Chapter 6
Strategy Analysis & Choice
Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission &
objectives
Strategy Analysis & Choice
Alternative Strategies Derive From -• Vision
• Mission
• Objectives
• External audit
• Internal audit
• Past successful strategies
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
Competitive Profile Matrix
(CPM)
External Factor Evaluation
Matrix (EFE)
Note: EFE and CPM form external and IFE from internal (assessment)
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
Strategy-Formulation Analytical
Framework
Stage 2:
The Matching Stage
SWOT Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2: The Matching Stage
Match between organization’s internal
resources & skills and the opportunities & risks
created by its external factors
E.g. internal: strong R and D function
External changing demographics
(population getting older)
Strategy: Develop new products for older
adults (related to long term objectives
financial or strategic)
Stage 2: The Matching Stage: SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO):
Use a firm’s internal strengths to take advantage of external
opportunities
Weaknesses-Opportunities (WO):
Improving internal weaknesses by taking advantage
of external opportunities
Strengths-Threats (ST):
Use a firm’s strengths to avoid or reduce the impact of external
threats.
Weaknesses-Threats (WT):
Defensive tactics aimed at reducing internal weaknesses and
avoiding external threats
SWOT Matrix
Strengths – S
Leave Blank
Weaknesses –
W
List Strengths
List Weaknesses
Opportunities –
O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of
opportunities
Overcoming
weaknesses by taking
advantage of
opportunities
Threats – T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses
and avoid threats
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Excess working capacity
(strength)
20% annual growth in
the cell phone industry
(opportunity)
Insufficient capacity
(weakness)
Strong R&D (strength)
Poor employee morale
(weakness)
+
Resultant Strategy
=
Acquire Cellfone, Inc.
Exit of two major foreign
+ competitors from the
=
industry (opportunity)
Pursue horizontal integration
by buying competitor's
facilities
Decreasing numbers of
young adults (threat)
Develop new products for
older adults
+
+
Strong union
activity (threat)
=
=
Develop a new
employee benefits
package
Which types of strategies, e.g. intensive diversification…, are referred to above
12
Strengths:
1.
2.
3.
4.
5.
6.
7.
R and D almost complete
Basis for strong management team
Key first major customer acquired
Initial product can evolve into range
of offerings
Located near a major centre of
excellence
Very focused management/staff
Well-rounded and managed
business
Weaknesses:
1.
2.
3.
4.
5.
6.
7.
Threats:
1.
2.
3.
4.
5.
6.
Major player may enter targeted
market segment
New technology may make products
obsolescent
Economic slowdown could reduce
demand
Euro/Yen may move against $
Market may become price sensitive
Market segment's growth could
attract major competition
Over dependent on borrowings Insufficient cash resources
Board of Directors is too narrow
Lack of awareness amongst
prospective customers
Need to relocate to larger premises
Absence of strong sales/marketing
expertise
Overdependence on few key staff
Emerging new technologies may
move market in new directions
Opportunities:
1.
2.
3.
4.
Market segment is poised for rapid
growth
Export markets offer great potential
Distribution channels seeking new
products
Scope to diversify into related
market segments
Key Strategies
1.
2.
3.
4.
5.
6.
7.
8.
Accelerate product launches by strengthening R and D
team
Extend links with key technology centres
Raise additional venture capital
Expand senior management team in sales/marketing
Recruit non-executive directors
Strengthen human resources function and introduce
share options for staff
Appoint advisers for intellectual property and finance
Seek new market segments/applications for products
SWOT Matrix
Strengths – S
Weaknesses – W
Leave Blank
List Strengths
List Weaknesses
Opportunities – O
SO Strategies
Match and determine
strategy
WO Strategies
List Opportunities
Threats – T
List Threats
ST Strategies
Match and determine
strategy
Match and determine
strategy
WT Strategies
Match and determine
strategy
Inset key strategies into correct box element of the Matrix
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
BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an
industry to the market share held by the largest
rival firm in that industry
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
19
BCG Matrix
Question Marks
Low relative market share – compete in highgrowth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies)
or divest
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
BCG Matrix
Cash Cows
High relative market share, competes in lowgrowth 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
BCG Matrix
Dogs
Low relative market share & compete in slow or
no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth
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
1.
2.
3.
4.
5.
6.
7.
Quadrant III
Retrenchment
1.
Concentric diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate
diversification
Joint ventures
STRONG
COMPETITIVE
POSITION
GROWTH
25
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Which type of strategy would you suggest?
Grand Strategy Matrix
Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive
strategy
Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Diversification to more promising growth
areas
Strategy-Formulation Analytical
Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
Technique designed to determine the relative
attractiveness of feasible alternative actions
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
3. Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores (A.S)
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
QSPM : information from IFE and
EFE
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Weight
Strategic Alternatives
Strategy 1
Strategy 2
Strategy 3
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Sum total A.S.
AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS
32
QSPM
Limitations
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs
Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal
factors in the decision making process
Example of a QSPM for Dell
Questions
• Discuss 3 techniques that can be used by
organisations to choose alternative paths to
achieve their long term objectives.
• Discuss how to choose the best of a set of
alternative strategies.
• Discuss, using a simple illustration for a
company of your choice, how a company would
choose the best of a set of strategies that were
obtained from a SWOT matrix.