Strategic Management Chapter 06

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 6 -1

Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases

13th Edition

Fred David


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Ch 6 -3

“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


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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



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Generating Alternatives –

Participation in generating alternative strategies should be as broad as possible


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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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Strategy-Formulation Framework

External Factor EvaluationMatrix (EFE)

Internal Factor EvaluationMatrix (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 FrameworkSWOT 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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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


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SPACE Matrix

BCG Matrix

IE Matrix




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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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SPACE Matrix

BCG Matrix

IE Matrix




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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


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SPACE Matrix

BCG Matrix

IE Matrix




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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


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SPACE Matrix

BCG Matrix

IE Matrix




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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


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


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

STRONGCOMPETITIVE

POSITION


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Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Quadrant I


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Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant II


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Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III


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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 StrategicPlanning 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 3Strategy 2Strategy 1WeightKey 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


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Strategic Management Chapter 06

Documents

formulation

strategy analysis

grand strategy

competitive

swot matrix

bcg matrix

space matrix

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