from the Marmon formulation framework focuses on generating
Group. feasible alternative strategies?
Ans: T Page: 224 a. Input
b. Output
The impact of increasing legal pressures c. Decision
on board members is that directors are d. Stage 3
demanding access to more financial e. Matching
performance information on a regular basis. Ans: e Page: 198
Ans: T Page: 224
The ________ stage involves a single
Boards of directors today are composed mostly technique, QSPM.
of outsiders who are becoming more involved in a. Stage 2
the company’s strategic-management activities. b. Decision
Ans: T Page: 224 c. Input
d. Matching
There are on average five times more outsiders e. Stage 1
on the board than insiders at American firms. Ans: b Page: 198
Ans: F Page: 224
A(n) __________ reveals the
Conclusion relative attractiveness of alternative strategies
and thus provides an objective basis for
selecting specific strategies.
a. TOWS
b. SPACE Ans: e Page: 199
c. QSPM
d. IFE __________ is not a TOWS strategy.
e. CPM a. SO
Ans: c Page: 198 b. WO
c. SW
Each of the nine techniques included in the d. ST
strategy formulation framework rely on the use e. WT
of Ans: c Page: 200
a. strictly factual data.
b. luck. Poor product quality, coupled with reliable
c. financial formulas and statistics. suppliers, would suggest
d. intuition and analysis. a. WT strategies.
e. synergy. b. WO strategies.
Ans: d Page: 198 c. ST strategies.
d. SO strategies.
The Input Stage Ans: b Page: 200
The __________ stage includes an Internal Matching internal strengths with external
Factor Evaluation Matrix and a Competitive opportunities is part of which section of the
Profile Matrix. TOWS Matrix?
a. input a. The WT cell
b. matching b. The WO cell
c. decision c. The ST cell
d. penetration d. The SO cell
e. research e. The center four cells
Ans: a Page: 198 Ans: d Page: 200
__________ is not an input stage matrix. The most ideal situation for a company to be in
a. IFE on the TOWS Matrix would be if they had all
b. IE a. SO strategies.
c. CPM b. WO strategies.
d. EFE c. ST strategies.
Ans: b Page: 198 d. WT strategies.
Ans: a Page: 200
The Matching Stage
Which strategies aim at improving internal
__________ is not a Stage 2 matching weaknesses by taking advantage of external
technique. opportunities?
a. The SPACE Matrix a. SO
b. The Grand Strategy Matrix b. WO
c. The Competitive Profile Matrix c. SW
d. The Business Portfolio Matrix d. ST
e. The TOWS Matrix e. WT
Ans: c Page: 198 Ans: b Page: 200
A TOWS Matrix is composed of __________ Financial strengths are measured on the SPACE
cells. Matrix by variables such as investment,
a. four leverage, liquidity, working capital and
b. six a. ease of entry into the market.
c. nine b. product quality.
d. eight c. operations and facilities.
e. two d. working capital.
Ans: c Page: 201
Ans: d Page: 206
Which of the following is not a step of a TOWS
Matrix?
a. List the firm’s key external threats
b. Match strengths with external opportunities
and record the resultant SO strategies in the
appropriate cell
c. Match internal weaknesses with external
threats and record the resultant WT strategies
d. List the firm’s external weaknesses
e. List the firm’s external threats
Ans: d Page: 202