Chapter 6 Strategy Analysis & Choice fileEFE Matrix IFE matrix

Copyright © 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 6

Strategy Analysis & Choice

Strategic Management:

Concepts & Cases

13th Edition

Fred David



“Whether it’s broke or not, fix it – make it

better. Not just products, but the whole

company if necessary.”

– Bill Saporito


“Life is full of lousy options.” – General P.X. Kelley



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





Generating Alternatives –

Participation in generating alternative

strategies should be as broad as

possible



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



Strategy-Formulation Framework

External Factor Evaluation

Matrix (EFE)

Internal Factor Evaluation

Matrix (IFE)

Competitive Profile Matrix

(CPM)

Stage 1:

The Input Stage



Stage 2: The Matching Stage

Match between organization’s internal

resources & skills and the opportunities &

risks created by its external factors




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:

The Matching Stage



Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix



SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies



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



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




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage



SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive



SPACE Matrix

Internal dimensions

Financial position (FP)

Competitive position (CP)

External dimensions

Environmental position (EP)

Industry position (IP)




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage



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



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




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage



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



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




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage




Tool for formulating alternative

strategies

Based on two dimensions

Competitive position

Market growth



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

STRONG

COMPETITIVE

POSITION




Excellent strategic position

Concentration on current

markets/products

Take risks aggressively when

necessary

Quadrant I




Evaluate present approach

How to improve

competitiveness

Rapid market growth requires

intensive strategy

Quadrant II




Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction

(retrenchment)

Quadrant III




Strong competitive position

Slow-growth industry

Diversification to more

promising growth areas

Quadrant IV



Strategy-Formulation Analytical

Framework

Stage 3:

The Decision Stage

Quantitative Strategic

Planning Matrix

(QSPM)



QSPM

Technique designed to determine

the relative attractiveness of feasible

alternative actions

Quantitative Strategic Planning Matrix



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



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



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



QSPM

Sets of strategies considered

simultaneously or sequentially

Integration of pertinent external &

internal factors in the decision-

making process

Advantages



QSPM

Requires intuitive judgments &

educated assumptions

Only as good as the prerequisite

inputs

Limitations



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



Politics of Strategy Choice

Hierarchy of command

Career aspirations

Allocation of scarce resources

Politics in Organizations



Politics of Strategy Choice

Equifinality

Satisfying

Generalization

Higher-order issues

Political access on important issues

Political Tactics for Strategists



Governance Issues

Control & oversight over management

Adherence to legal prescriptions

Consideration of stakeholders’ interests

Advancement of stockholders’ rights

Board of Directors Roles & Responsibilities

Reference

David, Fred. R. (2009). Strategic

Management Concepts (12th ed.). Upper

Saddle River, NJ: Prentice Hall.



Chapter 6 Strategy Analysis & Choice fileEFE Matrix IFE matrix

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