LESSON 08

STRATEGY
ANALYSIS
& CHOICE
A Comprehensive Strategy –
Formulation Framework

ELECTIVE 2
Tourism Strategic Management
Prof. Jefferson S. Marcelo, MBA
 LEARNING OBJECTIVES
At the end of the lesson, you should able to:
1. Describe a three-stage framework for choosing among
alternative strategies.
2. Explain how to develop SWOT Matrix, SPACE Matrix,
BCG Matrix, IE Matrix, and QSPM.
3. Identify important behavioural, political, ethical, and
social responsibility considerations in strategy analysis
and choice.
4. Discuss the role of intuition in strategic analysis and
choice.
5. Discuss the role of a board of directors in choosing
among alternative strategies.
Comprehensive Strategy-Formulation
Framework
THE INPUT STAGE
Internal Factor Evaluation (IFE) Matrix
Internal Factor Evaluation (IFE) Matrix
Competitive Profile Matrix (CPM)
External Factor Evaluation (EFE) Matrix
External Factor Evaluation (EFE) Matrix
2. THE MATCHING STAGE
Match between organization’s internal resources & skills and the
opportunities & risks created by its external factors.
A. SWOT ANALYSIS
SWOT stands for Strengths, Weaknesses, Opportunities, and
Threats, and so a SWOT Analysis is a technique for assessing
these four aspects of your business.
You can use SWOT Analysis to make the most of what you've got,
to your organization's best advantage. And you can reduce the
chances of failure, by understanding what you're lacking, and
eliminating hazards that would otherwise catch you unawares.
Better still, you can start to craft a strategy that distinguishes
you from your competitors, and so compete successfully in your
market.
A. SWOT ANALYSIS
B. SPACE MATRIX
The Strategic Position and Action Evaluation (SPACE) Matrix, another
important Stage 2 matching tool, is a four-quadrant framework indicates whether
aggressive, conservative, defensive, or competitive strategies are most appropriate for a
given organization. The axes of the SPACE Matrix represent two internal dimensions
(financial position [FP] and competitive position [CP]) and two external
dimensions (stability position [SP] and industry position [IP]). These four
factors are perhaps the most important determinants of an organization’s overall strategic
position.5 Depending on the type of organization, numerous variables could make up each of
the dimensions represented on the axes of the SPACE Matrix. Factors that were included
earlier in the firm’s EFE and IFE Matrices should be considered in developing a SPACE
Matrix.

For example, return on investment, leverage, liquidity, working capital, and cash flow are
commonly considered to be determining factors of an organization’s financial strength. Like
the SWOT Matrix, the SPACE Matrix should be both tailored to the particular organization
being studied and based on factual information as much as possible.
 The steps required to develop a SPACE Matrix are as follows:
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.
 Strategy Profiles that can emerge from SPACE Matrix

1. The directional vector associated with each profile suggests the type
of strategies to pursue: aggressive, conservative, defensive, or
competitive. When a firm’s directional vector is located in the
aggressive quadrant (upper-right quadrant) of the
SPACE Matrix, an organization is in an excellent position to use its
internal strengths to (1) take advantage of external opportunities,
(2) overcome internal weaknesses, and (3) avoid external threats.

2. The directional vector may appear in the conservative

quadrant (upper-left quadrant) of the SPACE Matrix,
which implies staying close to the firm’s basic competencies and not
taking excessive risks. Conservative strategies most often include
market penetration, market development, product development,
and related diversification.
 Strategy Profiles that can emerge from SPACE Matrix

3. The directional vector may be located in the lower-left or defensive

quadrant of the SPACE Matrix, which suggests that the firm should
focus on rectifying internal weaknesses and avoiding external
threats. Defensive strategies include retrenchment,
divestiture, liquidation, and related diversification.

4. The directional vector may be located in the lower-right or

competitive quadrant of the SPACE Matrix, indicating
competitive strategies. Competitive strategies include backward,
forward, and horizontal integration; market penetration; market
development and product development.
Internal Analysis: External Analysis:
Financial Position (FP) Stability Position (SP)
Return on Investment (ROI) 4 Rate of Inflation -3
Leverage 3 Technological Changes -2
Liquidity 4 Price Elasticity of Demand -3
Working Capital 4 Competitive Pressure -4
Cash Flow 4 Barriers to Entry into Market -4
Financial Position (FP) Average 3.8 Stability Position (SP) Average -3.2

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -5 Growth Potential 5
Product Quality -3 Financial Stability 5
Customer Loyalty -2 Ease of Entry into Market 4
Technological know-how -2 Resource Utilization 3
Control over Suppliers and Distributors -4 Profit Potential 6
Competitive Position (CP) Average -3.2 Industry Position (IP) Average 4.6
C. BOSTON CONSULTING GROUP (BCG) MATRIX
• The Boston Consulting Group (BCG) Matrix and the
Internal-External (IE) Matrix are designed specifically to enhance a
multidivisional firm’s efforts to formulate strategies. (BCG is a
private management consulting firm based in Boston. BCG employs
about 4,300 consultants worldwide.)

• The Boston Consulting group’s product portfolio matrix (BCG matrix) is

designed to help with long-term strategic planning, to help a business
consider growth opportunities by reviewing its portfolio of products to
decide where to invest, to discontinue or develop products. It's also known as
the Growth/Share Matrix.

• Use the model as an overview of your products, rather than

detailed analysis. If market share is small, use the 'relevant
market share' axis is based on your competitors rather than entire
market.
The Matrix is divided into 4 quadrants based on an analysis of
market growth and relative market share, as shown in the
diagram below.
 C. BOSTON CONSULTING GROUP (BCG) MATRIX
1. Dogs: These are products with low growth or market share. The usual marketing
advice here is to aim to remove any dogs from your product portfolio as they are
a drain on resources.

2. Question marks or Problem Child: Products in high growth markets with low
market share. These products often require significant investment to push them
into the star quadrant. The challenge is that a lot of investment may be required
to get a return.

3. Stars: Products in high growth markets with high market share. Can be the
market leader though require ongoing investment to sustain. They generate more
ROI than other product categories.

4. Cash cows: Products in low growth markets with high market share. The simple
rule here is to ‘Milk these products as much as possible without killing the cow!
Often mature, well-established products.
 Relative Market Share Position
High 1.0 Low 0.0
Stars Question Marks
High 0.20

Food and
Industry Sales Growth Rate
Other Services
Beverage
Room

Low -0.20
Cash Cows Dogs
D. INTERNAL-EXTERNAL (IE) MATRIX
• The Internal-External (IE) Matrix positions an organization’s
various divisions in a nine cell display. The IE Matrix is similar to the BCG Matrix
in that both tools involve plotting organization divisions in a schematic diagram;
this is why they are both called “portfolio matrices.” Also, the size of each circle
represents the percentage sales contribution of each division, and pie slices
reveal the percentage profit contribution of each division in both the BCG and IE
Matrix.

• IE stands for Internal external as the name suggest that it’s based upon internal
and external factors of the organization. The IE is an important strategic tool
which comes under the portfolio management considered much similar to BCG
Matrix. The IE matrix used to plot the organization divisions in nine cell
diagram, each cell have some meaning associated which suggest strategies.

• In summarize way it can be defined as the strategic management tool which is

used to analyze the current position of the divisions and suggest the strategies
for the future for the better results.
The IE Matrix can be divided into three major regions that have different
strategy
implications.
• First, the prescription for divisions that fall into cells I, II, or IV can be
described as grow and build. Intensive (market penetration,
market development, and product development) or integrative
(backward integration, forward integration, and horizontal
integration) strategies can be most appropriate for these divisions.
• Second, divisions that fall into cells III, V, or VII can be managed best
with hold and maintain strategies; market penetration and
product development are two commonly employed strategies for these
types of divisions.
• Third, a common prescription for divisions that fall into cells VI, VIII,
or IX is harvest or divest. Successful organizations are able to
achieve a portfolio of businesses positioned in or around cell I in the IE
Matrix.
 THE IFE TOTAL WEIGHTED SCORES
Strong Weak
4.0 1.0

High
4.0 Food and
Room
Beverage

THE EFE WEIGHTED SCORES

Other Services

FERRA HOTEL
PREMIERE BY
JG

Low
1.0
E. GRAND MATRIX
• Grand Strategy Matrix is based on two evaluative
dimensions: competitive position and market (industry) growth. Any
industry whose annual growth in sales exceeds 5 percent could be
considered to have rapid growth. Appropriate strategies for an
organization to consider are listed in sequential order of
attractiveness in each quadrant of the matrix.

• The key area of management is to suitably select the strategy

cohesive with the firms’ market and competitive position. The Grand
Strategy Matrix makes it an easy going job. It helps in scientific
analysis of firms‘ current position and selection of best strategy in
accordance with the revealed competitive position and market place.
E. GRAND MATRIX
First Quadrant:
If your business is in this quadrant then you have a strong
competitive position and the market is in rapid growth. Arguably
this is the best quadrant to be in, with opportunity high and your
position strong.

Second Quadrant:
If your business is in this quadrant then you have a relatively
weak competitive situation as a business, but there’s a lot of
opportunity to go for and a lot of success to be had within the
market. The strategies in this position are all about why you’re
not taking advantage of the position. If you’re placed in this
quadrant then you know you can change to improve results.
Third Quadrant:
Being in the third quadrant means you have a weak competitive
situation and the market is also quite slow. This is a tricky position
because you’re already not doing well and there isn’t the huge
opportunity that presents itself like the second quadrant. If you find
yourself here you need to consider major changes to improve your
competitive position, consider areas such as cost reduction,
differentiation or diversification.

Fourth Quadrant:
If you’re placed within the fourth quadrant you have a strong
competitive situation, which is great, but your market is slow to
grow or in decline. This lends itself to strategies such as
diversification as you have the funds to innovate in numerous areas
before the market decline becomes unsustainable. Watch out for
cheaper competitors entering the market to attack you as the leader.
 Rapid Market Growth

Quadrant II Quadrant I

Room

Food and
Beverage
Other Services
Weak Competitive Strong Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

Segment/Division X-Axis Score Y-Axis Score

Room 8 9
Food and Beverage 6 7
Other Services 5 6
QUESTION?
Thank You!