THE STRATEGY

ANALYSIS
OSSAMA MOSSALLAM
 STRATEGY FORMULATION
Stage 1: Analytical framework stage
Stage 1 summarizes the basic input information needed to
formulate strategies.
Stage II: Matching stage
Focusses on generating feasible alternative strategies by aligning
key internal and external factors.
Stage III: Decision stage
It involves a single technique. The Quantitative Strategic
Planning Matrix QSPM
Fred David - 17th edition
Fred David - 17th edition
 STRATEGY FORMULATION

• Stage 1: The analytical framework stage

• - EFE: External Factor Evaluation
• - IFE: Internal Factor Evaluation
• - CPM: Competitive Profile Matrix
Stage 1 summarizes the basic input information needed to
formulate strategies.
Fred David - 17th edition
 THE PROCESS OF PERFORMING AN INTERNAL AUDIT

• The process of performing an internal audit closely parallels the

process of performing an external audit.
• Representative managers and employees from throughout the firm
need to be involved in determining a firm’s strengths and
weaknesses.
• The internal audit requires gathering, assimilating, and prioritizing
information about the firm’s management, marketing, finance and
accounting, production and operations, R&D, and MIS operations to
reveal the firm’s most important strengths and most severe
weaknesses.
Fred David - 17th edition
 THE INTERNAL FACTOR EVALUATION
MATRIX
• 1. List key internal factors as identified in the internal-audit
process. Use a total of 20 internal factors, including both
strengths and weaknesses.
• List strengths first and then weaknesses.
• Be as specific as possible, using percentages, ratios, and
comparative numbers. Recall that Edward Deming said, “In
God we trust. Everyone else bring data.” Include actionable
factors that can provide insight regarding strategies to pursue.
Fred David - 17th edition
 THE INTERNAL FACTOR EVALUATION
MATRIX
• 1. List key internal factors as identified in the internal-audit
process. Use a total of 20 internal factors, including both
strengths and weaknesses.
• For example, the factor “Our Quick Ratio is 2.1 versus industry
average of 1.8” is not actionable, whereas the factor “Our
chocolate division’s ROI increased from 8 to 15 percent in South
America” is actionable. Also, be as divisional as possible,
because consolidated data oftentimes is not as revealing or
useful in deciding among strategies as the underlying by-
segment or division data. Fred David - 17 edition
th
 THE INTERNAL FACTOR EVALUATION
MATRIX
• 2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-
important) to each factor.
• The weight assigned to a given factor indicates the relative importance
of the factor to being successful in the firm’s industry.
• Regardless of whether a key factor is an internal strength or weakness,
factors considered to have the greatest effect on organizational
performance should be assigned the highest weights.
• The sum of all weights must equal 1.0.
• The weights in step 2 are industry-based.
Fred David - 17th edition
 THE INTERNAL FACTOR EVALUATION
MATRIX
• 3. Assign a 1 to 4 rating to each factor to indicate whether that
factor represents a major weakness (rating = 1), a minor
weakness (rating = 2), a minor strength (rating = 3), or a major
strength (rating = 4).
• Note that strengths must receive a 3 or 4 rating and weaknesses
must receive a 1 or 2 rating.
• Ratings are thus company-based, whereas the weights in step 2
are industry-based.
Fred David - 17th edition
 THE INTERNAL FACTOR EVALUATION
MATRIX
IFE MATRIX

• 4. Multiply each factor’s weight by its rating to

determine a weighted score for each variable.
• 5. Sum the weighted scores for each variable to
determine the total weighted score for the organization.

Fred David - 17th edition

 THE INTERNAL FACTOR EVALUATION
MATRIX
IFE MATRIX
• Regardless of how many factors are included in an IFE Matrix, the total
weighted score can range from a low of 1.0 to a high of 4.0, with the average
score being 2.5.

• Total weighted scores well below 2.5 characterize organizations that are
weak internally, whereas scores significantly above 2.5 indicate a strong
internal position.
• Like the EFE Matrix, an IFE Matrix should include 20 key factors.

• The number of factors has no effect on the range of total weighted scores
because the weights always sum to 1.0.
THE INTERNAL FACTOR EVALUATION
MATRIX
IFE MATRIX
THE INTERNAL FACTOR EVALUATION
MATRIX
IFE MATRIX
PESTEL
THE FIVE FORCES OF MICHAEL
PORTER

Fred David - 17th edition

 EFE

PESTEL
Porter’s Five Forces
 MICHAEL PORTER
• The Industrial Organization view of strategic planning advocates that
external (industry) factors are more important than internal ones for gaining
and sustaining competitive advantage.
• Proponents of the I/O view, such as Michael Porter, contend that
organizational performance will be primarily determined by industry forces,
such as falling gas prices that no single firm can control.
• Porter’s Five-Forces Model is an example of the I/O perspective, which
focuses on analyzing external forces and industry variables as a basis for
getting and keeping competitive advantage

Fred David - 17th edition

 CPM
•The Competitive Profile Matrix (CPM) is
a strategic analysis that allows you to
compare your company to your
competitors, in such a way as to reveal
your relative strengths and weaknesses.
CPM
 RBV
• The resource-based view (RBV) approach to
competitive advantage contends that internal
resources are more important for a firm than
external factors in achieving and sustaining
competitive advantage.

Fred David - 17th edition

 RESOURCE-BASED VIEW(RBV)
THREE BASIC RESOURCES:
1. Tangible assets: Balance Sheet
2. Intangible assets:‫مستشفىأسوان– مجديي عقوب‬
3. Organizational capabilities : Leadership - Dell
Fred David - 17th edition
 STRATEGY FORMULATION
Stage II: Matching stage
Focusses on generating feasible alternative strategies by aligning ket
internal and external factors.
• SWOT (TOWS)
• SPACE
• BCG
• IE Matrix
• Grand Strategy Matrix
Fred David - 17th edition
Simple is beautiful
Easy – No experts
Not expensive
Quick
Good impact
Strengths Weaknesses

Opportunities Threats
 SWOT
Effect +ve -ve

Environment

External O T

Internal S W
Garbage in Garbage out
Qualitative
Not Quantitative
No trend
SPACE MATRIX Financial
Strength
Strategic Position and 6

Action Evaluation 5
Aggressive
Backward, Forward, Horizontal
Internal Integration, Market Penetration, Market,
4
Conservative Development, Product Development,
Market Penetration, Market Development, 3
Horizontal Diversification,
Product Development, & concentric Conglomerate Diversification &
diversification 2 Concentric Diversification

1
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
Competitive 0 Industrial
Advantage Strength
-1

-2 (-2) + (4) = 2
(-4) + (3) = -1
-3
(+2,-1)
-4 An organization competing very
Defensive well in an unstable industry
Retrenchment, Divestiture, -5 Competitive
Liquidation and concentric Backward, Forward, Horizontal
diversification -6 Integration, Market Penetration,
Environmental Market, Development, Product
Stability Development & Joint Venture
R.
BCG positions in Service Life-Cycle
GRAND STRATEGY MATRIX

Fred David -17th edition

Fred David - 17th edition
 STRATEGY FORMULATION

Stage III: Decision stage

It involves a single technique. The Quantitative Strategic Planning
Matrix QSPM
QSPM uses input information from Stage I to objectively evaluate
feasible alternative strategies identified in sage II.
It reveals the relative attractiveness of alternative strategies and thus
provides an objective basis for selecting specific strategies.
Fred David - 17th edition
QSPM
 QSPM
Step 1: Make a list of the firm’s key external opportunities and threats
and internal strengths and weaknesses in the left column of the QSPM.
This information should be taken directly from the EFE Matrix and
IFE Matrix.

Step 2: Assign weights to each key external and internal factor. These
weights are identical to those in the EFE Matrix and IFE Matrix. The
weights are presented in
a straight column just to the right of the external and internal factors.

Fred David -17th edition

 QSPM

• Step 3: Examine the Stage 2 (matching) matrices, and

identify alternative strategies that the organization
should consider implementing. Record these strategies
in the top row of the QSPM. Group the strategies into
mutually exclusive sets if possible.

Fred David -17th edition

 QSPM
Step 4:
Determine the Attractiveness Scores (AS), defined as numerical values
that
indicate the relative attractiveness of each strategy considering a single
external or internal factor. Attractiveness Scores (AS) are determined
by examining each key external or internal factor, one at a time, and
asking the question, “Does this factor affect the choice of strategies
being made?” If the answer to this question is yes, then the strategies
should be compared relative to that key factor. Specifically, AS should
be assigned to each strategy to indicate the relative attractiveness of
one strategy over others, considering the particular factor.
Fred David -17th edition
 QSPM
Step 4:
The range for AS is 1 = not attractive, 2 = somewhat attractive, 3 =
reasonably attractive, and 4 = highly attractive. By “attractive,” we
mean the extent.
Use a dash to indicate that the key factor does not affect the choice
being made.

Fred David -17th edition

 QSPM
Step 5:
Compute the Total Attractiveness Scores. Total
Attractiveness Scores (TAS) are defined as the product of
multiplying the weights (Step 2) by the AS (Step 4) in each
row. The TAS indicate the relative attractiveness of each
alternative strategy, considering only the impact of the
adjacent external or internal critical success factor. The
higher the TAS, the more attractive
Fred David -17th edition
 QSPM
Step 6:
Compute the Sum Total Attractiveness Score. Add TAS in each
strategy column of the QSPM. The Sum Total Attractiveness
Scores (STAS) reveal which strategy is most attractive in each
set of alternatives. Higher scores indicate more attractive
strategies, considering all the relevant external and internal
factors that could affect the strategic decisions. The magnitude
of the difference between the STAS in a given set of strategic
alternatives indicates the relative desirability of one strategy
over another.
Fred David -17th edition
 ACCOUNTABILITY

• Strategists themselves, not analytic tools, are

always responsible and accountable for
strategic decisions.

Fred David -17th edition

 ACCOUNTABILITY

•All nine techniques included in the

strategy-formulation analytical
framework require the integration
of intuition and analysis.
 ACCOUNTABILITY

•Lenz emphasized that the shift from a

words-oriented to a numbers-oriented
planning process can give rise to a false
sense of certainty.

Fred David -17th edition

 ACCOUNTABILITY
• A key to effective strategy evaluation and to
successful strategic management is an
integration of intuition and analysis: A
potentially fatal problem is the tendency for
analytical and intuitive issues to polarize.

Fred David -17th edition

 ACCOUNTABILITY

• This polarization leads to strategy evaluation

that is dominated by either analysis or
intuition, or to strategy evaluation that is
discontinuous, with a lack of coordination
among analytical and intuitive issues
Fred David -17th edition
INTUITION
;‫ ا;إل;له;ام‬-‫لا;;حدس‬
• Sound Experience
• Deep Knowledge
• High IQ
• Given Talent
Fred David - 17th edition
 EXTERNAL

O T
S ATTACK
Diversification
INTERNAL

Turn around-

W oriented strategy
(reorganization-
Retrenchment-
Repositioning)
DEFEND
 TOWS TOOL
S W
S1 W1
S2 W2

Sn Wn

O S1+S2+O1 ------MP
O1
O2

On

T W1+W2+T1+T2-----PL
T1
T2

Tn
 STEPS IN PREPARING A COMPREHENSIVE WRITTEN
ANALYSIS (1)

Step 1 identify the firm’s existing vision, mission,

objectives, and strategies.
Step 2 Develop vision and mission statements for the
organization.
Step 3 identify the organization’s external opportunities
and threats.
Step 4 construct a competitive Profile Matrix (CPM).
 STEPS IN PREPARING A COMPREHENSIVE WRITTEN
ANALYSIS (1)

Step 5 construct an external Factor evaluation

(EFE) Matrix.
Step 6 identify the organization’s internal strengths
and weaknesses.
Step 7 construct an internal Factor evaluation (IFE)
Matrix
 STEPS IN PREPARING A COMPREHENSIVE WRITTEN
ANALYSIS (2)

Step 8
Prepare a Strengths-Weaknesses-Opportunities-threats
(SWOT) Matrix, Strategic Position and action evaluation
(Space) Matrix, Boston Consulting Group (BCG) Matrix,
internal-external (IE) Matrix, grand Strategy Matrix, and
Quantitative Strategic Planning Matrix (QSPM) as
appropriate. give advantages and disadvantages of
alternative strategies.
 STEPS IN PREPARING A COMPREHENSIVE WRITTEN
ANALYSIS (3)

Step 9
Recommend specific strategies and long-term objectives.
Show how much your recommendations will cost. clearly
itemize these costs for each projected year. compare your
recommendations to actual strategies planned by the
company.
 STEPS IN PREPARING A COMPREHENSIVE WRITTEN
ANALYSIS (4)

Step 10 Specify how your recommendations can be

implemented and what results you
can expect. Prepare forecasted ratios and projected
financial statements. Present a
timetable or agenda for action.
Step 11 recommend specific annual objectives and
policies.
Step 12 recommend procedures for strategy review and
evaluation.
 VALUE CHAIN
• According to Porter, the business of a firm can best be described as a
value chain, in which total revenues minus total costs of all activities
undertaken to develop and market a product or service yields value.
• All firms in a given industry have a similar value chain, which includes
activities such as obtaining raw materials, designing products, building
manufacturing facilities, developing cooperative agreements, and
providing customer service.
• A firm will be profitable so long as total revenues exceed the total costs
incurred in creating and delivering the product or service.
 VALUE CHAIN ANALYSIS (VCA)

• Value chain analysis (VCA) refers to the process

whereby a firm determines the costs associated with
organizational activities from purchasing raw materials
to manufacturing product(s) to marketing those
products.
 VALUE CHAIN ANALYSIS (VCA)

• Firms should strive to understand not only their own

value chain operations but also those of their
competitors, suppliers, and distributors.
 TOOLS THAT ARE MOST
COMMONLY USED
• The tools that are likely to increase the most in
popularity over the next 3 years are
• performance benchmarking,
• informal benchmarking,
• SWOT,
• and best practice benchmarking. More than 60 percent
of organizations not currently using these tools indicated
they are likely to use them in the next 3 years.
Fred David -17 edition
th
 TOOLS THAT ARE MOST COMMONLY
USED IN INTERNAL AUDIT
• Benchmarking is an analytical tool used to determine
whether a firm’s value chain analysis
• is competitive compared to those of rivals and thus
conducive to winning in the marketplace.
• Benchmarking entails measuring costs of value chain
activities across an industry to determine

Fred David -17th edition

 FOUR STEPS OF BENCHMARKING

1-Performance Benchmarking,
• Performance benchmarking involves gathering and
comparing quantitative data (i.e., measures or key
performance indicators). Performance benchmarking is
usually the first step organizations take to identify
performance gaps.
• What you need: Standard measures and/or KPIs and a
means of extracting, collecting, and analyzing that data.
Fred David -17th edition
 FOUR STEPS OF BENCHMARKING

2-Practice Benchmarking
• 2. Practice benchmarking involves gathering and comparing qualitative
information about how an activity is conducted through people,
processes, and technology.

• What you need: A standard approach to gather and compare qualitative

information such as process mapping.

• What you get: Insight into where and how performance gaps occur and
best practices that the organization can apply to other areas.
Fred David -17 edition
th
 FOUR STEPS OF BENCHMARKING
3-Internal Benchmarking
• Internal benchmarking compares metrics (performance benchmarking) and/or
practices (practice benchmarking) from different units, product lines,
departments, programs, geographies, etc., within the organization.

• What you need: At least two areas within the organization that have shared
metrics and/or practices.

• What you get: Internal benchmarking is a good starting point to understand

the current standard of business performance. Sustained internal
benchmarking applies mainly to large organizations where certain areas of
Fred David -17 edition
th
the business are more efficient than others.
 TOOLS THAT ARE MOST COMMONLY
USED IN INTERNAL AUDIT
• “Best practices” among competing firms for the
purpose of duplicating or improving on those
• best practices. Benchmarking enables a firm to take
action to improve its competitiveness by
• identifying (and improving on) value chain activities
where rival firms have comparative advantages in cost,
service, reputation, or operation.
Fred David -17th edition
• Positive Features and Limitations of the QSPM
• A positive feature of the QSPM is that sets of strategies can be examined sequentially or
• simultaneously. For example, corporate-level strategies could be evaluated first, followed by
• division-level strategies, and then function-level strategies. There is no limit to the number of
• strategies that can be evaluated or the number of sets of strategies that can be examined at once
• using the QSPM.
• Another positive feature of the QSPM is that it requires strategists to integrate pertinent external
• and internal factors into the decision process. Developing a Quantitative Strategic Planning
• Matrix makes it less likely that key factors will be overlooked or weighted inappropriately. It
• draws attention to important relationships that affect strategy decisions. Although developing a
• QSPM requires Attractiveness Scores (AS) decisions, those small decisions enhance the probability
• that the final strategic decisions will be best for the organization. A QSPM can be used by
• small and large, for-profit and nonprofit organizations.7
• The Quantitative Strategic Planning Matrix has two limitations. First, it always requires
• informed judgments regarding AS scores, but quantification is helpful throughout the strategicplanning
• process to minimize halo error and various biases. Attractiveness Scores are not mere
• guesses. Be reminded that a 4 is 33 percent more important than a 3; making good small decisions
• is important for making good big decisions, such as deciding among various strategies to
• implement. Second, a limitation of the QSPM is that it can be only as good as the prerequisite
• information and matching analyses on which it is based.