COLLEGE OF BUSINESS & ACCOUNTANCY

MODULE 7
STRATEGY ANALYSIS & CHOICE PROCESS

STRATEGIC MANAGEMENT & BUSINESS POLICY

PROF. JANICE TANADA
Module 7 learning Objectives
Lesson 7.1
• Learn about Strategy Generation & Selection
• Identify & analyze the strategy - analysis framework
• Define the process of SWOT, SPACE, BCG, IE, Grand Strategy and QSPM Matrix

Lesson 7.2
• Apply SWOT, SPACE, BCG, IE, Grand Strategy and QSPM Matrix in recommending
strategies.
• Discuss the role of the organization & the Board of Directors in Strategy making

STRATEGIC MANAGEMENT & BUSINESS POLICY

Strategic Management Framework

üOK
üOK
üOK
STRATEGIC MANAGEMENT & BUSINESS POLICY
The Nature of Strategy Analysis and Choice
• Strategy analysis and choice seek to determine
alternative courses of action that could best
enable the firm to achieve its mission and
objectives.

• The firm’s present strategies, objectives, vision,

and mission, coupled with the external and
internal audit information, provide a basis for
generating and evaluating feasible alternative
strategies.

• This systematic approach is the best way to

avoid a crisis.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
A Comprehensive Strategy-Formulation Analytical Framework

STRATEGIC MANAGEMENT & BUSINESS POLICY

Stage 1
• Called the input stage, Stage 1 summarizes the basic input information needed to formulate strategies.
• EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM).

Stage 2
• Called the matching stage, focuses on generating feasible alternative strategies by aligning key external and
internal factors.
• Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix,
• Strategic Position and Action Evaluation (SPACE) Matrix,
• Boston Consulting Group (BCG) Matrix,
• the Internal-External (IE) Matrix,
• the Grand Strategy Matrix.

Stage 3
• Called the decision stage, involves a single technique, the Quantitative Strategic Planning Matrix (QSPM).
• A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in
Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for
selecting specific strategies.

All nine techniques included in the strategy-formulation framework require the integration of intuition and analysis.
Autonomous divisions in an organization commonly use strategy- formulation techniques to develop strategies and objectives.
Divisional analyses provide a basis for identifying, evaluating, and selecting among alternative corporate-level strategies.
STRATEGIC MANAGEMENT & BUSINESS POLICY
The Input Stage
EFE Matrix, an IFE Matrix, and a CPM were
presented in Module 6. The information
derived from these three matrices provides
basic input information for the matching and
decision stage matrices described later in this
Module.

Good intuitive judgment is always needed in

determining appropriate weights and ratings.

STRATEGIC MANAGEMENT & BUSINESS POLICY

The Matching Stage
• Strategy is defined as the match an organization makes
between its internal resources and skills and the opportunities
and risks created by its external factors.

• The strategy-formulation framework consists of five techniques

that can be used in any sequence:
the SWOT Matrix
the SPACE Matrix
the BCG Matrix
the IE Matrix
the Grand Strategy Matrix.

• These tools rely on information derived from the input stage to

match external opportunities and threats with internal
strengths and weaknesses.

• Matching external and internal critical success factors is the

key to effectively generating feasible alternative strategies.

STRATEGIC MANAGEMENT & BUSINESS POLICY

The SWOT Matrix
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important matching tool that helps
managers develop four types of strategies:

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
The Strategic Position and Action Evaluation
(SPACE) Matrix
Its four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive
strategies are most appropriate for a given organization.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
1. Select a set of variables to define financial position (FP), competitive position (CP), stability
position (SP), and industry position (IP).
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that
make up the FP and IP dimensions. Assign a numerical value ranging from –1 (best) to –7 (worst)
to each of the variables that make up the SP and CP dimensions. On the FP and CP axes, make
comparison to competitors. On the IP and SP axes, make comparison to other industries.
3. Compute an average score for FP, CP, IP, and SP by summing the values given to the variables
of each dimension and then by dividing by the number of variables included in the respective
dimension.
4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE Matrix.
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the
y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection
point. This vector reveals the type of strategies recommended for the organization: aggressive,
competitive, defensive, or conservative.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
The Boston Consulting Group (BCG) Matrix
Based in Boston and having 1,713 employees, the Boston Consulting Group (BCG) is a large consulting firm that
endured the recent economic downturn without laying off any employees and in 2010 hired the most new
consultants ever. BCG ranks number 2 in Fortune’s recent list of the “100 Best Companies To Work For.”

STRATEGIC MANAGEMENT & BUSINESS POLICY

Relative market share position is defined as the ratio of a division’s own market share (or revenues) in a
particular industry to the market share (or revenues) held by the largest rival firm in that industry.

STRATEGIC MANAGEMENT & BUSINESS POLICY

Each circle represents a separate
division. The size of the circle
corresponds to the proportion of
corporate revenue generated by
that business unit, and the pie slice
indicates the proportion of
corporate profits generated by that
division.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
Limitations of the BCG Matrix

1) Oversimplification - viewing every business as a star, cash cow, dog,

or question mark is an oversimplification; many businesses fall right
in the middle of the BCG Matrix and thus are not easily classified.
2) BCG Matrix does not reflect whether or not various divisions or their
industries are growing over time; that is, the matrix has no temporal
qualities, but rather it is a snapshot of an organization at a given
point in time.
3) Other variables besides relative market share position and industry
growth rate in sales, such as size of the market and competitive
advantages, are important in making strategic decisions about
various divisions.

STRATEGIC MANAGEMENT & BUSINESS POLICY

The Internal-External (IE) Matrix
The Internal-External (IE) Matrix positions an organization’s various divisions in a nine-cell display

STRATEGIC MANAGEMENT & BUSINESS POLICY

The Grand Strategy Matrix
The Grand Strategy Matrix has become a popular tool for formulating alternative strategies. The Grand Strategy
Matrix is based on two evaluative dimensions: competitive position and market (industry) growth.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
A Comprehensive Strategy-Formulation Analytical Framework

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
STRATEGIC MANAGEMENT & BUSINESS POLICY
Cultural Aspects of Strategy Choice
• Culture includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes,
and heroines that describe a firm. Culture is the unique way an organization does business. It is
the human dimension that creates solidarity and meaning, and it inspires commitment and
productivity in an organization when strategy changes are made.
• It is beneficial to view strategic management from a cultural perspective because success often
rests on the degree of support that strategies receive from a firm’s culture. If a firm’s strategies are
supported by cultural products such as values, beliefs, rites, rituals, ceremonies, stories, symbols,
language, heroes, and heroines, then managers often can implement changes swiftly and easily.
However, if a supportive culture does not exist and is not cultivated, then strategy changes may be
ineffective or even counterproductive. A firm’s culture can become antagonistic to new strategies,
and the result of that antagonism may be confusion and disarray.
• Strategies that require fewer cultural changes may be more attractive because extensive changes
can take considerable time and effort. Whenever two firms merge, it becomes especially
important to evaluate and consider culture-strategy linkages.

STRATEGIC MANAGEMENT & BUSINESS POLICY

The Politics of Strategy Choice
• All organizations are political. Unless managed, political maneuvering consumes valuable time, subverts
organizational objectives, diverts human energy, and results in the loss of some valuable employees.
• Sometimes political biases and personal preferences get unduly embedded in strategy choice decisions.
Internal politics affect the choice of strategies in all organizations. The hierarchy of command in an
organization, combined with the career aspirations changes in strategies of different people and the need to
allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of
themselves first and the organization second, third, or fourth. Coalitions of individuals often form around
key strategy issues that face an enterprise.
• A major responsibility of strategists is to guide the development of coalitions, to nurture an overall team
concept, and to gain the support of key individuals and groups of individuals.
• In the absence of objective analyses, strategy decisions too often are based on the politics of the moment.
With development of improved strategy-formation tools, political factors become less important in making
strategic decisions.
• In the absence of objectivity, political factors sometimes dictate strategies, and this is unfortunate.
Managing political relationships is an integral part of building enthusiasm and esprit de corps in an
organization.

STRATEGIC MANAGEMENT & BUSINESS POLICY

Governance Issues
• A director is “one of a group of persons entrusted with the overall direction of a corporate enterprise.”
• A board of directors is a group of individuals who are elected by the ownership of a corporation to have
oversight and guidance over management and who look out for shareholders’ interests.
• The act of oversight and direction is referred to as governance. The National Association of Corporate
Directors defines governance as “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.”
• Boards are being held accountable for the entire performance of the firm.
• Boards of directors are increasingly sued by shareholders for mismanaging their interests. New
accounting rules in the USA and Europe now enhance corporate- governance codes and require much
more extensive financial disclosure among publicly held firms.

STRATEGIC MANAGEMENT & BUSINESS POLICY

STRATEGIC MANAGEMENT & BUSINESS POLICY
 ü Strategy formulation is an assessment of whether an organization is doing
the right things and how it can be more effective in what it does.
ü Regular reappraisal of strategy helps management avoid complacency.
Objectives and strategies should be consciously developed and coordinated
and should not merely evolve out of day-to-day operating decisions.
ü An organization with no sense of direction and no coherent strategy
precipitates its own demise. When an organization does not know where it
wants to go, it usually ends up some place it does not want to be. Every
organization needs to consciously establish and communicate clear
Conclusion objectives and strategies.
ü Modern strategy-formulation tools and concepts are described in this
module and integrated into a practical three-stage framework. Tools such as
the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and QSPM can
significantly enhance the quality of strategic decisions, but they should never
be used to dictate the choice of strategies.
ü Behavioral, cultural, and political aspects of strategy generation and
selection are always important to consider and manage.
ü Because of increased legal pressure from outside groups, boards of directors
are assuming a more active role in strategy analysis and choice. This is a
positive trend for organizations.
STRATEGIC MANAGEMENT & BUSINESS POLICY
Strategic Management Framework

üOK
üOK üOK
üOK
STRATEGIC MANAGEMENT & BUSINESS POLICY