Chapter 6
Strategy Analysis And Choice
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Fred R. David
Prentice Hall
Ch 6-1
Chapter Outline
• The Nature of Strategy Analysis and
Choice
• A Comprehensive Strategy-Formulation
Framework
• The Input Stage
Fred R. David
Prentice Hall
Ch 6-2
Chapter Outline
• The Matching Stage
• The Decision Stage
• Cultural Aspects of Strategy Choice
Fred R. David
Prentice Hall
Ch 6-3
Chapter Outline
• The Politics of Strategy Choice
• The Role of a Board of Directors
Fred R. David
Prentice Hall
Ch 6-4
Strategy Analysis & Choice
Whether it’s broke or not, fix it—make it
better. Not just products, but the whole
company if necessary.
-- Bill Saporito
Fred R. David
Prentice Hall
Ch 6-5
Strategy Analysis & Choice
Strategic analysis and choice largely
involves making subjective decisions
based on objective information.
Fred R. David
Prentice Hall
Ch 6-6
Strategy Analysis & Choice
The Nature of Strategy Analysis and Choice –
–
–
–
–
Establishing long-term objectives
Generating alternative strategies
Selecting strategies to pursue
Best alternative to achieve mission and objectives
Fred R. David
Prentice Hall
Ch 6-7
Strategy Analysis & Choice
Alternative strategies derive from –
– Vision
– Mission
– Objectives
– External audit
– Internal audit
– Past successful strategies
Fred R. David
Prentice Hall
Ch 6-8
Strategy Analysis & Choice
Participation in generating alternative
strategies should be broad –
Fred R. David
Prentice Hall
Ch 6-9
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
Fred R. David
Prentice Hall
Ch 6-10
Formulation Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Competitive Profile
Matrix
Fred R. David
Prentice Hall
Ch 6-11
Input Stage
• Provides basic input information for the
matching and decision stage matrices
• Requires strategists to quantify
subjectivity early in the process
• Good intuitive judgment always needed
Fred R. David
Prentice Hall
Ch 6-12
Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
Ch 6-13
Matching Stage
• Match between organization’s internal
resources and skills and the opportunities
and risks created by its external factors.
Fred R. David
Prentice Hall
Ch 6-14
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
+
20% annual growth in the
cell phone industry
=
(opportunity)
Insufficient capacity
(weakness)
+
Exit of two major foreign
competitors form the
industry (opportunity)
=
Pursue horizontal integration
by buying competitor's
facilities
Strong R&D (strength)
+
Decreasing numbers of
young adults (threat)
=
Develop new products for
older adults
Poor employee morale
(weakness)
+ Strong union activity
(threat)
Excess working capacity
(strength)
Fred R. David
Prentice Hall
=
Acquire Cellfone, Inc.
Develop a new employee
benefits package
Ch 6-15
Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
Ch 6-16
Matching Stage
TOWS Matrix
– Threats
– Opportunities
– Strengths
– Weaknesses
Fred R. David
Prentice Hall
Ch 6-17
TOWS Matrix
Develop four types of strategies
– Strengths-Opportunities (SO)
– Weaknesses-Opportunities (WO)
– Strengths-Threats (ST)
– Weaknesses-Threats (WT)
Fred R. David
Prentice Hall
Ch 6-18
SO Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
SO
Strategies
Fred R. David
Prentice Hall
Use a firm’s
internal
strengths to take
advantage of
external
opportunities
Ch 6-19
WO Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
WO
Strategies
Fred R. David
Prentice Hall
Improving
internal
weaknesses by
taking
advantage of
external
opportunities
Ch 6-20
ST Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
ST
Strategies
Fred R. David
Prentice Hall
Using firm’s
strengths to
avoid or reduce
the impact of
external threats.
Ch 6-21
WT Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
WT
Strategies
Fred R. David
Prentice Hall
Defensive
tactics aimed at
reducing
internal
weaknesses
and avoiding
environmental
threats.
Ch 6-22
TOWS Matrix
Steps in developing the TOWS Matrix
1.
2.
3.
4.
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
Fred R. David
Prentice Hall
Ch 6-23
TOWS Matrix
Developing the TOWS Matrix
5.
6.
7.
8.
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
Fred R. David
Prentice Hall
Ch 6-24
TOWS Matrix
Leave Blank
Strengths-S
Weaknesses-W
List Strengths
List Weaknesses
Opportunities-O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of opportunities
Overcome weaknesses
by taking advantage of
opportunities
Threats-T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses
and avoid threats
Fred R. David
Prentice Hall
Ch 6-25
Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
Ch 6-26
SPACE Matrix
Strategic Position and Action Evaluation Matrix


Four quadrant framework
Determines appropriate strategies

Aggressive
 Conservative
 Defensive
 Competitive
Fred R. David
Prentice Hall
Ch 6-27
SPACE Matrix
Two Internal Dimensions

Financial Strength [FS]
 Competitive Advantage [CA]
Two External Dimensions

Environmental Stability [ES]
 Industry Strength [IS]
Fred R. David
Prentice Hall
Ch 6-28
SPACE Matrix
Overall Strategic position determined by:
–
Financial Strength [FS]
– Competitive Advantage [CA]
– Environmental Stability [ES]
– Industry Strength [IS]
Fred R. David
Prentice Hall
Ch 6-29
SPACE Matrix
Developing the SPACE Matrix:
•
•
•
•
•
•
EFE Matrix
IFE Matrix
Financial Strength
Competitive Advantage
Environmental Stability
Industry Strength
Fred R. David
Prentice Hall
Ch 6-30
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
Fred R. David
Prentice Hall
Ch 6-31
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.
Fred R. David
Prentice Hall
Ch 6-32
SPACE Factors
Internal Strategic Position
External Strategic Position
Financial Strength (FS)
Environmental Stability (ES)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand
Fred R. David
Prentice Hall
Ch 6-33
SPACE Factors
Internal Strategic Position
External Strategic Position
Competitive Advantage CA
Industry Strength (IS)
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers & distributors
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensify
Ease of entry into market
Productivity, capacity utilization
Fred R. David
Prentice Hall
Ch 6-34
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
Fred R. David
Prentice Hall
Ch 6-35
Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
Ch 6-36
BCG Matrix
Boston Consulting Group Matrix
•
•
•
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
Fred R. David
Prentice Hall
Ch 6-37
BCG Matrix
Boston Consulting Group Matrix
•
•
•
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
Fred R. David
Prentice Hall
Ch 6-38
BCG Matrix
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.
Fred R. David
Prentice Hall
Ch 6-39
BCG Matrix
Relative Market Share Position
Industry Sales Growth Rate
High
1.0
Medium
.50
Low
0.0
High
+20
Stars
II
Question Marks
I
Cash Cows
III
Dogs
IV
Medium
0
Low
-20
Fred R. David
Prentice Hall
Ch 6-40
BCG Matrix
•
•
•
•
Question Marks
Stars
Cash Cows
Dogs
Fred R. David
Prentice Hall
Ch 6-41
BCG Matrix
Question Marks
•
Low relative market share position yet
compete in high-growth industry.
•
Cash needs are high
• Case generation is low
•
Decision to strengthen (intensive
strategies) or divest
Fred R. David
Prentice Hall
Ch 6-42
BCG Matrix
Stars
•
High relative market share and high
industry growth rate.
•
•
Best long-run opportunities for growth and
profitability
Substantial investment to maintain or
strengthen dominant position
•
Integration strategies, intensive strategies, joint
ventures
Fred R. David
Prentice Hall
Ch 6-43
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
Fred R. David
Prentice Hall
Ch 6-44
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
Fred R. David
Prentice Hall
Ch 6-45
Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
Ch 6-46
Grand Strategy Matrix
•
Popular tool for formulating alternative
strategies
•
All organizations (or divisions) can be
positioned in one of four quadrants
•
Based on two evaluative dimensions:
–
Competitive position
– Market growth
Fred R. David
Prentice Hall
Ch 6-47
RAPID MARKET GROWTH
1.
2.
3.
4.
5.
6.
WEAK
COMPETITIVE
POSITION
1.
2.
3.
4.
5.
Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
1.
2.
3.
4.
5.
6.
7.
Quadrant III
Retrenchment
1.
Concentric diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate
diversification
Joint ventures
STRONG
COMPETITIVE
POSITION
GROWTH
Fred R. David
Prentice Hall
Ch 6-48
Grand Strategy Matrix
Quadrant I
•
Excellent strategic position
• Concentration on current markets and
products
• Take risks aggressively when necessary
Fred R. David
Prentice Hall
Ch 6-49
Grand Strategy Matrix
Quadrant II
• Evaluate present approach seriously
• How to change to improve competitiveness
• Rapid market growth requires intensive
strategy
Fred R. David
Prentice Hall
Ch 6-50
Grand Strategy Matrix
Quadrant III
•
•
•
•
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated
(retrenchment)
Fred R. David
Prentice Hall
Ch 6-51
Grand Strategy Matrix
Quadrant IV
•
Strong competitive position
• Slow-growth industry
• Diversification indicated to more promising
growth areas
Fred R. David
Prentice Hall
Ch 6-52
Formulation Framework
Quantitative Strategic
Planning Matrix
(QSPM)
Stage 3:
The Decision Stage
Fred R. David
Prentice Hall
Ch 6-53
QSPM
Quantitative Strategic Planning Matrix
•
Only technique designed to determine the
relative attractiveness of feasible
alternative actions
Fred R. David
Prentice Hall
Ch 6-54
QSPM
Quantitative Strategic Planning Matrix
•
•
•
Tool for objective evaluation of
alternative strategies
Based on identified external and
internal crucial success factors
Requires good intuitive judgment
Fred R. David
Prentice Hall
Ch 6-55
QSPM
Quantitative Strategic Planning Matrix
•
List the firm’s key external opportunities &
threats; list the firm’s key internal strengths
and weaknesses
•
Assign weights to each external and internal
critical success factor
Fred R. David
Prentice Hall
Ch 6-56
QSPM
Quantitative Strategic Planning Matrix
•
Examine the Stage 2 (matching) matrices
and identify alternative strategies that the
organization should consider implementing
•
Determine the Attractiveness Scores (AS)
Fred R. David
Prentice Hall
Ch 6-57
QSPM
Quantitative Strategic Planning Matrix
•
Compute the total Attractiveness
Scores
•
Compute the Sum Total Attractiveness
Score
Fred R. David
Prentice Hall
Ch 6-58
QSPM
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives
Weight
Strategy 1
Strategy 2
Strategy 3
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Fred R. David
Prentice Hall
Ch 6-59
QSPM
Limitations:
•
Requires intuitive judgments and
educated assumptions
•
Only as good as the prerequisite inputs
Fred R. David
Prentice Hall
Ch 6-60
QSPM
Positives:
•
Sets of strategies examined simultaneously
or sequentially
•
Requires the integration of pertinent external
and internal factors in the decision-making
process
Fred R. David
Prentice Hall
Ch 6-61
Cultural Aspects of Strategy
Choice
Culture:
•
The set of shared values, beliefs,
attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm
Fred R. David
Prentice Hall
Ch 6-62
Cultural Aspects of Strategy
Choice
Culture:
•
Successful strategies depend on
degree of support from a firm’s culture
Fred R. David
Prentice Hall
Ch 6-63
Politics of Strategy Choice
Politics in organizations:
•
•
•
Management hierarchy
Career aspirations
Allocation of scarce resources
Fred R. David
Prentice Hall
Ch 6-64
Politics of Strategy Choice
Political tactics for strategists:
•
•
•
•
•
Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues
Fred R. David
Prentice Hall
Ch 6-65
Role of A Board of Directors
Duties and Responsibilities:
1.
2.
3.
4.
Control and oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholders’ rights
Fred R. David
Prentice Hall
Ch 6-66
Key Terms
•
•
•
•
•
•
•
•
Aggressive quadrant
Attractiveness Scores (AS)
Board of Directors
Boston Consulting Group (BCG) Matrix
Business portfolio
Cash cows
Champions
Competitive Advantage (CA)
Fred R. David
Prentice Hall
Ch 6-67
Key Terms
•
•
•
•
•
•
•
•
•
Competitive quadrant
Conservative quadrant
Culture
Decision stage
Defensive quadrant
Directional vector
Dogs
Environmental Stability (ES)
Financial Strength (FS)
Fred R. David
Prentice Hall
Ch 6-68
Key Terms
•
•
•
•
•
•
•
•
•
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)
Fred R. David
Prentice Hall
Ch 6-69
Key Terms
•
•
•
•
•
•
•
Question marks
Relative market share position
SO strategies
ST strategies
Stars
Strategic Position and Action Evaluation
(SPACE) Matrix
Strategy-formulation framework
Fred R. David
Prentice Hall
Ch 6-70
Key Terms
•
•
•
•
•
Sum total attractiveness scores
Threats-Opportunities-WeaknessesStrengths (TOWS) Matrix
Total Attractiveness Scores (TAS)
WO strategies
WT strategies
Fred R. David
Prentice Hall
Ch 6-71