Chapter 6

Strategy Analysis & Choice

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Strategy Analysis & Choice

“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

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Strategy Analysis & Choice

■ 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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Strategy Analysis & Choice

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 Evaluation

Matrix (EFE)

Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)

Competitive Profile Matrix

(CPM)

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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 Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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Stage 2: The Matching Stage

SWOT Matrix

■Strengths

■Weaknesses

■Opportunities

■Threats

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SWOT Matrix

Four Types of Strategies

■Strengths-Opportunities (SO)
■Weaknesses-Opportunities (WO)
■Strengths-Threats (ST)
■Weaknesses-Threats (WT)

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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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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy 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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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy 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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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy 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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Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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Grand Strategy Matrix

■ Tool for formulating alternative

strategies
■ Based on two dimensions
❑ Competitive position
❑ Market growth

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 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Related diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation

SLOW MARKET GROWTH

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Grand Strategy Matrix

Quadrant I

■Excellent strategic position

■Concentrationon current
markets/products
■Take risks aggressively when
necessary

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Grand Strategy Matrix

Quadrant II

■Evaluate present approach

■How to improve competitiveness
■Rapid market growth requires
intensive strategy

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Grand Strategy Matrix

Quadrant III

■Compete in slow-growth industries

■Weak competitive position
■Drastic changes quickly
■Cost & asset reduction
(retrenchment)

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Grand Strategy Matrix

Quadrant IV

■Strong competitive position

■Slow-growth industry
■Diversification
to more
promising growth areas

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Strategy-Formulation Analytical
Framework

Quantitative
Stage 3: Strategic
The Decision Planning Matrix
Stage (QSPM)

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QSPM

Quantitative Strategic Planning Matrix

■Technique designed to determine

the relative attractiveness of feasible
alternative actions

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 QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems

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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

Advantages

■Setsof strategies considered

simultaneously or sequentially
■Integrationof pertinent external &
internal factors in the
decision-making process

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QSPM

Limitations

■Requiresintuitive judgments &

educated assumptions
■Onlyas good as the prerequisite
inputs

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Cultural Aspects of Strategy
Choice

Organization Culture
■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
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Politics of Strategy Choice

Politics in Organizations

■Hierarchy of command
■Career aspirations
■Allocation of scarce resources

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Politics of Strategy Choice

Political Tactics for Strategists

■Equifinality

■Satisfying

■Generalization

■Higher-order issues
■Political access on important issues

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Governance Issues

Board of Directors Roles & Responsibilities

■Control & oversight over management

■Adherence to legal prescriptions
■Consideration of stakeholders’ interests
■Advancement of stockholders’ rights

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