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Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
“Whether it’s broke or not, fix it – make it
better. Not just products, but the whole
company if necessary.”
– Bill Saporito
Strategy Analysis & Choice
“Life is full of lousy options.” – General P.X. Kelley
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Subjective decisions based on objective
information
Generating alternative strategies
Selecting strategies to pursue
Best alternative course of action to
achieve mission & objectives
Derived from vision, mission, objectives,
external audit, and internal audit
Strategy Analysis & Choice
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Strategy Analysis & Choice
Generating Alternatives –
Participation in generating alternative
strategies should be as broad as
possible
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Comprehensive Strategy-
Formulation Framework Stage 1 - Input Stage
EFE Matrix
IFE matrix
CPM
Stage 2 - Matching Stage SWOT
SPACE matrix
BCG matrix
IE Matrix
Grand strategy matrix
Stage 3 - Decision Stage QSPM
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Publishing as Prentice Hall
Strategy-Formulation Framework
External Factor Evaluation
Matrix (EFE)
Internal Factor Evaluation
Matrix (IFE)
Competitive Profile Matrix
(CPM)
Stage 1:
The Input Stage
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Stage 2: The Matching Stage
Match between organization’s internal
resources & skills and the opportunities &
risks created by its external factors
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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
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SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
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SWOT Matrix
SO strategies use a firm’s internal strengths
to take advantage of external opportunities
WO strategies improve internal weaknesses
by taking advantage of external opportunities
ST strategies use a firm’s strengths to avoid
or reduce the impact of external threats
WT strategies defensive tactics aimed at
reducing internal weakness and avoiding
external threats
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Publishing as Prentice Hall
Limitations with SWOT Matrix
Does not show how to achieve a competitive
advantage
Provides a static assessment in time
May lead the firm to overemphasize a single
internal or external factor in formulating
strategies
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
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SPACE Matrix
Internal dimensions
Financial position (FP)
Competitive position (CP)
External dimensions
Environmental position (EP)
Industry position (IP)
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Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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BCG Matrix
Boston Consulting Group Matrix
Assists multidivisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on relative market-share position &
industry growth rate
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BCG Matrix
Question Marks – low relative market share
in a high-growth industry
Stars – high relative market share in a high-
growth industry
Cash Cows – high relative market share in a
low-growth industry
Dogs – Low relative market share in a slow or
no growth industry
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Publishing as Prentice Hall
The Internal-External Matrix
Positions an organization’s various divisions
in a nine-cell display
Similar to BCG Matrix except the IE Matrix:
Requires more information about the divisions
Strategic implications of each matrix are different
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IE Matrix
Based on two key dimensions
The IFE total weighted scores on the x-axis
The EFE total weighted scores on the y-axis
Divided into three major regions
Grow and build – Cells I, II, or IV
Hold and maintain – Cells III, V, or VII
Harvest or divest – Cells VI, VIII, or IX
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Publishing as Prentice Hall
Grand Strategy Matrix
Tool for formulating alternative
strategies
Based on two dimensions
Competitive position
Market growth
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Quadrant IV
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Quadrant III
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
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Grand Strategy Matrix
Excellent strategic position
Concentration on current
markets/products
Take risks aggressively when
necessary
Quadrant I
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Grand Strategy Matrix
Evaluate present approach
How to improve
competitiveness
Rapid market growth requires
intensive strategy
Quadrant II
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Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction
(retrenchment)
Quadrant III
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Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more
promising growth areas
Quadrant IV
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Strategy-Formulation Analytical
Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
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QSPM
Technique designed to determine
the relative attractiveness of feasible
alternative actions
Quantitative Strategic Planning Matrix
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QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives
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Steps to Develop a QSPM
1. Make a list of the firm’s key external
opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor
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Steps to Develop a QSPM
3. Examine the Stage 2 (matching) matrices,
and identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness
Score
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QSPM
Sets of strategies considered
simultaneously or sequentially
Integration of pertinent external &
internal factors in the decision-
making process
Advantages
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QSPM
Requires intuitive judgments &
educated assumptions
Only as good as the prerequisite
inputs
Limitations
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Cultural Aspects of Strategy
Choice
A set of values, beliefs, attitudes,
customs, norms, personalities,
heroes and heroines that describe a
firm
Successful strategies depend on
support of the firm’s culture
Organization Culture
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Politics of Strategy Choice
Hierarchy of command
Career aspirations
Allocation of scarce resources
Politics in Organizations
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Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Political Tactics for Strategists
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Governance Issues
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholders’ interests
Advancement of stockholders’ rights
Board of Directors Roles & Responsibilities