Strategic Management

Concepts & Cases

8th edition
Fred R. David
Chapter 6:
Strategy Analysis &
Choice
PowerPoint Slides By:
Anthony F. Chelte
Western New England College

Ch. 6-1
© 2001 Prentice Hall
Strategy Analysis & Choice

Strategic Analysis and Choice:

Making subjective decisions based on

objective information

Ch. 6-2
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 Strategy Analysis & Choice

Strategic Analysis and Choice:

• Generate feasible alternatives

• Evaluate alternatives
• Select specific course of action

Ch. 6-3
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Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch. 6-4
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 Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

External Internal
Competitive
Factor Factor
Profile
Evaluation Evaluation
Matrix
Matrix (EFE) Matrix (IFE)

Ch. 6-5
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 Strategy-Formulation Analytical Framework

Stage 2: The Matching Stage

Threats Strategic Boston Internal-

Opportunities Position & Consulting External Grand
Weaknesses Action Group Matrix Strategy
Strengths Evaluation Matrix (IE) Matrix
(TOWS) (SPACE) (BCG)

Ch. 6-6
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Strategy-Formulation Analytical Framework

Stage 3: The Decision Stage

Quantitative Strategic
Planning Matrix
(QSPM)

Ch. 6-7
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 Matching Key Factors
Key Internal Factor Key External Factor Resultant Strategy

20% annual growth

Excess working in the cablevision
+ = Acquire Visioncable, Inc.
capacity (strength) industry
(opportunity)
Exit of two major
Pursue horizontal
Insufficient capacity foreign competitors
+ = integration by buying
(weakness) form the industry
competitor's facilities
(opportunity)
Decreasing numbers
Develop new products
Strong R&D (strength) + of young adults =
for older adults
(threat)
Develop a new
Poor employee
+ Strong union = employee benefits
morale (weakness) activity (threat) package
Ch. 6-8
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 Four Types of Strategies

Threats SO WO
Opportunities Strategies Strategies
Weaknesses
Strengths ST WT
(TOWS)
Strategies Strategies

Ch. 6-9
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 SO Strategies

Threats Use a firm’s

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

Ch. 6-10
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 WO Strategies

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

Ch. 6-11
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 ST Strategies

Threats Using firm’s

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

Ch. 6-12
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 WT Strategies

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

Ch. 6-13
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 Strategy Analysis & Choice
The TOWS Matrix

• List the firm’s key external opportunities

• List the firm’s key external threats
• List the firm’s key internal strengths
• List the firm’s key internal weaknesses

Ch. 6-14
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 Strategy Analysis & Choice
The TOWS Matrix

• Match internal strengths with external opportunities

and record the resultant SO Strategies
• Match internal weaknesses with external
opportunities and record the resultant WO Strategies
• Match internal strengths with external threats and
record the resultant ST Strategies
• Match internal weaknesses with external threats and
record the resultant WT Strategies

Ch. 6-15
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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 by taking advantage of
opportunities opportunities
Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Ch. 6-16
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 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

• Four quadrant framework

• Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive

Ch. 6-17
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 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

• Two Internal Dimensions

 FinancialStrength [FS]
 Competitive Advantage [CA]
• Two External Dimensions
 Environmental Stability [ES]
 Industry Strength [IS]

Ch. 6-18
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 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

Overall Strategic position determined by:

• Financial Strength [FS]
• Competitive Advantage [CA]
• Environmental Stability [ES]
• Industry Strength [IS]

Ch. 6-19
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 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

Developing the SPACE Matrix:

• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength
Ch. 6-20
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 Strategy Analysis & Choice
The 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. 6-21
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 Strategy Analysis & Choice
The 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. 6-22
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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
Cash flow products
Ease of exit from market Barriers to entry
Risk involved in business Competitive pressure
Price elasticity of demand

Ch. 6-23
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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 & Ease of entry into market
distributors Productivity, capacity
utilization

Ch. 6-24
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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. 6-25
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 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• 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. 6-26
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 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• 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. 6-27
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 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• 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. 6-28
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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 Ch. 6-29
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 Strategy Analysis & Choice
BCG Matrix

• Question Marks
• Stars
• Cash Cows
• Dogs

Ch. 6-30
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 Strategy Analysis & Choice
BCG Matrix

• Question Marks
 Low
relative market share position yet
compete in high-growth industry.
 Cash needs are high
 Case generation is low
 Decisionto strengthen (intensive
strategies) or divest

Ch. 6-31
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 Strategy Analysis & Choice
BCG Matrix
• Stars
 High relative market share and high
industry growth rate.
 Best long-run opportunities for growth and
profitability
 Substantialinvestment to maintain or
strengthen dominant position
 Integration strategies, intensive strategies,
joint ventures

Ch. 6-32
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 Strategy Analysis & Choice
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. 6-33
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 Strategy Analysis & Choice
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. 6-34
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 Key Terms & Concepts
• Aggressive quadrant
• Attractiveness Scores
(AS)
• Board of Directors
• Boston Consulting
Group (BCG) Matrix
• Business portfolio
• Cash cows
• Champions
• Competitive Advantage
(CA)
© 2001 Prentice Hall
• Competitive quadrant
• Conservative quadrant
• Culture
• Decision stage
• Defensive quadrant
• Directional vector
• Dogs
• Environmental Stability
(ES)
• Financial Strength (FS)
Ch. 6-35
 Key Terms & Concepts
• 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)
© 2001 Prentice Hall
• Question marks
• Relative market share
position
• SO strategies
• ST strategies
• Stars
• Strategic Position and
Action Evaluation
(SPACE) Matrix
• Strategy-formulation
framework
Ch. 6-36
 Key Terms & Concepts
• Sum total attractiveness
scores
• Threats-Opportunities-
Weaknesses-Strengths
(TOWS) Matrix
• Total Attractiveness
Scores (TAS)
• WO strategies
• WT strategies

Ch. 6-37
© 2001 Prentice Hall