Comprehensive Strategy Formulation Framework
The Comprehensive Strategy Formulation Framework is a systematic approach used in strategic
management to analyze a firm's internal and external environment and to develop appropriate
strategies. It helps managers evaluate information, generate strategic alternatives, and select the
most suitable strategy.
1. The Input Stage
The input stage provides the basic information needed to formulate strategies. It focuses on
collecting and evaluating key internal and external information about the organization. Managers
analyze the environment to understand opportunities, threats, strengths, and weaknesses.
• Internal Factor Evaluation (IFE): Identifies strengths and weaknesses within the organization.
• External Factor Evaluation (EFE): Identifies opportunities and threats from the external
environment.
• Competitive Profile Matrix (CPM): Compares a firm with its competitors based on key success
factors.
Example: A university analyzing its strengths such as qualified faculty, weaknesses such as limited
research funding, opportunities such as increasing demand for higher education, and threats such
as new private universities entering the market.
2. The Matching Stage
In the matching stage, internal strengths and weaknesses are matched with external opportunities
and threats. The goal is to generate feasible strategic alternatives.
A. SWOT Matrix
The SWOT Matrix is a tool used to develop four types of strategies by matching internal and
external factors.
• SO Strategies (Strengths–Opportunities): Use strengths to exploit opportunities.
• WO Strategies (Weaknesses–Opportunities): Improve weaknesses by taking advantage of
opportunities.
• ST Strategies (Strengths–Threats): Use strengths to avoid or reduce threats.
• WT Strategies (Weaknesses–Threats): Defensive strategies to minimize weaknesses and
avoid threats.
Example: A company with strong research capability (strength) may develop new innovative
products to capture growing market demand (opportunity).
B. SPACE Matrix (Strategic Position and Action Evaluation)
• Evaluates four dimensions: Financial Strength, Competitive Advantage, Industry Strength,
Environmental Stability.
• Helps determine the strategic posture of the organization.
• Strategies may be aggressive, conservative, defensive, or competitive.
Example: A financially strong company in a growing industry may adopt an aggressive expansion
strategy.
C. BCG Matrix (Boston Consulting Group Matrix)
• Classifies business units based on market growth rate and relative market share.
• Four categories: Stars, Cash Cows, Question Marks, and Dogs.
• Helps managers allocate resources among different business units.
Example: A product with high market share and high growth is considered a 'Star'.
D. IE Matrix (Internal–External Matrix)
• Combines IFE and EFE scores to evaluate strategic position.
• Organizations fall into three regions: Grow and Build, Hold and Maintain, Harvest or Divest.
E. Grand Strategy Matrix
• Based on market growth and competitive position.
• Firms are placed into four quadrants.
• Helps identify strategies such as market development, product development, retrenchment, or
diversification.
3. The Decision Stage
In this stage, the organization evaluates alternative strategies generated in the matching stage and
selects the most appropriate strategy.
A. QSPM Matrix (Quantitative Strategic Planning Matrix)
• Allows managers to objectively evaluate alternative strategies.
• Uses key internal and external factors identified earlier.
• Each factor is assigned a weight and attractiveness score.
• The strategy with the highest total attractiveness score is considered the best option.
Example: A firm comparing market expansion and product diversification strategies using weighted
scores.
4. Strategy Choice Criteria
• Consistency Test: The strategy should align with the organization's mission and long-term
objectives.
• Clarity of Goals: Strategic objectives should be clearly defined and understandable.
• Appropriate Timing: The strategy should be implemented at the right time considering market
conditions.
• Flexibility: The strategy should allow adjustments in response to environmental changes.
• Management Commitment: Successful strategies require strong support and commitment from
top management.
5. The Politics of Strategy Choice
Strategy selection may also involve organizational politics. Managers, departments, and
stakeholders may support different strategies based on their interests. Effective leadership is
required to manage conflicts and ensure that the chosen strategy benefits the organization as a
whole.
Example: A marketing department may support expansion strategies while finance managers may
prefer cost reduction strategies.