Strategy
Analysis and
Choice
Chapter Five
The Process of Generating and Selecting Strategies
A manageable set of the most attractive
alternative strategies must be developed
The advantages, disadvantages, trade-offs,
costs, and benefits of these strategies should
be determined
The Process of Generating and Selecting Strategies
Identifying and evaluating alternative
strategies
should involve many of the managers and
employees who earlier assembled the
organizational vision and mission statements
Those performed the external audit, and
conducted the internal audit.
The Process of Generating and Selecting Strategies
Alternative strategies proposed by participants
should be considered and discussed in a series of
meetings.
Proposed strategies should be listed in writing.
When all feasible strategies identified by
participants are given and understood, the
strategies should be ranked in order of
attractiveness.
The Strategy-Formulation Analytical Framework
A Comprehensive Strategy-Formulation Framework
Stage 1 - Input Stage
summarizes the basic input information needed to
formulate strategies
consists of:
the EFE Matrix,
the IFE Matrix, and
the Competitive Profile Matrix (CPM)
A Comprehensive Strategy-Formulation Framework
Stage 2 - Matching Stage
focuses on generating feasible alternative strategies by
aligning key external and internal factors
techniques include:
[Link]-Weaknesses-Opportunities-Threats (SWOT) Matrix,
2. Strategic Position and Action Evaluation (SPACE) Matrix,
3. The Boston Consulting Group (BCG) Matrix,
4. The Internal-External (IE) Matrix, and
5. The Grand Strategy Matrix
A Comprehensive Strategy-Formulation Framework
Stage 3 - Decision Stage
It involves:
the Quantitative Strategic Planning Matrix (QSPM)
reveals the relative attractiveness of alternative
strategies and
thus provides objective basis for selecting specific
strategies
Matching Key External and Internal Factors to
Formulate Alternative Strategies
The Matching Stage
The Strengths-Weaknesses-Opportunities-
Threats (SWOT) Matrix
helps managers develop four types of
strategies:
SO (strengths-opportunities) Strategies
WO (weaknesses-opportunities) Strategies
ST (strengths-threats) Strategies
WT (weaknesses-threats) Strategies
The Matching Stage
SO Strategies WO Strategies
use a firm’s internal aim at improving
strengths to take internal weaknesses
advantage of external by taking advantage
opportunities of external
opportunities
The Matching Stage
ST Strategies WT Strategies
use a firm’s strengths to defensive tactics
avoid or reduce the directed at reducing
impact of external internal weakness and
threats avoiding external threats
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
SWOT Matrix (cont.)
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
A SWOT Matrix for a Retail Computer Store
A SWOT Matrix for a Retail Computer Store
The SPACE Matrix
The (SPACE) Matrix
Strategic Position and Action Evaluation
(SPACE) Matrix
four-quadrant framework indicates whether
aggressive, conservative, defensive, or competitive
strategies are most appropriate for a given
organization
The Strategic Position and Action Evaluation (SPACE) Matrix
Two internal dimensions
(Financial Position [FP] & Competitive Position [CP])
Two external dimensions
(Stability Position [SP] and Industry Position [IP])
Most important determinants of an
organization’s overall strategic position
Factors That Make Up the SPACE Matrix Axes
Steps to Develop a SPACE Matrix
1. Select a set of variables to define financial
position (FP), competitive position (CP),
stability position (SP), and industry position
(IP)
Steps to Develop a SPACE Matrix
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.
3. Assign a numerical value ranging from –1
(best) to –7 (worst) to each of the variables
that make up the SP and CP dimensions
Steps to Develop a SPACE Matrix
3. Compute an average score for FP, CP, IP, and SP
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
Steps to Develop a SPACE Matrix
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
Example Strategy Profiles
Example Strategy Profiles
The Boston Consulting Group (BCG) Matrix
BCG Matrix
graphically portrays differences among divisions in
terms of relative market share position and industry
growth rate
allows a multidivisional organization to manage its
portfolio of businesses by examining the relative
market share position and the industry growth rate
of each division relative to all other divisions in the
organization
The BCG Matrix
The BCG Matrix
Question marks – Quadrant I
Organization must decide whether to strengthen
them by pursuing an intensive strategy (market
penetration, market development, or product
development) or to sell them
Stars – Quadrant II
represent the organization’s best long-run
opportunities for growth and profitability
The BCG Matrix
Cash Cows – Quadrant III
generate cash in excess of their needs
should be managed to maintain their strong
position for as long as possible
Dogs – Quadrant IV
compete in a slow- or no-market-growth industry
businesses are often liquidated, divested, or
trimmed down through retrenchment
The BCG Matrix
The major benefit of the BCG Matrix is that it
draws attention to the cash flow, investment
characteristics, and needs of an organization’s
various divisions
The Internal-External (IE) Matrix
The Internal-External (IE) Matrix
The IE Matrix is based on two key
dimensions: the IFE total weighted scores on
the x-axis and the EFE total weighted scores
on the y-axis
Three major regions
Grow and build
Hold and maintain
Harvest or divest
The IE Matrix
The Grand Strategy Matrix
Grand Strategy Matrix
based on two evaluative dimensions: competitive
position and market (industry) growth
The Grand Strategy Matrix
The Grand Strategy Matrix
Quadrant I
continued concentration on current markets (market
penetration and market development) and products
(product development) is an appropriate strategy
Quadrant II
unable to compete effectively
need to determine why the firm’s current approach is
ineffective and how the company can best change to
improve its competitiveness
The Grand Strategy Matrix
Quadrant III
must make some drastic changes quickly to avoid
further decline and possible liquidation
Extensive cost and asset reduction (retrenchment)
should be pursued first
Quadrant IV
have characteristically high cash-flow levels and limited
internal growth needs and often can pursue related or
unrelated diversification successfully
The Quantitative Strategic Planning Matrix (QSPM)
Quantitative Strategic Planning Matrix
(QSPM)
objectively indicates which alternative strategies
are best
uses input from Stage 1 analyses and matching
results from Stage 2 analyses to decide objectively
among alternative strategies
The Quantitative Strategic Planning Matrix (QSPM)
Steps in a QSPM
1. Make a list of the firm’s key external opportunities/
threats and internal strengths/weaknesses in the left
column of the QSPM
2. Assign weights to each key external and internal
factor
3. Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the organization
should consider implementing
Steps in a QSPM (cont.)
4. Determine the Attractiveness Scores (AS)
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
Positive Features of the QSPM
Sets of strategies can be examined
sequentially or simultaneously
Requires strategists to integrate pertinent
external and internal factors into the decision
process
Can be adapted for use by small and large for-
profit and nonprofit organizations
Limitations of the QSPM
Always requires intuitive judgments and
educated assumptions
Only as good as the prerequisite information
and matching analyses upon which it is based
A QSPM for a Retail Computer Store
A QSPM for a Retail Computer Store
The Politics of Strategy Choice
Political maneuvering consumes valuable time,
subverts organizational objectives, diverts
human energy, and results in the loss of some
valuable employees
Political biases and personal preferences get
unduly embedded in strategy choice decisions
The Politics of Strategy Choice
The hierarchy of command in an organization,
combined with the career aspirations 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
Tactics to Aid Strategists
Governance Issues
Board of directors
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
Board of Director Duties and Responsibilities
Principles of Good Governance
1. No more than two directors are current or former
company executives
2. The audit, compensation, and nominating
committees are made up solely of outside
directors
3. Each director owns a large equity stake in the
company, excluding stock options
4. Each director attends at least 75 percent of all
meetings
Principles of Good Governance
5. The board meets regularly without management
present and evaluates its own performance annually
6. The CEO is not also the chairperson of the board
7. Stock options are considered a corporate expense
8. There are no interlocking directorships (where a
director or CEO sits on another director’s board)
Questions?
Next class:
Strategy
Implementation