MODULE 4 – STRATEGIC MANAGEMENT
4.0 Learning Outcome and Topics
Intended Learning Outcomes
At the end of the topic, as a student you must be able to:
1. Apply the three-stage framework for choosing among alternative strategies.
2. Formulate a SWOT analysis and matrix
3. Determine the importance of decision stage.
Module Topics:
4.1 The nature of strategy analysis and choice
4.2 Strategy Formulation
4.3 Input Stage
4.4 Matching Stage
4.5 Decision Stage
4.1 The Nature of Strategy Analysis and Choice
Strategy analysis and choice seek to determine alternative courses of action that could best able the firm to achieve its mission and objectives.
Strategy Analysis focuses on:
Generation - Evaluation - Selection
The following are the basis for Strategy Analysis and Choice:
1. Present strategies
2. Objectives
3. Mission
4. External Audit Information
5. Internal Audit Information
The Process of Generating and Selecting Strategies are:
1. In Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the
organizational vision and mission statements, performed the external audit, and conducted the internal audit.
2. Creativity should be encouraged in this thought process.
3. Alternative strategies proposed by participants should be considered and discussed in a meeting or series of meetings.
4. Proposed strategies should be listed in writing.
5. When all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness by all
participants, with 1 = should not be implemented, 2 = possibly should be implemented, 3 = probably should be implemented, and 4 = definitely
should be implemented. This process will result in a prioritized list of best strategies that reflects the collective wisdom of the group.
4.2 Strategy Formulation Framework
Below is the comprehensive framework developed by Fred David for strategy formulation:
Stage 1
The formulation framework consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM) presented in Module 2.
It is called the Input Stage, summarizes the basic input information needed to formulate strategies. The information derived from these three
matrices provides basic input information for the matching and decision stage matrices. The input tools require strategists to quantify subjectivity
during early stages of the strategy-formulation process.
Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to more
effectively generate and evaluate alternative strategies.
Good intuitive judgment is always needed in determining appropriate weights and ratings.
Stage 2
It is called the Matching Stage, focuses upon generating feasible alternative strategies by aligning key external and internal factors.
Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE)
Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix. However the most common
technique that is adopted is SWOT matrix which is to be applied in the final case study output.
Stage 3
It is 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.
4.3 Input Stage
The Input Stage basically occurs in the topics for developing an EFE Matrix, an IFE Matrix, and a CPM were presented Module 2.
The information derived from the matrices provides basic input information for the matching and decision stage matrices described later in this
module.
The input tools require strategists to quantify subjectivity during early stages of the strategy-formulation process.
Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to more effectively
generate and evaluate alternative strategies.
Good intuitive judgment is always needed in determining appropriate weights and ratings.
4.4 Matching Stage
Here is the most commonly use method in dealing with matching stage input that we will apply in developing your final case study presentation the
SWOT Matrix:
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important matching tool that helps managers develop four types of
strategies: SO (strengths-opportunities) Strategies, WO (weaknesses-opportunities) Strategies, ST (strengths-threats) Strategies, and WT
(weaknesses-threats) Strategies.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important matching tool that helps managers develop four types of
strategies: SO (strengths-opportunities) Strategies, WO (weaknesses-opportunities) Strategies, ST (strengths-threats) Strategies, and WT
(weaknesses-threats) Strategies.
SO strategies - firm’s internal strengths to take advantage of external opportunities. All managers would like their organizations to be in a
position In which internal strengths can be used to take advantage of external trends and events.
WO strategies - Aim at improving internal weaknesses by taking advantage of external opportunities. Sometimes key external opportunities
exist, but a firm has internal weaknesses that prevent it from exploiting those opportunities.
ST strategies use a firm’s strengths to avoid or reduce the impact of external threats. This does not mean that a strong organization should always
meet threats in the external environment head-on.
WT strategies - Defensive tactics directed at reducing internal weakness and avoiding external threats. An organization faced with numerous
external threats and internal weaknesses may indeed be in a precarious position. In fact, such a firm may have to fight for its survival, merge,
retrench, declare bankruptcy, or choose liquidation.
There are eight steps involved in constructing a SWOT Matrix:
1. List the firm’s key external opportunities.
2. List the firm’s key external threats.
3. List the firm’s key internal strengths.
4. List the firm’s key internal weaknesses.
5. Match internal strengths with external opportunities, and record the resultant SO Strategies in the appropriate cell.
6. Match internal weaknesses with external opportunities, and record the resultant WO Strategies.
7. Match internal strengths with external threats, and record the resultant ST Strategies.
8. Match internal weaknesses with external threats, and record the resultant WT Strategies.
Below is the example of SWOT Matrix:
4.5 Decision Stage
As previously identified in Module 2 the Decision stage relies on usage of QSPM.
The technique of Quantitative Strategic Planning Matrix (QSPM), which comprises Stage 3 of the strategy-formulation analytical framework. This
technique objectively indicates which alternative strategies are best.
The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. That is,
the EFE Matrix, IFE Matrix, and Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix. that make up Stage 2, provide the
needed information for setting up the QSPM (Stage 3).
The QSPM is a tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal critical
success factors. Like other strategy formulation analytical tools, the QSPM requires good intuitive judgment.
Steps in Developing 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.
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)
Step 5: Compute for the Total Attractiveness Scores (TAS)
Step 6: Compute the Sum Total Attractiveness Score (STAS)
A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies.