STRATEGY ANALYSIS
and CHOICE
STRATEGY – FORMULATION FRAMEWORK
STAGE 1: INPUT STAGE
• EFE MATRIX, CPM, IFE MATRIX
STAGE 2: MATCHING STAGE
• SWOT MATRIX, SPACE MATRIX, BCG MATRIX, IE MATRIX, GRAND
STRATEGY MATRIX
STAGE 3: DECISION STAGE
• QSPM
Steps in Creating the IE Matrix
1. Get Total Scores
• From IFE (internal) and EFE (external)
• Range: 1.0–4.0 (Weak → Strong / Low → High)
2. Plot Scores on 9-Cell Grid
• X-axis = IFE
• Y-axis = EFE
• Locate your cell position (I–IX)
3. Identify Strategic Zone
4. Select Matching Strategies
• Choose strategies aligned with your IE zone.
• These become your Alternative Courses of Action (ACA).
5. Proceed to QSPM
• Evaluate the ACAs quantitatively using AS & TAS.
• The highest total TAS = Best ACA.
INTERNAL- EXTERNAL (IE) MATRIX
The IE Matrix (Internal–
External Matrix) is a
strategic management tool
used to analyze the overall
position of a company
based on its internal
strengths and weaknesses
and external opportunities
and threats.
INTERNAL- EXTERNAL (IE) MATRIX
Grow and Build – I, II, IV
• Market Peneration
• Market Development
• Product Development
• Integration Strategies
Hold and Maintain – III, V, VII
• Market Peneration (Conservative)
• Product Improvement
• Process Efficiency
Harvest and Divest – VI, VIII, IX
• Retrenchment
• Divestiture
• Liquidation
6-9 • Harvest
SWOT Matrix
Strengths-Weaknesses-
Opportunities-Threats
(SWOT) Matrix
[Link]
SWOT Matrix
⎯ a business framework that helps assessing a wide variety
of factors that may have a profound impact on a
business’s performance
⎯ helps managers develop four types of strategies:
ƪ SO (strengths-opportunities)Strategies,
ƪ WO (weaknesses-opportunities)Strategies,
ƪ ST (strengths-threats) Strategies, and
ƪ WT (weaknesses-threats) Strategies.
✓ Requires good judgment
✓ No best set of matches
Strengths
⎯ Are characteristics of
a company that give it
an advantage over its
competitors Resources and
⎯ Unique Selling Points capabilities that are:
(USPs), Firm-Specific
Advantages (FSAs), or ✓ Valuable,
competitive ✓ Rare,
advantage ✓ Hard-to-imitate, and
✓ Organization-wide
supported
Weaknesses
⎯ are company characteristics that place a company
at a disadvantage relative to others
⎯ are harmful to the firm
Best Discovered By:
✓ Having enough feedback loops in
place, both internally and externally
Opportunities
Assessed
⎯ external factors that By:
may positively
influence a
company’s ✓ Using PESTEL
performance analysis for the
⎯ elements in the macro-environment
environment that ✓ Porter’s Five Forces for
could be exploited to the industry dynamics
the company’s own
advantage
Threats
⎯ are the external factors that could cause trouble for the
company in the future
Assessed By:
✓ Using PESTEL analysis for the macro-
environment
✓ Porter’s Five Forces for the industry
dynamics
[Link]
NOTE
SWOT analysis helps assessing a company’s
current internal and external situation, but
does not provide concrete strategic actions
to take.
TOWS matrix helps map out the strategic
options a company has – by combining the
external environment’s opportunities and
threats with the internal organization’s
strengths and weaknesses.
Steps in Constructing a SWOT Matrix
1. List the firm’s key external opportunities and threats.
2. List the firm’s key internal strengths and weaknesses.
3. Match internal strengths with external opportunities, and
record the resultant SO Strategies in the appropriate cell.
4. Match internal weaknesses with external opportunities,
and record the resultant WO Strategies.
5. Match internal strengths with external threats, and
record the resultant ST Strategies Match
6. Match internal weaknesses with external threats, and
record the resultant WT Strategies.
[Link]
STRENGTHS WEAKNESSES
1. In-store promotions = 20% increase 1. Location of store hurt by new Hwy
in sales 34
2. Revenues from repair/service in- 2. Total store revenues down 8%
store up 16% 3. Customer checkout process too
3. Store’s debt-to-total assets ratio slow
down 34% 4. Carpet and paint in store in
disrepair
5. Bathroom in store needs refurbishing
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
1. Vehicle traffic passing store up 12% 1. Add 4 new in-store promotions 1. Purchase land to build new store
2. Senior citizen use of computers up monthly (S1,O1) (W1, O3)
8% 2. Add 2 new repair/service persons 2. Launch mail out to all Realtors in
3. Rival computer store opening 1 mile (S2,O2) city (W2, O4)
away
4. Desire for Web sites up 18% by
Realtors
THREATS ST STRATEGIES WT STRATEGIES
1. New bypass Hwy 34 in 1 yr will divert 1. Purchase land to build new 1. Hire 2 new cashiers (W3, T3, T4)
traffic store (S3, T1) 2. Install new carpet/paint/ bath (W4,
2. Gas prices up 14% 2. Raise out-of-store service calls from W5, T3)
3. Best Buy opening new store in 1yr $60 to $80 (S2, T2)
nearby
4. New mall being built nearby
STAGE 3
The Decision Stage
The Quantitative Strategic
Planning Matrix
(QSPM)
QSPM
➢Technique designed to determine the relative
attractiveness of feasible alternative actions.
➢Objectively indicates or decide which alternative
strategies are best by using input from stage 1 analyses
and matching results from stage 2 analyses.
STEPS TO DEVELOP A QSPM
Step 1
Make a list of the firm’s key external
opportunities/threats and internal strengths/weaknesses in
the left column of the QSPM.
Step 2
Assign weights to each key external and internal
factor.
STEPS TO DEVELOP A QSPM
Step 3
Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the organization should
consider implementing.
Step 4
Determine the Attractiveness Scores (AS)
STEPS TO DEVELOP A QSPM
Step 5
Compute for the Total Attractiveness Scores (TAS)
Step 6
Compute the Sum Total Attractiveness Score (STAS)
Standard AS Rating Scale
POSITIVE FEATURES OF THE QSPM
❖ Sets of strategies can be examined sequentially or
simultaneously.
❖ It requires strategists to integrate pertinent external and
internal factors into the decision process.
LIMITATIONS OF THE QSPM
❖ It always requires intuitive judgments and educated
assumptions.
❖ It can be only as good as the prerequisite information
and matching analyses upon which it is based.
CULTURAL ASPECTS OF
STRATEGY CHOICE
CULTURE
• set of shared values, beliefs, attitudes, customs, norms,
personalities, heroes, and heroines that describe a firm.
• the unique way an organization does business
• the human dimension that creates solidarity and meaning,
and it inspires commitment and productivity in an
organization when strategy changes are made
• provides an explanation for the difficulties a firm
encounters when it attempts to shift its strategic direction
POLITICS OF STRATEGY
CHOICE
GOVERNANCE ISSUES
GOVERNANCE
“The characteristic of ensuring that long-term strategic
objectives and plans are established and that the proper
management structure is in place to achieve those
objectives, while at the same time making sure that the
structure functions to maintain the corporation’s integrity,
reputation, and responsibility to its various constituencies.”
PRINCIPLES OF GOOD GOVERNANCE
1. No more than two directors are current or former company
executives.
2. No directors do business with the company or accept
consulting or legal fees from
the firm.
3. The audit, compensation, and nominating committees are
made up solely of outside
directors.
4. Each director owns a large equity stake in the company,
excluding stock options.
5. At least one outside director has extensive experience in the
company’s core business
and at least one has been CEO of an equivalent-size company.
7. Each director attends at least 75 percent of all meetings.
8. The board meets regularly without management present and
evaluates its own
performance annually.
9. The audit committee meets at least four times a year.
10. The board is frugal on executive pay, diligent in CEO succession
oversight
responsibilities, and prompt to act when trouble arises.
11. The CEO is not also the chairperson of the board.
12. Shareholders have considerable power and information to choose
and replace
directors.
13. Stock options are considered a corporate expense.
14. There are no interlocking directorships (where a director or CEO
sits on another
director’s board)