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Fred R. David
Prentice Hall
Ch 6-1
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
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Fred R. David
Prentice Hall
Ch 6-2
Formulation Framework
!ternal Factor "aluation
Matri! #F$
%ompetiti"e &ro'ile
Matri!
Internal Factor "aluation
Matri! #IF$
Stage 1:The Input Stage
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Fred R. David
Prentice Hall
Ch 6-3
Input Stage
• &ro"i(es )asic input in'ormation 'or the
matching an( (ecision stage matrices• *e+uires strategists to +uanti'y
su),ecti"ity early in the process
• oo( intuiti"e ,u(gment always nee(e(
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Fred R. David
Prentice Hall
Ch 6-4
Formulation Framework
S&A% Matri!
Stage 2:The Matching Stage
T./S Matri!
0% Matri!
I Matri!
ran( Strategy Matri!
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Prentice Hall
Ch 6-5
Matching Stage
•Match )etween organiations internalresources an( skills an( the
opportunities an( risks create( )y its
e!ternal 'actors
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Fred R. David
Prentice Hall
Ch 6-6
Matching 4ey Factors to Formulate Alternati"e Strategies
Resultant StrategyKey External Factor Key Internal Factor
De"elop a new employee
)ene'its package5Strong union acti"ity
#threat$6
&oor employee morale
#weakness$
De"elop new pro(ucts 'or
ol(er a(ults5
Decreasing num)ers o'
young a(ults #threat$6Strong *7D #strength$
&ursue horiontal integration)y )uying competitor8s
'acilities
5!it o' two ma,or 'oreigncompetitors 'orm the
in(ustry #opportunity$
6Insu''icient capacity
#weakness$
Ac+uire %ell'one9 Inc5
2; annual growth in the
cell phone in(ustry
#opportunity$
6!cess working capacity
#strength$
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Fred R. David
Prentice Hall
Ch 6-7
Formulation Framework
S&A% Matri!
Stage 2:The Matching Stage
TOWS Matrix
0% Matri!
I Matri!
ran( Strategy Matri!
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Fred R. David
Prentice Hall
Ch 6-8
Matching Stage
T./S Matri!
–Threats
–.pportunities
–Strengths
–/eaknesses
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Fred R. David
Prentice Hall
Ch 6-9
T./S Matri!
De"elop 'our types o' strategies
–Strengths-.pportunities #S.$
–/eaknesses-.pportunities #/.$
–Strengths-Threats #ST$
–/eaknesses-Threats #/T$
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Fred R. David
Prentice Hall
Ch 6-10
SO Strategies
SO
Strategies
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Fred R. David
Prentice Hall
Ch 6-11
WO Strategies
WO
Strategies
Impro"ing
internalweaknesses )y
taking
a("antage o'
e!ternalopportunities
Threats.pportunities
/eaknesses
Strengths
#T./S$
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Fred R. David
Prentice Hall
Ch 6-12
ST Strategies
ST
Strategies
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Fred R. David
Prentice Hall
Ch 6-13
WT Strategies
WT
Strategies
De'ensi"e
tactics aime( atre(ucing internal
weaknesses
an( a"oi(ing
en"ironmentalthreats
Threats.pportunities
/eaknesses
Strengths
#T./S$
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Fred R. David
Prentice Hall
Ch 6-14
T./S Matri!
Steps in (e"eloping the T./S Matri!
1 =ist the 'irms key e!ternal opportunities2 =ist the 'irms key e!ternal threats
3 =ist the 'irms key internal strengths
> =ist the 'irms key internal weaknesses
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Fred R. David
Prentice Hall
Ch 6-15
T./S Matri!
De"eloping the T./S Matri!
? Match internal strengths with e!ternal opportunitiesan( recor( the resultant S. Strategies
@ Match internal weaknesses with e!ternalopportunities an( recor( the resultant /. Strategies
Match internal strengths with e!ternal threats an(recor( the resultant ST Strategies
B Match internal weaknesses with e!ternal threats an(recor( the resultant /T Strategies
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Fred R. David
Prentice Hall
Ch 6-16
T./S Matri!
WT Strategies
Minimize weaknesses
and avoid threats
ST Strategies
Use strengths to avoid
threats
Threats-T
List Threats
WO Strategies
Overcome weaknesses
by taking advantage of
opportunities
SO Strategies
Use strengths to take
advantage of opportunities
Opportunities-O
List Opportunities
Weaknesses-W
List Weaknesses
Strengths-S
List Strengths
Leave lank
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Fred R. David
Prentice Hall
Ch 6-17
Formulation Framework
S!"#E Matrix
Stage 2:The Matching Stage
T./S Matri!
0% Matri!
I Matri!
ran( Strategy Matri!
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Fred R. David
Prentice Hall
Ch 6-18
S&A% Matri!
Strategic &osition an( Action "aluation Matri!
Four +ua(rant 'ramework
Determines appropriate strategies Aggressi"e
%onser"ati"e
De'ensi"e %ompetiti"e
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Fred R. David
Prentice Hall
Ch 6-19
S&A% Matri!
Two Internal Dimensions Financial Strength CFS
%ompetiti"e A("antage C%A
Two !ternal Dimensions n"ironmental Sta)ility CS
In(ustry Strength CIS
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Fred R. David
Prentice Hall
Ch 6-20
S&A% Matri!
."erall Strategic position (etermine( )y:
– Financial Strength CFS
– %ompetiti"e A("antage C%A
– n"ironmental Sta)ility CS
– In(ustry Strength CIS
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Fred R. David
Prentice Hall
Ch 6-21
S&A% Matri!
De"eloping the S&A% Matri!:
• F Matri!• IF Matri!• Financial Strength• %ompetiti"e A("antage• n"ironmental Sta)ility• In(ustry Strength
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Fred R. David
Prentice Hall
Ch 6-22
S&A% Matri!
• Select "aria)les to (e'ine FS9 %A9 S9
7 IS
• Assign numerical ranking 'rom 61
#worst$ to 6@ #)est$ 'or FS an( ISE
Assign numerical ranking 'rom 1
#)est$ to @ #worst$ 'or S an( %A
• %ompute a"erage score 'or FS9 %A9S9 7 IS
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Fred R. David
Prentice Hall
Ch 6-23
S&A% Matri!
• &lot the a"erage scores on the Matri!
• A(( the two scores on the !-a!is an(
plot point on G A(( the scores on the
y-a!is an( plot H &lot the intersection
o' the new !y point
• Draw a (irectional "ector 'rom origin
through the new intersection point
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Fred R. David
Prentice Hall
Ch 6-24
S&A% Factors
n"ironmental Sta)ility #S$
Technological changes
*ate o' in'lationDeman( "aria)ility
&rice range o' competing pro(ucts
0arriers to entry
%ompetiti"e pressure
&rice elasticity o' (eman(
Financial Strength #FS$
*eturn on in"estment
=e"erage=i+ui(ity
/orking capital
%ash 'low
ase o' e!it 'rom market
*isk in"ol"e( in )usiness
External Strategic !ositionInternal Strategic !osition
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Fred R. David
Prentice Hall
Ch 6-25
S&A% Factors
In(ustry Strength #IS$
rowth potential
&ro'it potentialFinancial sta)ility
Technological know-how
*esource utiliation
%apital intensi'y
ase o' entry into market
&ro(ucti"ity9 capacity utiliation
%ompetiti"e A("antage %A
Market share
&ro(uct +uality&ro(uct li'e cycle
%ustomer loyalty
%ompetitions capacity utiliation
Technological know-how
%ontrol o"er suppliers 7 (istri)utors
External Strategic !ositionInternal Strategic !osition
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Fred R. David
Prentice Hall
Ch 6-26
S&A% Matri!
FS
+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
Conervative !""reive
De#enive Co$%etitive
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Fred R. David
Prentice Hall
Ch 6-27
Formulation Framework
S&A% Matri!
Stage 2:The Matching Stage
T./S Matri!
#$ Matrix
I Matri!
ran( Strategy Matri!
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Fred R. David
Prentice Hall
Ch 6-28
0% Matri!
oston #onsulting $roup Matrix
• nhances multi(i"isional 'irms e''orts
to 'ormulate strategies• Autonomous (i"isions #or pro'it centers$
constitute the )usiness port'olio•
Firms (i"isions may compete in(i''erent in(ustries re+uiring separatestrategy
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Fred R. David
Prentice Hall
Ch 6-29
0% Matri!
oston #onsulting $roup Matrix
• raphically portrays (i''erences among
(i"isions• Focuses on market share position an(
in(ustry growth rate•
Manage )usiness port'olio throughrelati"e market share position an(in(ustry growth rate
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Fred R. David
Prentice Hall
Ch 6-30
0% Matri!
*elati"e market share position (e'ine(:
• *atio o' a (i"isions own market share
in a particular in(ustry to the marketshare hel( )y the largest ri"al 'irm in
that in(ustry
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Fred R. David
Prentice Hall
Ch 6-31
0% Matri!
Dogs
I
%ash %ows
III
Juestion Marks
I
Stars
II
Relative Market Share !osition
%igh&'(
Me)iu*'+(
Lo,('(
I n ) u s t r y S a l e s $ r o ,
t h R a t e %igh
.(
Lo,
-.(
Me)iu*
(
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Fred R. David
Prentice Hall
Ch 6-32
0% Matri!
• Juestion Marks
• Stars
• %ash %ows
• Dogs
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Fred R. David
Prentice Hall
Ch 6-33
0% Matri!
Juestion Marks
• =ow relati"e market share position yet
compete in high-growth in(ustry• %ash nee(s are high
• %ase generation is low
• Decision to strengthen #intensi"e
strategies$ or (i"est
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Fred R. David
Prentice Hall
Ch 6-34
0% Matri!
Stars
• Kigh relati"e market share an( highin(ustry growth rate• 0est long-run opportunities 'or growth an(
pro'ita)ility
•
Su)stantial in"estment to maintain orstrengthen (ominant position• Integration strategies9 intensi"e strategies9 ,oint
"entures
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Fred R. David
Prentice Hall
Ch 6-35
0% Matri!
%ash %ows
• Kigh relati"e market share position9 )ut compete
in low-growth in(ustry• enerate cash in e!cess o' their nee(s• Milke( 'or other purposes
• Maintain strong position as long as possi)le
• &ro(uct (e"elopment9 concentric (i"ersi'ication• I' )ecomes weakLretrenchment or (i"estiture
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Fred R. David
Prentice Hall
Ch 6-36
0% Matri!
Dogs
• =ow relati"e market share position an(
compete in slow or no market growth• /eak internal an( e!ternal position
• Decision to li+ui(ate9 (i"est9 retrenchment
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Fred R. David
Prentice Hall
Ch 6-37
Formulation Framework
S&A% Matri!
Stage 2:The Matching Stage
T./S Matri!
0% Matri!
I Matri!
$ran) Strategy Matrix
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Fred R. David
Prentice Hall
Ch 6-38
ran( Strategy Matri!
• &opular tool 'or 'ormulating alternati"estrategies
•
All organiations #or (i"isions$ can )epositione( in one o' 'our +ua(rants
• 0ase( on two e"aluati"e (imensions: – %ompetiti"e position – Market growth
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Fred R. David
Prentice Hall
Ch 6-39
Quadrant IV
1 %oncentric (i"ersi'ication
2 Koriontal (i"ersi'ication
3 %onglomerate(i"ersi'ication
> oint "entures
Quadrant III
1 *etrenchment
2 %oncentric (i"ersi'ication
3 Koriontal (i"ersi'ication> %onglomerate
(i"ersi'ication
? =i+ui(ation
Quadrant I
1 Market (e"elopment
2 Market penetration
3 &ro(uct (e"elopment
> Forwar( integration
? 0ackwar( integration
@ Koriontal integration
%oncentric (i"ersi'ication
Quadrant II
1 Market (e"elopment
2 Market penetration
3 &ro(uct (e"elopment
> Koriontal integration
? Di"estiture
@ =i+ui(ation
R"!I/ M"RKET $ROWT%
SLOW M"RKET $ROWT%
WE"K
#OM!ETITI0E
!OSITIO1
STRO1$
#OM!ETITI0E
!OSITIO1
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Fred R. David
Prentice Hall
Ch 6-40
ran( Strategy Matri!
Jua(rant I
• !cellent strategic position• %oncentration on current markets an(
pro(ucts• Take risks aggressi"ely when necessary
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Fred R. David
Prentice Hall
Ch 6-41
ran( Strategy Matri!
Jua(rant II
• "aluate present approach seriously• Kow to change to impro"e competiti"eness
• *api( market growth re+uires intensi"estrategy
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Fred R. David
Prentice Hall
Ch 6-42
ran( Strategy Matri!
Jua(rant III
• %ompete in slow-growth in(ustries
• /eak competiti"e position
• Drastic changes +uickly
• %ost an( asset re(uction in(icate(#retrenchment$
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Fred R. David
Prentice Hall
Ch 6-43
ran( Strategy Matri!
Jua(rant I
• Strong competiti"e position
• Slow-growth in(ustry
• Di"ersi'ication in(icate( to more promising
growth areas
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S2MM"R3 OF STR"TE$IES
Strategy Options TOWS
*atrix
IE *atrix $SM Total
Integration Strategies
&'For,ar) integration
.'ack,ar) integration
4'%ori5ontal integration 1 1
Intensive Strategies
&'Market penetration
.'Market /evelop*ent
4'!ro)uct /evelop*ent
/iversi6ication Strategies
&'Relate) /iversi6ication 1 1
.'2nrelate) /iversi6ication
4'#onglo*eration /iversi6ication 1 1
/e6ensive Strategies
&'7oint 0enture 1 1
.'Retrench*ent 1 1 1 3
4'/ivestiture 1 1 1 3
8'Li9ui)ation 1 1 2
Fred R. David
Prentice Hall
Ch 6-44
&trate"' (%tion
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DIVERSIFICATION STRATEGY A copoate !tateg" to ente into a ne# $a%et
o in&u!t" #hich the 'u!ine!! i! not cuent(" in)
#hi(!t a(!o ceating a ne# po&uct *o that ne#$a%et+ Thi! i! $o!t i!%" a! the 'u!ine!! ha! no
e,peience in the ne# $a%et an& &oe! not %no#
i* the po&uct i! going to 'e !ucce!!*u(+
Di-e!i.cation !tategie! in-o(-e #i&ening an
ogani/ation0! !cope aco!! &ieent po&uct! an&
$a%et !ecto!+ It i! a!!ociate& #ith highe i!%!
a! it euie! an ogani/ation to ta%e on ne#
e,peience an& %no#(e&ge out!i&e it! e,i!ting
$a%et! an& po&uct!+ Option! ae Related,
Unrelated an& Conglomerate Diversifcation)INTENSIVE STRATEGIESIt i! a !tateg" o* 3aggegation3 o
e,pan!ion un&e #hich go#th i!
achie-e& '" e,pan&ing the !ca(e o*
opeation!+ Thi! !tateg" in-o(-e!
e,pan!ion o* .$4! po&uct ange an&$a%et+ Thee a(tenati-e !tategie! in
thi! ega& ae a! *o((o#!:
• Market Penetration 5 !ee%ing
incea!e& $a%et !hae *o pe!ent
po&uct! in pe!ent $a%et!
• Market Development 5 into&ucing
pe!ent po&uct! in ne#
geogaphic aea!
INTEGRATIVE STRATEGIES6!e& in 'u!ine!! ae -etica( integation)
hoi/onta( integation an& *unctiona(
integation+ In vertical integration) aco$pan" i! conto((ing the up!tea$
an&7o &o#n!tea$ e(e$ent! in thei
!upp(" !tea$+ 6p#a& to !upp(ie! #hi(e
&o#n#a& to 'u"e!+ Horizontal
integration in-o(-e! a co$pan"
e,pan&ing into o acuiing &i-e!i.e&
po&uct (ine!+ Functional integration i! a
$a%eting appoach in #hich an
inteconnecte& an& e,pan&ing !"!te$ o*
!e-ice! an& po&uct! incea!e!
cu!to$e ent" point!) paticipation an&
'an& (o"a(t".
DEFENSIVE STRATEGY
A managementtapproach designed to reduce
the risk of loss. There are two approaches: The
rst approach is aimed at blocking
competitors who are attempting to take over
part of your business's market share. Cutting theprice of your products, adding incentives or
discounts to encourage customers to buy from
you or increasing your advertising and
marketing campaigns are the best common
ways of going about this. The second approach
is new product innovations, plan a company
epansion by opening a new chain or reconnectwith old customers to encoura e them to bu
&trate"' (%tion
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Prentice Hall
Ch 6-46
Formulation Framework
Juantitati"e Strategic
&lanning Matri!
#JS&M$
Stage 8:The Deci!ion Stage
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Fred R. DavidPrentice Hall
Ch 6-47
JS&M
Juantitati"e Strategic &lanning Matri!
• .nly techni+ue (esigne( to (etermine therelati"e attracti"eness o' 'easi)le
alternati"e actions
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Fred R. DavidPrentice Hall
Ch 6-48
JS&M
Juantitati"e Strategic &lanning Matri!
• Tool 'or o),ecti"e e"aluation o'alternati"e strategies
• 0ase( on i(enti'ie( e!ternal an(
internal crucial success 'actors• *e+uires goo( intuiti"e ,u(gment
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Fred R. DavidPrentice Hall
Ch 6-49
JS&M
Juantitati"e Strategic &lanning Matri!
• =ist the 'irms key e!ternal opportunities 7threatsE list the 'irms key internal strengthsan( weaknesses
•
Assign weights to each e!ternal an( internalcritical success 'actor
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Fred R. DavidPrentice Hall
Ch 6-50
JS&M
Juantitati"e Strategic &lanning Matri!
•
!amine the Stage 2 #matching$ matricesan( i(enti'y alternati"e strategies that the
organiation shoul( consi(er implementing
• Determine the Attracti"eness Scores #AS$
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Fred R. DavidPrentice Hall
Ch 6-51
JS&M
Juantitati"e Strategic &lanning Matri!
• %ompute the total Attracti"enessScores
•
%ompute the Sum Total Attracti"enessScore
JS&M St t i Alt ti
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Fred R. DavidPrentice Hall
Ch 6-52
JS&M
9e" Intena( Facto!
!anagement
!arketing
"inance#Accounting
$roduction#%perations
&esearch andevelopment
Computer (nformation)ystems
)trategy *)trategy+
)trategy
-eight9e" E,tena( Facto!
conomy
$olitical#/egal#0overnmental
)ocial#Cultural#emographic#nvironmental
Technological
Competitive
Strategic Alternatives
JS&M
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Fred R. DavidPrentice Hall
Ch 6-53
JS&M
Li*itations:
• *e+uires intuiti"e ,u(gments an(e(ucate( assumptions
• .nly as goo( as the prere+uisite inputs
JS&M
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Fred R. DavidPrentice Hall
Ch 6-54
JS&M
!ositives:
• Sets o' strategies e!amine( simultaneouslyor se+uentially
• *e+uires the integration o' pertinent e!ternal
an( internal 'actors in the (ecision-makingprocess
%ultural Aspects o' Strategy
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Fred R. DavidPrentice Hall
Ch 6-55
%ultural Aspects o' Strategy
%hoice
%ulture:
• The set o' share( "alues9 )elie's9
attitu(es9 customs9 norms9
personalities9 heroes9 an( heroines that(escri)e a 'irm
PORTER’S 5 FORCES
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Evalating In!str" Envir#n$ent