Ch 6 -1

Chapter 6Strategy Analysis & Choice

Ch 6 -2

Chapter Outline

The Nature of Strategy & Choice

A Comprehensive Strategy-Formulation Framework

The Input Stage

Ch 6 -3

Chapter Outline (cont’d)

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

Ch 6 -4

Chapter Outline (cont’d)

The Politics of Strategy Choice

Ch 6 -5

-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice

Strategy Analysis & Choice

Ch 6 -6

Vision Mission Objectives External audit Internal audit Past successful strategies

Providing a basis for generating and evaluating feasible alternative strategies

Strategy Analysis & Choice

Alternative Strategies Derive From --

Ch 6 -7

Strategy Analysis & Choice

Generating Alternatives --

Participation in generating alternative strategies should be as broad as possible

Ch 6 -8

Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

Ch 6 -9

Comprehensive Strategy-Formulation Framework

All techniques included in the strategy-formulation framework require the integration of intuition and analysis

Strategists themselves, not analytic tools, are always responsible and accountable for strategic decisions.

Ch 6 -10

Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage

Ch 6 -11

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 -12

Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:The Matching Stage

Ch 6 -13

Stage 2: The Matching Stage

Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

Ch 6 -14

Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix

Ch 6 -15

SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

Ch 6 -16

WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunities

WOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

Ch 6 -17

ST Strategies

Use a firm’s strengthsto avoid or

reduce the impactof external

threats

STStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

WT Strategies

Ch 6 -18

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threats

WTStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

Ch 6 -19

SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

Ch 6 -20

SWOT Matrix

Leave Blank

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of

opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats

Ch 6 -22

SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive

Ch 6 -23

SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Ch 6 -24

SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

Ch 6 -25

Steps to Developing a SPACE Matrix

1. Select a set of variables depending on the type of organizations to define FS, CA, ES, & IS

2. Assign a numerical value:1. From +1(worst) to +6 (best) to each FS & IS

dimensions2. From -1 (best) to -6 (worst) to each ES & CA

dimensions

3. Compute an average score for each FS, CA, ES, & IS

Ch 6 -26

Steps to Developing a SPACE Matrix

1. Plot the average score on the appropriate axis

2. Add the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point. Plot the intersection of the new xy point

3. Draw a directional vector from the origin through the new intersection point.

Ch 6 -27

SPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

Ch 6 -28

Aggressive Profiles

An organization is in an excellent position to use its internal strengths to Take advantage of external opportunities Overcome internal weaknesses Avoid external treats

Market penetration ; market development; product development; integration; diversification; combination strategy all can be feasible

Ch 6 -29

Conservative Profiles

The directional vector appear in the upper-left quadrant ,which implies staying close to the firm’s basic competencies and not taking excessive risks

Market penetration; market development; product development; concentric diversification

Ch 6 -30

Defensive Profiles

The directional vector may be located in the lower-left quadrant, which suggests that the firm should focus on rectifying internal weaknesses and avoiding external threats

Harvest ， Retrenchment; divestiture; liquidation; concentric diversification

Ch 6 -31

Competitive Profiles

The directional vector may be located in the lower-right quadrant, indicating that the firm who has financial problem competes in an unstable but growing industry, should focus on strengthening its finance by taking advantage the industry growth

Backward, forward, and horizontal integration; Market penetration; market development; product development; and joint venture

Ch 6 -32

＋ 1 ＋ 2 ＋ 3 ＋ 4 ＋ 5 ＋ 6－ 1－ 2－ 3

Ch 6 -33

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

Ch 6 -34

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

Ch 6 -35

BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0

Ch 6 -36

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 -37

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 -38

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 -39

BCG Matrix

Dogs

Low relative market share & compete in slow or no market growth

Weak internal & external position

Liquidation, divestiture, retrenchment

Ch 6 -40

Limitations of BCG Matrix Viewing every business as either a star, cash

cow, dog, or question mark is an oversimplification

It is a snapshot of an organization at a given point in time, and has no temporal qualities

Other variables besides relative market share and industry growth rate in sales, are important in making strategic decisions about various divisions

Ch 6 -41

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

Ch 6 -42

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

Ch 6 -43

QSPM

Technique designed to determine the relative attractiveness of feasible alternative actions

The only one analytical technique in the literature Quantitative Strategic Planning Matrix

Ch 6 -44

QSPM The QSPM uses input ( critical success

factors) from Stage1 analyses and matching results from Stage2 analyses to decide objectively among alternative strategies

The QSPM, like other strategy-formulation analytical tools, requires good intuitive judgment

Ch 6 -45

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 ( this information should be taken directly from the EFE and IFE Matrices)

2. Assign weights to each key external and internal factor ( these weights are identical to those in the EFE and IFE Matrices)

3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

Ch 6 -46

Steps to Develop a QSPM

4. Determine the Attractiveness Scores (AS indicate the relative attractiveness of each strategy in a given set of alternatives)

1. Does this factor affect the choice of strategies being made?

2. The answer—YES, strategies should be compared relative to that key factor, then assign Attractiveness Scores

3. The answer—NO, key factor has not effect upon the specific choice being made, then do not assign Attractiveness Scores to all of the strategies in the same set

4. Double 4s,3s,2s,1s, are never in a give row

Ch 6 -47

QSPM

Range for Attractiveness Scores 1= not attractive 2= somewhat attractive 3= reasonably attractive 4= highly attractive

Ch 6 -48

QSPM

5. Compute the Total Attractiveness Scores Multiplying the weights by the attractiveness scores Indicating the relative attractiveness of each alternative

strategy, considering only the impact of the adjacent key factor

6. Compute the Sum Total Attractiveness Score Adding TAS in each strategy column of the QSPM Revealing which strategy is most attractive in each set of

alternatives considering all the factors

Copyright 2007 Prentice Hall Ch 6 -49