CHAPTER 6 Strategy Analysis & Choice

Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
10th Edition
Fred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6 -1
Copyright 2005 Prentice Hall
Nature of Strategy Analysis & Choice
-- Generating alternative strategies

-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -2
Alternative Strategies Derive From --
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
Ch 6 -3
Process of generating and selecting
strategies
Generating Alternatives --
Participation in generating alternative
strategies should be as broad as possible
Participants : people who earlier involved to
set vision & mission, performed int/ext audit,
representatives in each dpt.
Keep participants well informed of ext, int
audit results + missions.
Ch 6 -4
Process of generating and selecting
strategies
 Alt strategies are listed in writing & make them
understood by participants
 Proposed alternative strategies are discussed in a series
of meetings
 Alt strategies are ranked in order of attractiveness
1- should not be implemented
2- possibly should be implemented
3- probably should be implemented
4- definitely should be implemented
 Results - best strategies which have been prioritized
Ch 6 -5
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -6
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile Matrix

(CPM)
Ch 6 -7
Stage 1: The Input Stage
Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Ch 6 -8
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -9
Stage 2: The Matching Stage
Match between organization’s external opp &

threats with internal strengths & weaknesses
Ch 6 -10
SWOT Matrix
Matching tool to develop 4 Types of
Strategies
Strengths-Opportunities (SO)
- Use a firm’s internal strengths to take advantage of ext opp.
Weaknesses-Opportunities (WO)
- Improve internal weaknesses by utilizing ext opp
Strengths-Threats (ST)
- Use firm’s strength to avoid / reduce the impact of ext. threats
Weaknesses-Threats (WT)
- Defensive tactics : reduce internal weakness and avoid ext threats.
Ch 6 -11
SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -12
WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -13
ST Strategies
Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats ST reduce the impact
Strategies of external
threats
SWOT
Ch 6 -14
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT
Ch 6 -15
SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths

List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -16
SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies
Use strengths to take Overcoming weaknesses

List Opportunities advantage of by taking advantage of
opportunities opportunities
Threats – T ST Strategies WT Strategies
Use strengths to avoid Minimize weaknesses and

List Threats threats avoid threats
Ch 6 -17
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
20% annual growth in

Excess working capacity
+ the 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
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -18
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -19
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -20
SPACE Matrix
Two Internal Dimensions
Financial Position (FP)

Competitive Position (CP)
Ch 6 -21
SPACE Matrix
Two External Dimensions
Stability Position (SP)

Industry Position (IP)
Ch 6 -22
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Position (FP) Stability Position (SP)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -23
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Position (CP) Industry Position (IP)
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 Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Ch 6 -24
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 Competitive
-6
ES Ch 6 -25
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -26
BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating strategies
Divisions may compete in different industries
 Allows a multi-divisional firm to manage its business
portfolio by examining the relative market-share
position & industry growth rate of each
division/business relative to all other division in the org.
Ch 6 -27
BCG Matrix
Relative Market Share Position
Ratio of a division’s market share in an industry

TO THE market share held by the largest rival
firm in that industry.
Ch 6 -28
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
BCG Matrix
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Cash generation is low
Decision to strengthen (intensive strategies) or

divest
Ch 6 -30
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
Ch 6 -31
BCG Matrix
Cash Cows
High relative market share, competes 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 weakens—retrenchment or divestiture
Ch 6 -32
BCG Matrix
Dogs
Low relative market share & compete in slow or

no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -33
Develop BCG Matrix
 Figure 6.8 page 216
Each division is represented by:

1) Circle size – indicates revenues
2) Pie-slice - % profits
Ch 6 -34
Limitations of BCG Matrix
 Oversimplification of business quadrant.
Some business fall right in the middle of
matrix and not easily classified.
 Does not show whether or not various
divisions are growing over time.
 Not only relative market share & industry
growth rate are important in making strategic
decision of various divisions.
Ch 6 -35
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -36
Internal – External (IE) Matrix
 Similar to the BCG Matrix (tool for multidivisional firms):
- Circle size represents revenues
- % of profits
 IE & BCG are called “portfolio matrices”
 Differences:
- Division’s position is plotted on a 9-cell display.
- Derived information from IFE & EFE of each division
- Different axes: IFE weighted score Vs EFE weighted
score
- IE matrix requires more information about the divisions
than the BCG.
Ch 6 -37
Internal – External (IE) Matrix
 9 cells are divided into 3 three major regions:
- Cells 1,2,4 – grow and build
- Cells 3,5,7 – Hold and maintain
- Cells 6, 8, 9 – Harvest or Divest
See figure 6.10 pg 217
 Prepare “before & after” IE/BCG to minimize the

limitations of these matrices of being a
“snapshot in time”
Ch 6 -38
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
BCG Matrix
Ch 6 -39
 Based on two dimensions

Competitive position
Market (industry) growth - annual growth in
industry’s sales exceeds 5% is considered to
have RAPID GROWTH.
Ch 6 -40
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 -41
Quadrant I
Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Ch 6 -42
Quadrant II
Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive strategy
Ch 6 -43
Quadrant III
Compete in slow-growth industries
Weak competitive position
Must make drastic changes quickly to avoid
further decline
Do first cost & asset reduction (retrenchment)
Secondly, try unrelated diversification
Thirdly, divestiture / liquidate
Ch 6 -44
Quadrant IV
Strong competitive position

Slow-growth industry
Firms have high cash-flow level. Thus, do
related or unrelated diversification to more
promising growth areas.
Ch 6 -45
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -46
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative

attractiveness of feasible alternative actions
Ch 6 -47
QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Ch 6 -48
QSPM
Limitations
Requires intuitive judgments & educated

assumptions
Only as good as the prerequisite inputs
Ch 6 -49
QSPM
Advantages
Sets of strategies considered simultaneously or

sequentially
Integration of pertinent external & internal
factors in the decision making process
Ch 6 -50
Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of

consistency with the firm’s culture
Ch 6 -51
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -52
Politics of Strategy Choice
Political tactics for strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -53
Tactics to aid in strategy:
 Equifinality – It is often possible to achieve similar results using different
means or paths.
 Satisfying – Achieving satisfactory results with an acceptable strategy is far
better than failing to achieve optimal results with an unpopular
strategy.
 Generalization – Shifting focus from specific issues to more general ones
may increase options for gaining organizational
commitment.
 Focus on Higher-Order Issues – By raising an issue to a higher level, many
short-term interests can be postponed in
favour of long-term interests.
 Provide Political Access on Important Issues –
Strategy and policy decisions with significant negative consequences
for middle managers will motivate intervention behaviour from them.
Copyright © 2011 Pearson Education, Inc. Ch 6 -54

Publishing as Prentice Hall
Governance Issues
Director: a person entrusted with the overall direction of a
corporate enterprise.
Board of Directors:
A group of individuals who are elected by the ownership
of a corporation to have oversight and guidance over
management and look for shareholders’ interests.
Governance = the act of oversight and direction
Ch 6 -55
Governance
 The characteristics of ensuring that long-term
strategic objectives and plans are established
and that the proper management structure is
in place to achieve those objectives, while at
the same time making sure that the structure
functions to maintain the corporation’s
integrity, reputation and responsibility to its
various constituencies.
Ch 6 -56
Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
 Advancement of stockholder rights
Ch 6 -57
Corporate Governance Issues
Business Week’s “principles of good governance”
1. No more than 2 directors current or former company executives

2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Ch 6 -58
For Review (Chapter 6)
Key Terms & Concepts
Aggressive Quadrant Business Portfolio
Attractiveness Scores
Cash Cows
(AS)
Competitive Advantage
Boards of Directors
(CA)
Boston Consulting
Competitive Quadrant
Group (BCG) Matrix
Ch 6 -59
Conservative Quadrant Dogs
Environmental Stability
Culture
(ES)
Financial Strength
Defensive Quadrant
(FS)
Directional Vector Governance
Ch 6 -60
Internal-External (IE)
Matrix
Halo Error Matching
Industry Strength
Matching Stage
(IS)
Quantitative Strategic
Input Stage
Planning Matrix (QSPM)
Ch 6 -61
Question Marks Stars
Relative Market Share Strategic Position & Action

Position Evaluation (SPACE)
Sum Total Attractiveness

SO Strategies
Score (STAS)
ST Strategies Sustainability
Ch 6 -62
Strengths, Weaknesses
WO Strategies
Opportunities, Threats SWOT
Total Attractiveness
WT Strategies
Scores (TAS)
Ch 6 -63

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CHAPTER 6 Strategy Analysis & Choice

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Chapter 6

Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Generating alternative strategies

Stage 1: External Factor Evaluation

Competitive Profile Matrix

Basic input information for the matching &

Stage 2: BCG Matrix

Grand Strategy Matrix

Match between organization’s external opp &

Strengths Use a firm’s

Developing the SWOT

List firm’s key internal Strengths

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in

Exit of two major foreign Pursue horizontal integration

Decreasing numbers of Develop new products for

Stage 2: BCG Matrix

Grand Strategy Matrix

Two Internal Dimensions

Financial Position (FP)

Two External Dimensions

Stability Position (SP)

Financial Position (FP) Stability Position (SP)

Competitive Position (CP) Industry Position (IP)

Market share Growth potential

Stage 2: BCG Matrix

Grand Strategy Matrix

Relative Market Share Position

Ratio of a division’s market share in an industry

Stars Question Marks

Cash Cows Dogs

Decision to strengthen (intensive strategies) or

Substantial investment to maintain or

Maintain strong position as long as possible

Low relative market share & compete in slow or

Liquidation, divestiture, retrenchment

Each division is represented by:

Stage 2: BCG Matrix

Grand Strategy Matrix

 Prepare “before & after” IE/BCG to minimize the

Stage 2: BCG Matrix

Grand Strategy Matrix

 Based on two dimensions

Excellent strategic position

Evaluate present approach

Strong competitive position

Quantitative Strategic Planning Matrix

Technique designed to determine the relative

Requires intuitive judgments & educated

Sets of strategies considered simultaneously or

Successful strategies depend on the degree of

Political tactics for strategists

Copyright © 2011 Pearson Education, Inc. Ch 6 -54

Governance = the act of oversight and direction

Board of Directors Roles & Responsibilities