Topic 6, Problems and Alternatives

Strategic Analysis and Decision Making

Methods of Analysis to find and select strategies.
Cluster Analysis
TOWS Matrix
SPACE matrix (Strategic Position and Action
Evaluation Matrix)
Portfolio Analysis
Boston Consulting Group
IE (Internal and External) Matrix-- For class use the
General Electric Business Screen (an IE-type matrix)
 Cluster Analysis and TOWS
Cluster Analysis is the bringing together of
the most important Strengths, Weaknesses,
Opportunities and Threats to identify
problems. (Core and Distinctive
Competencies and Critical Success Factors
are likely to be in your Cluster Analysis.)
When you make a matrix out of SWOT
items we call it a TOWS matrix which
identifies potential strategic alternative
types--SO, WO, ST, WT ( strategies).
 TOWS
TOWS MATRIX is not
used to pick alternatives
but to give an idea of
potential problems, and
opportunities and the
strategies to overcome
or exploit those
Opportunities and
Threats.
 The TOWS Matrix
STRENGTHS - S WEAKNESSES - W

List strengths List weaknesses

OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES

Use strengths to take Overcome weaknesses

List opportunities advantage of by taking advantage of
opportunities opportunities

THREATS - T ST STRATEGIES WT STRATEGIES

List threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
4
1999 Prentice Hall
 Portfolio Analysis
Treats product lines or SBUs as potential
investments.

Portfolio Analysis methods include:

Boston Consulting Group (BCG)-Growth Share
MatrixThis company is one of largest strategic
consulting companies in U.S.
GE Matrix (Similar to IE Matrixvalue of the GE
Matrix over IE Matrix is that once you plot your
company on the Matrix, locations on matrix are
associated with best strategies to pick, and types of
strategic leadership to initiate strategy.)
Product/Market Evolution Matrix (Not in text)
 BCG Portfolio Matrix

BCG Growth-Share Matrix

Stars Question Marks
22
20
18
Business Growth Rate

16
14
(Percent)

12
10
Cash Cows Dogs
8
6
4
2
0 Each Circle represents a
division of the company,
10x

0.3x

0.1x
1.5x

0.5x
0.4x

0.2x
4x

2x

1x

Relative Competitive Position
circle size . is
proportionate to corporate
revenue generated by the
division. When wedges are
used, they indicate % of
corporate profits
 BOSTON CONSULTING
GROUP (BCG)
the following model is more commonly
used and the text explanation applies to this
model.
I Quadrant --Question Marks
low market share, hi growth
use intensive strategies such as market
penetration, market development, product
development
 The
The BCG
BCG Matrix
Matrix

Relative Market Share Position in the Industry

High Medium
Low
1.0 .50 0.0
High +20
Stars (II) Question Marks (I)
Industry

?
Sales
Growth
Rate
(Percent) Medium 0
Cash Cows (III) Dogs (IV)

Low -20
8
 Quadrant II, Stars High Quadrant III, Cash
Market Share Cows - High Market
High Industry Growth Share,
Rate Low Industry Growth
Use backward and Rate
forward integration, Use product
horizontal integration, development or
market penetration, Diversification
market development,
product development
and joint ventures

 This portfolio analysis

indicates that
companies evolve over
Quadrant IV, Dogs
time in counter-
Low industry Growth
Rate, and Low Market
clockwise fashion
question marks, stars, cash
Share cows, dogs.
Use retrenchment,
Weaknesses of this
liquidation, divestment
Circle size represents model are that it does
industry size, and not indicate if industry
darkened area represents is growing , and your
your companies share of
market
stars also may not be a
fit with your
competencies
Portfolio Analysis using General
Electric Business Screen, similar
to IE Matrix in text.
Uses industry attractiveness and business
competitive strength on axes
Circles represent industry sales, wedge
represents companies share of market
Product or SBU position on graph indicates
type of strategy likely to be best choice.
We can use IFE weighted score and EFE
weighted scores for axes
 General Electrics Business Screen -- Position on Graphs can help you
determine strategy. See next slide.

General Electric Business Screen

C
Winners Winners
A Question
High B Marks

D
Industry Attractiveness

Winners
E Average
Businesses
Medium F
Losers

H
Losers
G
Low Source: Adapted from Strategic
Profit
Producers Management in GE, Corporate
Losers
Planning and Development, General
Electric Corporation. Used by
permission of General Electric
Strong Average Weak
Company.
Business Strength/Competitive Position
 Business Strengths / Competitive Position

Strong Average Weak

Growth Growth Retrenchment
Market/product Market/product
High Development Development Turnaround
Concentration via Concentration via
Industry Attractiveness

Vertical Integration Horizontal Integration

Stability Growth Retrenchment

Medium Concentration via
Pause or Horizontal Integration Captive Company or
Proceed with Caution Stability Divestment
No Change in
Profit Strategy
Growth Growth Retrenchment

Low Concentric Conglomerate Bankruptcy or

Diversification Diversification Liquidation
 Internal Factor Evaluation (IFE)
Weighted
Internal Factors Weight Rating Score Comments
1 2 3 4 5
Strengths

Weaknesses

Total Weighted Score 1.00

 Internal Factor Evaluation (IFE):
Maytag as Example
Weighted
Internal Factors Weight Rating Score Comments

Strengths 1 2 3 4 5
Quality Maytag culture .15 5 .75 Quality key to success
Experienced top management .05 4 .20 Know appliances
Vertical integration .10 4 .40 Dedicated factories
Employee relations .05 3 .15 Good, but deteriorating
Hoovers international orientation .15 3 .45 Hoover name in cleaners

Weaknesses
Process-oriented R&D .05 2 .10 Slow on new products
Distribution channels .05 2 .10 Superstores replacing
small dealers
Financial position .15 2 .30 High debt load
Global positioning .20 2 .40 Hoover weak outside the
United Kingdom and
Australia
Manufacturing facilities .05 4 .20 Investing now

Total Weighted Score 1.00 3.05

 3P

External Factor Evaluation (EFE)

External Weighted
Strategic Factors Weight Rating Score Comments
1 2 3 4 5
Opportunities

Threats

Total Weighted Score 1.00

Notes: 1. List opportunities and threats (510 each) in column

1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not
Important) in Column 2 Associates. Reprinted by permission Please
note that this Matrix goes from 1.0 to 5.0
 3P.17External Factor Analysis Summary (EFAS): Maytag as Example (Table
3.4) p. 76

External Factor Evaluation Matrix

Summary (EFE): Maytag as Example
External Weighted
Strategic Factors Weight Rating Score Comments
Opportunities 1 2 3 4 5
Economic integration of .20 4 .80 Acquisition of
European Community Hoover
Demographics favor quality .10 5 .50 Maytag quality
appliances
Economic development of Asia .05 1 .05 Low Maytag presence
Opening of Eastern Europe .05 2 .10 Will take time
Trend to Super Stores .10 2 .20 Maytag weak in this
Threats channel

Increasing government regulations .10 4 .40 Well positioned

Strong U.S. competition .10 4 .40 Well positioned
Whirlpool and Electrolux strong .15 3 .45 Hoover weak globally
globally
New product advances .05 1 .05 Questionable
Japanese appliance companies .10 2 .20 Only Asian presence is
Australia

Total Scores 1.00 3.15

Product/Market Evolution Matrix
On one axis, matrix has five to six stages
--development, growth, shakeout,
maturity/saturation, and decline stages.
Has on other axis, competitive position, either
strong, average or weak

This matrix shows at what stage in development

your various SBUs or your product lines should
be placed. Size of circles indicates how much of
your sales come from that SBU or product line.
Companies want to have a good mix of products
in development thru maturity stages.
 2.17 Styles of Corporate Governance

Styles of Corporate Governance

High
Degree of Involvement
By Top Management

Entrepreneurship Partnership
management management

Chaos Marionette
management management
Low
Low High
Degree of Involvement
By Board of Directors