Chapter 6 - Strategy Analysis and Choice

Overview
Chapter 6 explains how to formulate effective strategies once the internal and
external audits are completed. Chapter 6 presents and exemplifies six widely used
strategic planning matrices: SWOT (Strengths-Weaknesses-Opportunities-Threats)
Matrix, BCG (Boston Consulting Group) Matrix, SPACE (Strategic Position and Action
Evaluation) Matrix, IE (Internal-External) Matrix, Grand Strategy Matrix, and the QSPM
(Quantitative Strategic Planning Matrix). Chapter 6 also describes the nature and role of
boards of directors in strategic planning.

Learning Objectives
The Chapter 6 Learning Objectives presented in the textbook are reiterated below:

1. Describe the strategy analysis and choice process.

2. Diagram and explain the three-stage strategy-formulation analytical framework.
3. Diagram and explain the Strengths-Weaknesses-Opportunities-Threats (SWOT)
Matrix.
4. Diagram and explain the Strategic Position and Action Evaluation (SPACE) Matrix.
5. Diagram and explain the Boston Consulting Group (BCG) Matrix.
6. Diagram and explain the Internal-External (IE) Matrix.
7. Diagram and explain the Grand Matrix.
8. Diagram and explain the Quantitative Strategic Planning Matrix (QSPM).
9. Discuss the role of organizational culture in strategic analysis and choice.
10. Identify and discuss important political considerations in strategy analysis and
choice.
11. Discuss the role of a board of directors (governance) in strategic planning.

Teaching Tips
1. This is arguably the most important chapter in the book, so we usually spend three or
four 1.5-hour class sessions on this chapter. Six new, important matrices are presented
that are widely used in strategic planning, so you need to make sure students can develop
a SWOT, BCG, IE, SPACE, GRAND, and QSPM. These new matrices reveal what to do
with the underlying key strengths/weaknesses/opportunities/threats and build upon the
EFEM, IFEM, and CPM in earlier chapters.

2. Definitely pull up in class the Chapter 6 videos on the author website

(www.strategyclub.com) and review those with students, including why Chapter 6 is
important and how to perform various analyses.
3. Figure 6-2 is very important because students need to understand the three stages in
formulating strategies: Input, Matching, and Decision. Chapter 6 focuses on the
Matching Stage. Make sure students understand that “matching internal with external
factors” is the KEY to formulating strategies effectively.

4. The SWOT Matrix is the most widely used strategic-planning matrix in the world, so
carefully go over Figure 6-3 titled “A SWOT Matrix for a Retail Computer Store.” Note
the matching notation after each strategy (S4, O3) because students will need to include
this notation in the SWOT for their case company. Note the two basic alternative
strategies faced by this store: 1) remodel existing store or 2) build a new store in new
location. The QSPM presented later in this chapter will answer which of these two
alternatives is best.

5. Carefully cover the SPACE Matrix presented on pages 174 to 177. Remind students
of the difference between the SP and the IP axes, and remind students that the CP and SP
axes are negative such that a -1 is excellent and a -7 is terrible.

6. Carefully cover the BCG Matrix on pages 178-181. The BCG is the second most
widely used strategic-planning matrix in the world, so go over the material and example
BCGs in the book. Perhaps the major strategy decision large firms face annually is what
divisions/segments of the firm we should devote more or less resources to in the future.
Emphasize for students to be as “divisional, actionable, and specific as possible” in
preparing all nine strategic planning matrices. Recommend that students prepare, if
possible, a BCG by product and a BCG by region for their case company, to illustrate
best where the team is taking the firm over the next three years.

7. Carefully cover the IE Matrix presented on pages 181-184. The IE Matrix is better
than the BCG because the axes are more encompassing and there are nine cells instead of
four.

8. Carefully cover the QSPM presented on pages 186-191. Go over the “QSPM for a
Retail Computer Store” presented in Table 6-6 so students will understand the process of
developing a QSPM.

9. Focus on the “Implications for Strategists” and the “Implications for Students” at the
end of this chapter. These sections that end each chapter provide special, important tips
for students to do well, especially on their oral case analysis presentation.

10. This chapter is so important that we usually cover all the end-of-chapter review
questions and all the end-of-chapter exercises, either as homework or classwork or as a
part of my lecturing. All these questions and exercises are designed to apply Chapter 6
concepts and techniques. Do one half of the review questions in class one day and the
other half another day. Do the same for the end-of-chapter exercises.

Answers to End-of-Chapter 6 Review Questions

6-1. A WSJ article (7-12-14, p. B3) said Apple’s smartphone market share in China
is 6.0 percent, behind the two leaders Samsung (17.8%) and Lenovo (11.4%). In
regards to a BCG Matrix, what are the three firms’ relative market share position?

Answer:
RMSP
Apple 6.0/17.8 = .337 = 33.7%
Samsung 17.8/17.8 = 1.0 = 100%
Lenovo 11.4/17.8 = .640 = 64%

6-2. List five limitations of a SPACE Matrix.

Answer: Six limitations of a SPACE matrix are as follows:

1. It is a snapshot in time.
2. There are more than four dimensions that firms could/should be rated on.
3. The directional vector could fall directly on an axis, or could even go nowhere
if the coordinate is (0,0).
4. Implications of the exact angle of the vector within a quadrant are unclear.
5. The relative attractiveness of alternative strategies generated is unclear.
6. Key underlying internal and external factors are not explicitly considered.

6-3. List the pros and cons of a firm disclosing by-segment corporate information in
a Form 10K.

Answer: 1) Transparency is a good thing in today’s world. 2) Investors will better

understand the firm. 3) Managers will better understand the firm. 4) Disclosure enhances
the communication process both within the firm and with outsiders. 5) Transparency
promotes an environment of competitiveness among division/segment of the firm, which
is a good thing. Reasons not to disclose financial information by segment include the
following: 1) Less strategic information for rival firms to utilize. 2) Can hide
performance failures. 3) Can reduce rivalry among segments.

6-4. What are some key differences between the BCG and the IE portfolio
matrices?

Answer: The axes are different. The IE axes are superior, since they are more
encompassing than the BCG axes. The BCG has four quadrants whereas the IE has nine.
Also, there is less chance in an IE for a circle to land in an obscure spot, such as dead
center in a BCG. Finally, implications of each quadrant in terms of strategies most
applicable vary for the BCG and IE. For example, there are no Question Marks or Dogs
in an IE.

6-5. What is an ideal number of persons to have on a board of directors? Why?

Answer: Recent research reveals that companies with fewer board members outperform
larger boards, largely because fewer directors facilitates deeper debates, more nimble
decision making, and greater accountability. For example, there are only eight members
of Apple’s board, and Apple is doing great. Recent research reveals that among
companies with a market capitalization of at least $10 billion, smaller boards produced
substantially higher shareholder returns between 2011 and 2014. Nine-person boards
performed much better, for example, than 14 to 15-member boards. As a result of recent
research, many companies are reducing their number of board members. Another benefit
of fewer board members is that CEOs are more often reprimanded (or dismissed) if
needed. Dr. David Yermack, a finance professor at New York University’s business
school, reports that smaller boards are generally more decisive, more cohesive, more
hands-on, and have more informal meetings and fewer committees. Netflix is another
example firm with a small board, only seven members, who debate extensively before
approving important management moves. Netflix is doing great. In contrast, Eli Lilly &
Co. has 14 board members who find it “too big to encourage the kinds of discussions you
want, because drilling down on different issues simply takes too long; members feel
constrained even asking a second or third question.” Bank of America has 15 directors,
too many. In summary, companies should seek to reduce their board of directors to fewer
than ten persons, whenever possible – and strategy students should examine this issue in
their assigned case companies.
Source: Based on Joann Lublin, “Are Smaller Boards Better for Investors?” Wall
Street Journal, August 27, 2014.

6-6. Smith & Wesson is vertically integrating. What does this mean? How could
S&W vertically integrate further?

Answer: Vertical integration refers to firms that use a combination of both forward and back
integration, i.e., gaining control of both distributors and suppliers. To vertically integrate further,
S&W could begin purchasing pawn shops (forward integration), and could begin purchasing ammo
reloading equipment (backward integration).

6-7. Minorities and women each hold less than 15 percent of board seats of S&P 500
companies. Why is this not good?

Answer: First of all, this situation sends the wrong message to potential customers, suppliers,
distributors, investors, employees, managers, and others. Second, it makes the firm more
vulnerable to legal suits alleging discrimination. Third, the firm forfeits the diverse knowledge
and opinions that women and minorities bring to the table.

6-8. In developing a QSPM, if 10 strategies are being compared simultaneously, what

would be a good scale for the AS scores? Why?

Answer: 1 to 10, because it is best not to assign the same AS to two strategies.

6-9. In developing a BCG or IE Matrix, what would be a good surrogate for revenues for
1) Target Corp., 2) Burger King, 3) Bank of America, and 4) Spirit Airlines?

Answer:
1. Target - # of stores per region
2. Burger King - # of restaurants per country
3. Bank of America - # of accounts or branches per region
4. Spirit Airlines - # of flights per hub

6-10. In developing a SPACE Matrix, what would you expect the SP average to be for
1) Apple, 2) Heinz, 3) Verizon, 4) Amazon, and 5) Kroger?

Answer: -7 is very unstable; -1 is very stable

1. Apple - -7
2. Heinz - -3
3. Verizon - - 5
4. Amazon- - 4
5. Kroger - -3

6-11. Rather than developing a QSPM, what is an alternative procedure for prioritizing
the relative attractiveness of alternative strategies?

Answer: As indicated in the chapter, participants could rate the strategies on a 1 to 4 scale, and
simply add up those ratings to determine a prioritized list of the best strategies.

6-12. Overlay a BCG Matrix with a Grand Strategy Matrix and discuss similarities in
terms of format and implications.

Answer: The vertical axis is the same on both matrices. Both the BCG Matrix and the Grand
Strategy Matrix are divided into four quadrants. The BCG Matrix graphically portrays
differences among divisions in terms of relative market share position and industry growth rate,
whereas, the Grand Strategy Matrix is based on two evaluative dimensions: competitive
position and market (industry) growth. The upper left (Stars) is best on the BCG whereas the
upper right is best on the Grand Strategy Matrix. Lower right is worst on the BCG, but lower
left is worst on the Grand.

6-13. Why should a Board not consist of all men, or all women, or all whites, or all
minorities?

Answer: Women and minorities ask different questions and make different suggestions in
boardrooms than white men; diverse views are needed to arrive at effective, mutually supportive
strategies. Women and minorities comprise much of the consumer base everywhere. No
women or no minorities would send the wrong message to the firm’s many stakeholder groups,
and would make the firm more vulnerable to legal discrimination suits.

6-14. Define halo error. How can halo error inhibit selecting the best strategies to
pursue?

Answer: Halo error is the tendency to put too much weight on a single factor when formulating
strategies. Incorporating a weight column in matrices enables strategists to appropriately weight
various factors, rather than halo error resulting in an extraordinarily high weight (unknowingly)
being applied to a single factor.
6-15. List six drawbacks of using only subjective information in formulating strategies.

Answer: The absence of objectivity results in drawbacks: 1) Political factors sometimes dictate
strategies. 2) Halo error can cause havoc. 3) Emotions can dictate decisions. Weakly supported
ideas may die before they are given a chance. 4) Lack of data means not being able to review
information to learn and improve. 5) Opportunities for benchmarking are lost. 6) The
magnitude of differences in attractiveness of strategies is unknown.

6-16. For a firm that you know well, give an example SO Strategy, showing how an
internal strength can be matched with an external opportunity to formulate strategy.

Answer: An SO strategy for a clothing retailer is to add four new in-store promotions monthly.
This strategy capitalizes on a strength (in-store promotions boost sales by 20 percent) as well as
an opportunity (vehicle traffic passing store is up 12 percent).

6-17. For a firm that you know well, give an example WT Strategy, showing how an
internal weakness can be matched with an external threat to formulate a strategy.

Answer: A WT strategy for a clothing retailer is to hire two new cashiers. This strategy
attempts to correct a weakness (customer checkout is too slow) and avoid a threat (new
competitor store opening nearby).

6-18. List three limitations of the SWOT Matrix and analysis.

Answer: Although the most widely utilized of all strategic planning tools, the SWOT analysis does
have some limitations. First, SWOT does not show how to achieve a competitive advantage, so
it must not be an end in itself. Second, SWOT is a static assessment (or snapshot) in time.
Third, SWOT analysis may lead the firm to overemphasize a single internal or external factor in
formulating strategies. This, this textbook advocates utilizing five matching strategic planning
tools in conjunction with each other.

6-19. For the following three firms using the given factors, calculate a reasonable Stability
Position (SP) coordinate to go on the SPACE Matrix axis, given what you know about the
nature of those industries.

Factors Winnebago Apple U.S. Postal Service

Barriers to entry into market -3 -2 -1
Seasonal nature of business -6 -4 -4
Technological changes -3 -6 -3
SP Score -4.0 -4.0 -2.7

6-20. Would the angle or degrees of the vector in a SPACE Matrix be important in
generating alternative strategies? Explain.

Answer: YES. The angle and degrees of the vector in a SPACE Matrix may be important
because the vector reveals the type of strategies recommended for the organization: aggressive,
competitive, defensive, or conservative. If the vector is 5 degrees into the aggressive quadrant,
strategists may begin thinking about conservative strategies, whereas if the vector is 85 degrees
into the aggressive quadrant, strategists may begin thinking about competitive strategies.

6-21. On the competitive position (CP) axis of a SPACE Matrix, what level of capacity
utilization would be necessary for you to give the firm a negative 1? Negative 7? Why?

Answer: A capacity utilization near 100% is excellent (-1), whereas a capacity utilization near
30% would be terrible (-7). The competitive position axis shows the average scores for all CP
variables. Plotting at negative 1 indicates that the firm is in the best possible position
competitively when averaging all factors. Plotting at negative 7 indicates that the firm is in the
worst possible position competitively when averaging all factors.

6-22. If a firm has weak financial position and competes in an unstable industry, in which
quadrant will the SPACE vector lie?

Answer: If a firm has weak financial position and competes in an unstable industry, its SPACE
vector would lie in the lower left or right quadrant of the SPACE depending on the CP and IP
axis scores.

6-23. Describe a situation where the SPACE analysis would have no vector. In other
words, describe a situation where the SPACE analysis coordinate would be (0,0). What
should an analyst do in this situation?

Answer: Although this is not likely to occur, it is possible that when averaging the two scores on the
x-axis, and the two scores on the y-axis, both points come to zero. This means that financial and
stability position factors neutralize one another, while competitive and industry position factors
neutralize one another as well. The analyst should add additional variables to be examined under the
four axes, to in essence make the analysis more robust, while at the same time shifting the vector into
a discernable quadrant.

6-24. Develop a BCG Matrix for your university. Because your college does not generate
profits, what would be a good surrogate for the pie slice values? How many circles do you
have and how large are they? Explain.

Answer: Rather than tracking revenue, colleges generally use enrollment headcount as a measure of
growth. Headcount represented within academic programs (College of Business vs. School of
Nursing vs. School of Education vs. School of Engineering, for example) would be a valuable
analysis, so programs can represent the circles divisions within the BCG Matrix. This matrix will
identify those programs that are Cash Cows, Question Marks, Stars, and Dogs. For the pie slice, %
of graduating students with full-time jobs could be meaningful to examine.

6-25. In a BCG Matrix, would the Question Mark quadrant or the Cash Cow quadrant be
more desirable? Explain.

Answer: An argument for the Question Mark being more desirable is that these divisions compete in
a very attractive, growing industry, even though they have a low relative market share. Also, Cash
Cows are usually nearing the end of their product life cycle. An argument for the Cash Cow,
however, being more desirable is that Cash Cows divisions are proven winners, and have large
relative market share, but are in a slow-growing industry. Answers can vary by industry and firm.

6-26. Would a BCG Matrix and analysis be worth performing if you do not know the
profits of each segment? Why?

Answer: YES. The BCG Matrix allows a multidivisional organization to manage its portfolio of
businesses by examining the relative market share and industry growth rate of each division relative
to all other divisions in the organization. The location of segments with the matrix is very useful
strategic information, even without the pie slices (profit information). Oftentimes firms will use
surrogate variables for profits, such as customer retention rate or customer loyalty rate or even
employee morale measures.

6-27. What major limitations of the BCG Matrix does the IE Matrix overcome?

Answer: 1) Nine cells are more informative than four cells. 2) The IE axes are much more
informative than the BCG axes. The IE Matrix requires more information about the divisions than
the BCG Matrix, thus providing more strategic information to the analyst.

6-28. In an IE Matrix, do you believe it is more advantageous for a division to be located

in quadrant II or IV? Why?

Answer: In an IE Matrix, Quadrants II and IV are both placed in the “grow and build” category, so
answers can vary to this question depending on one’s views regarding the relative impact of internal
and external issues. Quadrant II divisions are stronger externally, whereas Quadrant IV divisions are
internally stronger.

6-29. Develop a 2x2x2x2x2 QSPM for an organization of your choice (i.e., two strengths,
two weaknesses, two opportunities, two threats, and two strategies). Follow all the QSPM
guidelines presented in the chapter.

Answer: For Artic Cat Corporation

Build a New Four- Build a New Snow-
Wheeler Factory Mobile Factory
Internal Factors Wt. AS TAS AS TAS

1. Our motorcycle sales increased 21 % .12 - - - -

year-over-year

2. Our four-wheeler sales in Europe .22 4 .88 2 .44

increased 12 % year-over-year

3. Our debt-to-equity ratio is 33 % vs. .08 - - - -

an industry average of 18 %

4. Our snowmobile sales decreased 7 % .23 1 .23 4 .92

in Canada year-over-year

External Factors

1. Canada’s GDP is growing 1 % annually .08 2 .16 4 .32

2. Despite global warming, winters are .15 2 .30 4 .60

getting harsher in Canada

3.Women riders of bikes grew 8 % .06 - - - -

year-over-year

4. Hunting and fishing as a leisure activity .06

grew 11 % year-over-year
TOTAL 1.00 1.57 2.28

Conclusion: Should Build Snowmobile Factory.

6-30. How would application of the strategy-formulation analytical framework differ from a
small to a large organization?

Answer: The strategy-formulation analytical framework is conceptually identical for both small and
large organizations. However, in large organizations, there are more variables to analyze and
forecast, making the strategy-formulation process more complex.

6-31. What types of strategies would you recommend for an organization that achieves total
weighted scores of 3.6 on the IFE and 1.2 on the EFE Matrix?

Answer: Hold-and-maintain-type strategies are appropriate for an organization that scores 3.6 on the
IFE Matrix and 1.2 on the EFE Matrix. The location is far left, bottom quadrant.

6-32. Given the following information, develop a SPACE Matrix for the XYZ Corporation:
FP = +2; SP = -6; CP = -2; IP = +4.

Answer: The directional vector of the SPACE Matrix lies in the lower right quadrant, indicating that
competitive-type strategies are most appropriate.

Financial Position: 2
Competitive Position: -2
Stability Position: -6
Industry Position: 4

Directional Vector Coordinates: x-axis: -2 + 4 = 2; y-axis: 2 + -6 = -4 = (+2, -4)

6-33. Given the information in the table below, develop a BCG Matrix and an IE Matrix.

Divisions 1 2 3
Profits $10 $15 $25
Sales $100 $50 $100
Relative Market Share 0.2 0.5 0.8
Industry Growth Rate +.20 +.10 -.10
IFE Total Weighted Success 1.6 3.1 2.2
EFE Total Weighted Success 2.5 1.8 3.3

Answer: There will be three circles: Circle1, Circle2, and Circle3. Circle1 and Circle3 will be the
same size since they have the same sales, and Circle 2 will be one half that size, since it has half the
sales. The pie slices are based on profit, so since the profit total is 50, Circle1 has a 20% pie slice,
Circle2 has a 30% pie slice, and Circle3 has a 50% pie slice. This is all true for both the BCG and
the IE Matrix. Now, place the three circles in the two matrices based on the respective axes. Center
each circle at their respective coordinate.

6-34. How would you develop a portfolio matrix for your school of business?

Answer: A school of business could develop a BCG and/or IE matrix by business major, where size
of circle is determined by the number of majors in each area. Regarding the RMSP, the largest major
on campus could be used as the denominator, i.e., the number of students in that major vs. the various
business majors.

6-35. What do you think is the appropriate role of a board of directors in strategic
management? Why?

Answer: Board members should review strategy formulation, implementation, and evaluation
reports. Board members are increasingly being held personally liable for failed strategies in
organizations, so they should provide input, advice, suggestions, and comments about strategic-
management activities. The board should evaluate, hire, compensate, and/or fire the CEO, among
many other duties outlined in the chapter.

6-36. Discuss the limitations of various strategy-formulation analytical techniques.

Answer: All analytical techniques have limitations, but analytical techniques are essential for
assimilating and organizing information in a way that enhances strategic decision making. Due to
various limitations, the book advocates that five matching tools be utilized in conjunction with each
other: BCG, IE, SWOT, SPACE, and GRAND. The SWOT has the fewest limitations. The
GRAND is the least robust of the five, so that is a limitation. The BCG’s axes are deficient even as
compared to the IE. The SPACE analysis can end up with no vector at all. However, analytical tools
are vital for effective strategic planning.

6-37. Explain why cultural factors should be an important consideration in analyzing and
choosing among alternative strategies.

Answer: Cultural factors are an integral part of everyday life in organizations. An organization’s
unique culture represents the heart of work. Employees and managers get emotionally attached to
cultural factors. Thus, in choosing among alternative strategies for an organization, consideration
should be given to the different levels of support that proposed strategies would receive from existing
cultural products. Consideration should also be given to whether cultural changes could be achieved
readily. Cultural factors should not dictate the choice of various strategies, but they should absolutely
be considered in the discussion and analysis.

6-38. How would profit and nonprofit organizations differ in their applications of the strategy-
formulation framework?

Answer: The strategy-formulation framework is conceptually identical for both profit and nonprofit
organizations, although the nature of variables would differ for each type of organization.

6-39. Develop a SPACE Matrix for a company that is weak financially and a weak competitor.
The industry for this company is pretty stable but the industry’s projected growth in revenues
and profits is not good. Label axes and quadrants.

Answer:
Financial Position: 2
Competitive Position: -5
Stability Position: -3
Industry Position: 2

Directional Vector Coordinates: x-axis: -5 + 2 = -3; y-axis: 2 + -3 = -1; (-3, -1)

This organization should pursue defensive strategies (lower left quadrant).

6-40. List 4 limitations of a BCG Matrix. Diagram and explain.

Answer: Viewing every business as one of four types is an oversimplification. Some businesses are
not easily classified. The matrix does not reflect whether or not various divisions are growing over
time, because the matrix has no temporal qualities. Other variables besides relative market share
position and industry growth rate in sales should be considered in strategic planning (such as size of
the market and competitive advantages and pricing, etc.)

6-41. Make up an example to show clearly and completely that you can develop an IE Matrix
for a 3-division company, where each division has $10, $20, and $40 in revenues, and $2, $4,
and $1 in profits. State other assumptions as needed. Label axes and quadrants.

Answer:

Division Revenue ($) Revenue (%) Profit ($) Profit (%) EFE IFE
1 10 14 2 29 2 2
2 20 29 4 57 4 4
3 40 57 1 14 1 2

In this example, Division 1 falls in quadrant V, Division 2 falls in quadrant I, and Division 3 falls in
quadrant VIII.

I II III
IV V VI

VII VIII IX

6-42. What procedures could be necessary if the SPACE vector falls right on the axis between
the Competitive and Defensive quadrants? Diagram and explain.

Answer: If this situation occurs, you should add additional relevant factors for each of the axes,
making the analysis even better and more robust. For example, on financial stability, add ROI and
ROE if not considered yet.

6-43. In a BCG Matrix or the Grand Strategy Matrix, what would you consider to be a rapid
market (or industry) growth rate?

Answer: A 5% average industry growth rate is good and could be considered rapid.

6-44. How does the Sarbanes-Oxley Act of 2002 impact boards of directors?

Answer: Basically the Act simply makes board members more liable for actions, strategies, and
overall performance for the firm. It requires audit committees of boards to meet more frequently and
establishes “best practices” of boards of directors of public firms. The Act states that the jobs of
chief executive and chairman are now held by separate persons; board audit committees must have at
least one financial expert as a member; and board audit committees must meet 10 or more times per
year rather than 3-4 times per year.

6-45. Rank Business Week’s “principles of good governance” from 1 to 14 (1 being most
important and 14 least important) to reveal your assessment of these new rules.

Answer: Rankings will vary by student but the principles are as follows:

 No more than two directors are current or former company executives.

 No directors do business with the company or accept consulting or legal fees from the firm.
 The audit, compensation, and nominating committees are made up solely of outside directors.
 Each director owns a large equity stake in the company, excluding stock options.
 At least one outside director has extensive experience in the company’s core business and at
least one has been CEO of an equivalent-sized company.
 Fully employed directors sit on no more than four boards and retirees sit on no more than
seven.
 Each director attends at least 75% of all meetings.
 The board meets regularly without management present and evaluates its own performance
annually.
 The audit committee meets at least four times a year.
 The board is frugal on executive pay, diligent in CEO succession oversight responsibilities,
and prompt to act when trouble arises.
 The CEO is not also the Chairperson of the Board.
 Shareholders have considerable power and information to choose and replace directors.
 Stock options are considered a corporate expense.
 There are no interlocking directorships (where a director or CEO sits on another director’s
board).

6-46. Why is it important to work row by row instead of column by column in preparing a
QSPM?

Answer: The rows of a QSPM contain the key external and internal factors while the columns refer
to the strategies under consideration. By working row by row, each strategy is considered based on
the factor at hand. If one worked column by column, he or she would be evaluating each strategy
independently without considering other strategies relative to that factor.

6-47. Why should one avoid putting double 4’s in a row in preparing a QSPM?

Answer: The purpose of the QSPM is to differentiate between/among strategies in terms of relative
attractiveness, so it is best to differentiate with regard to each factor. Simply decide for each factor
which strategy is best and second best, etc. So do not assign two 4’s or for that matter two 3’s, 2’s, or
1’s in your assessment.

6-48. Envision a QSPM with no weight column. Would that still be a useful analysis? Why or
why not? What do you lose by deleting the weight column?

Answer: YES, it would still be useful, actually very useful. Simply sum the AS (attractiveness
scores) to determine the best strategy. However, without the weight column, you lose significant
information in the analysis by in essence saying all factors are of equal importance to be successful in
the industry.

6-49. Prepare a BCG Matrix for a two-division firm with sales of $5 and $8 versus profits of $3
and $1, respectively. State assumptions for the RMSP and IGR axes to enable you to construct
the diagram.

Answer: Circle 1 will be smallest but will have the largest pie slice. Circle 1’s pie slice will be 75%,
and Circle 2’s 25%.

6-50. Consider developing a before and after BCG or IE Matrix to reveal the expected results
of your proposed strategies. What limitation of the analysis would this procedure somewhat
overcome?
Answer: The BCG Matrix and IE Matrix do not consider how divisions and industries change over
time. They are snapshots of an organization at a single point in time. A before-and-after analysis
would help to overcome this limitation.

6-51. If a firm has the leading market share in its industry, where on the BCG Matrix would
the circle lie? Diagram and explain.

Answer: Firms with high relative market share are plotted as either Stars (Quadrant II) or Cash Cows
(Quadrant III) on the BCG Matrix. More specifically, the center of the circle will lie somewhere
along the far left axis.

6-52. If a firm competes in a very unstable industry such as telecommunications, where on the
SP axis of the SPACE Matrix would you plot the appropriate point?

Answer: -7 would be the most unstable value along the SP axis.

6-53. Why do you think the SWOT Matrix is the most widely used of all strategy matrices?

Answer: The SWOT Matrix lends itself to discussion among managers. It is conceptually simple
with no numbers and includes key internal and external factors that provide the basis for alternative
strategies. Brainstorming sessions are common in business and the SWOT is a nice framework for
such an activity.

6-54. Nestle’s market share of bottled water in the United States is 29.8%, followed
by Niagara (23.3%), Coke’s Dasani (5.8%), DS Waters (5.7%), Pepsi’s Aquafina
(4.1%), and Premium Waters (3.1%). Calculate Dasani’s RMSP and Aquafina’s
RMSP. (Note: Nestle brands include Poland Springs, Perrier, and Pure Life.
Nestle’s water home-delivery revenues are growing twice as fast as their shipments
to stores/businesses).

Answer: Dasani’s RMSP = 5.8 / 29.8 = .195

Aquafina’s RMSP = 4.1 / 29.8 = .138

6-55. What are two limitations of the QSPM discussed in the chapter?

Answer: The Quantitative Strategic Planning Matrix has two limitations. First, it always
requires informed judgments regarding AS scores, but quantification is helpful
throughout the strategic-planning 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.

6-56. What percentage of new, incoming CEOs in North America, also serve as
chair of the board of directors? In this regard, what is the trend and why?
Answer: In North America, the number of new incoming CEOs that also serve as Chair
of the Board has declined to about 10 percent today from about 50 percent in 2001.
Academic Research Capsule 6-2 on p. 193 reveals “how many” board of director
members are ideal.

6-57. Explain the steps involved in developing a QSPM.

Answer: There are six basic steps involved in applying QSPM:

 Make a list of the firm’s key external opportunities/threats and internal
strengths/weaknesses in the left column of the QSPM.
 Assign weights to each key external and internal factor.
 Examine the Stage 2 matrices and identify alternative strategies that the organization should
consider implementing.
 Determine the AS for each strategy given each respective factor.
 Compute the TAS for each strategy given each respective factor.
 Compute the Sum TAS for each strategy.

6-58. How are the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand
Strategy Matrix similar? How are they different?

Answer: The SWOT, SPACE, BCG, IE, and GRAND are similar in that all are matching tools in
stage two of the strategy-formulation analytical framework. The intent is to match internal with
external factors, for example, to use strengths to take advantage of opportunities. The five tools each
had different axes so it is best to utilize all five in strategic planning. The SWOT is most widely used
because it is conceptually simple yet comprehensive. The BCG and IE are portfolio matrices that
apply best to a multidivisional firm. The GRAND is used least, with the SPACE next least, but
again, all five are useful as all five aim to effectively match internal with external factors in
formulating strategies.

Answers to the End-of-Chapter 6 Assurance of

Learning Exercises
ASSURANCE OF LEARNING EXERCISE 6A:
PERFORM A SWOT ANALYSIS FOR HERSHEY COMPANY

ANSWER:
Strengths
1. Hershey sells products in 70 countries under more than 80 brand names.
2. Hershey has an exemplary philanthropic and sustainability record.
3. Hershey is the leader in the USA in dark and premium chocolate (44% market
share).
4. Hershey is the leader in chocolate production in the USA (34% market share).
5. Hershey has 20.3% market share for candy production in the USA.
 6. Hershey sales in 2014 increased 2.4% to $7.4 billion.
7. Hershey has Chocolate World Stores in Shanghai and Singapore.
8. Hershey just acquired Krave Pure Foods Inc.
9. Hershey’s sales outside the USA are growing 3% annually.
10. The Milton Hershey School for Orphans is the largest of its kind.

Weaknesses
1. Sales are seasonal, lowest outside of holidays.
2. Hershey’s operates from a functional design with no divisional presidents.
3. High debt makes Hershey financially vulnerable.
4. Hershey spends 1% of revenue on advertising vs. rivals spending 4%.
5. Only 15% of Hershey’s revenues are from outside the USA.
6. Only 3% of Hershey’s profits come from outside the USA.
7. Nearly 40% of Hershey sales are generated from mass merchandisers.
8. There is only one female among Hershey’s top management, and no minorities.
9. Nearly 30% of Hershey’s sales come from supermarkets.
10. Hershey profits largely are aimed at supporting the Hershey School.

Opportunities
1. Per capita disposable income increasing 2.8% annually
2. Prices of sugar declining 3% annually
3. Northern Europe consumes twice the chocolate of southern Europe.
4. Chocolate imports are growing 6.6% annually.
5. The candy industry has a 13-percent profitability average.
6. West Africa produces 70 percent of the world’s cocoa production.
7. Chocolate consumption is growing 2.6% annually.
8. Crude oil prices are low and declining 3% annually.
9. India has overtaken China as the fastest growing country in Asia.
10. More than 40% of the chocolate eaten in the world is consumed in Europe.

Threats
1. Political unrest in West Africa is jeopardizing cocoa bean supply.
2. Cocoa prices rising 10% annually expected to continue
3. Per capita sugar and sweetener consumption is decreasing 3% annually.
4. Value of the dollar is high and slowly rising further.
5. M&M Mars and Nestle dominate the European and Asian markets.
6. Minimum wages are increasing to $10+/hour in numerous USA states.
7. Corporate wellness programs discourage candy and chocolate consumption.
8. Nestle has 450 factories compared to Hershey’s 10.
9. Candy sales are seasonal, being highest during the 3rd and 4th quarters.
10. Diabetes and obesity are on the rise and spurring healthy eating globally.

Strategies
a. Build a manufacturing plant in Germany or Belgium because northern Europeans love
chocolate and Hershey has too little presence there, and because shipping chocolate is
pretty expensive (W5, W6, T4, T5, T8).
 b. Purchase a cocoa farm in South America because cocoa supplies from Africa are
unreliable given political, economic, and governmental, and terror problems (S4, S9,
T1, T2).
c. Develop new dark chocolate products because dark chocolate is healthy and the world
is becoming more interested in healthy eating (S3, T10).
d. Add a woman and a minority as soon as possible to the top management team (W8,
O7).
e. Resign the organizational structure to be divisional-by-continent in order to have a
“champion” person heading the company’s global expansion (W2, O10).
f. Look to acquire European, Asian, South American, and Asian small confectionary
companies, in order to facilitate global expansion (S9, O3, O9).
g. Avoid further acquisitions away from confectionery, chocolate, and candy – such as
the beef stick company Hershey recently acquired. Do not diversify into snack foods
(W3, T5).

ASSURANCE OF LEARNING EXERCISE 6B:

DEVELOP A SPACE MATRIX FOR HERSHEY COMPANY

ANSWER:

Financial Position (FS) Ratings Stability Position (SP) Ratings

Leverage (debt to equity) 2.0 Price elasticity of demand -4.0
Liquidity (current ratio) 4.0 Competitive pressure -4.0
Return on assets 5.0 Barriers to entry into market -3.0
Earnings per share 6.0 Seasonality -5.0
Net income 3.0 Technological changes -4.0
Financial Strength Average 22/5=4.4 Stability Position Average -20/5=-4
Competitive Position (CP) Ratings Industry Position (IP) Ratings
Diversified -2.0 Industry regulation 4.0
Control over suppliers and -4.0 Profit potential 3.0
distributors
Market Share -2.0 Ease of entry into market 4.0
Technological know-how -2.0 Growth potential 6.0
Competitive Position Average - Industry Position Average 17/4=4.25
10/4=2.5

Conclusion
SP Average = -4.0 IP Average = 4.25
CP Average = -2.5 FP Average = 4.4
X-axis: -2.50 + 4.25 = +1.75 Y-axis: 4.4 + -4.0 = +0.4
 Hersey’s SPACE coordinate (1.75, 0.4) and vector is in the upper right quadrant, meaning
the firm should pursue Aggressive strategies. Thus, perhaps all the SWOT strategies
outlined in Exercise 6A could be implemented.

ASSURANCE OF LEARNING EXERCISE 6C:

DEVELOP A BCG MATRIX FOR HERSHEY COMPANY

ANSWER:

Despite Hershey considering Canada and the USA both under the President of North
America, the company reports net sales as USA and International, leaving open the
possibility that net revenues (and total assets) from Canada are considered International.

SIZE OF SIZE OF PIE SLICE HORIZ. VERTICAL

CIRCLE IS DETERMINED BY AXIS AXIS
Division Revenues Profits %Profits RMSP IGR %

USA $6.4B $1.9B 98 1.00 03

International $1.1B $40M 02 0.10 10
Total

Conclusion:
RMSP
1.0 .8 .6 .4 .2 00

IGR |
+20 |
+15 |
+10 | * INTERNATIONAL
+09 |
+08 |
+07 |
+06 |
+05 |
+04 |
+03 * USA |
+02 |
+01 ________________ _ |_____________________
+00 |
-05 |
-10 |
-15 |
-20 |
 Conclusion: Hershey needs to accelerate its expansion and growth into Europe, Asia,
Australia, and South America. Millions of customers outside the USA and Canada have never
been exposed to Hershey products yet likely would love that opportunity.

ASSURANCE OF LEARNING EXERCISE 6D:

DEVELOP A QSPM FOR HERSHEY COMPANY

ANSWER:

Strategy 1 = Build a manufacturing plant in Germany or Belgium because northern

Europeans love chocolate and Hershey has too little presence there, and because shipping
chocolate is pretty expensive.
Strategy 2 = Purchase a cocoa farm in South America because cocoa supplies from Africa are
unreliable given political, economic, and governmental, and terror problems.

Strategy1 Strategy2
AS TAS AS TAS
Weight
Key External Factors

Opportunities
1. Per capita disposable income increasing 2.8% annually 0.04
2. Prices of sugar declining 3% annually 0.06
3. Northern Europeans consume twice the per capita amount of 0.04 4 0.16 3 0.12
chocolate than southern Europeans.
4. Chocolate imports are growing 6.6% annually. 0.03
5. The candy industry has a 13% profitability average. 0.04
6. West Africa produces 70% of the world’s cocoa production. 0.08 3 0.24 4 0.32
7. Chocolate consumption is growing 2.6% annually. 0.04
8. Crude oil prices are low and declining 3% annually. 0.03
9. India has overtaken China as the fastest growing country in Asia. 0.05 4 0.20 3 0.15
10. More than 40% of the chocolate eaten in the world is in Europe. 0.05 4 0.20 3 0.15

Threats
1. Political unrest in West Africa is jeopardizing cocoa bean supply. 0.06 3 0.18 4 0.24
2. Cocoa prices rising 10% annually expected to continue 0.08 3 0.18 4
0.32
3. Per capita sugar & sweetener consumption decreasing 3% annually 0.09
4. Value of the dollar is high and slowly rising further. 0.04
5. M&M Mars and Nestle dominate the European and Asian markets.0.08 4 0.32 3
0.24
6. Minimum wages are rising to $10+/hour in numerous USA states. 0.03
7. Corporate wellness programs discourage candy/chocolate eating. 0.02
8. Nestle has 450 factories compared to Hershey’s 10. 0.03 4 0.12 3
0.09
9. Candy sales are seasonal; highest during the 3rd and 4th quarters. 0.04
 10. Diabetes and obesity on the rise, spurring healthy eating globally 0.07

Subtotals 1.00 1.60 1.63

Key Internal Factors

Strengths

1. Hershey sells products in 70 countries under more than 80 brands. 0.07 4 0.28 3 0.21
2. Hershey has an exemplary philanthropic & sustainability record. 0.05
3. Hershey is the leader in the USA in dark & premium chocolate 0.07
(44% market share).
4. Hershey is the leader in chocolate production in the USA 0.08
(34% market share).
5. Hershey has 20.3% market share for candy production in USA. 0.07
6. Hershey sales in 2014 increased 2.4% to $7.4 billion. 0.04
7. Hershey has Chocolate World Stores in Shanghai & Singapore. 0.02 4 0.08 3 0.06
8. Hershey just acquired Krave Pure Foods Inc. 0.03
9. Hershey’s sales outside the USA are growing 3% annually. 0.08
10.The Milton Hershey School for Orphans is the largest of its kind. 0.02

Weaknesses
1. Sales are seasonal, lowest outside of holidays. 0.05
2. Hershey’s uses a functional design with no divisional presidents. 0.04
3. High debt makes Hershey financially vulnerable. 0.04
4. Hershey spends 1% of revenue on advertising vs. rivals spending 4%. 0.04
5. Only 15% of Hershey’s revenues are from outside the USA. 0.07 4 0.28 3 0.21
6. Only 3% of Hershey’s profits come from outside the USA. 0.06 4 0.24 3 0.18
7. Nearly 40% of Hershey sales are generated from mass merchandisers. 0.05
8. There is only one female among Hershey’s top mgt., and no minorities. 0.03
9. Nearly 30% of Hershey’s sales come from supermarkets. 0.03
10. Hershey profits largely are aimed at supporting the Hershey School. 0.03

Subtotal 1.00 0.88 0.66

TOTALS 2.00 2.48 2.29

Conclusion: The strategy to build a new manufacturing plant in Belgium or Germany is more
attractive than the strategy to purchase a cocoa farm in South America. However, both strategies
should likely be pursued simultaneously by Hershey.

ASSURANCE OF LEARNING EXERCISE 6E:

FORMULATE INDIVIDUAL STRATEGIES

ANSWER:

Leave Blank Strengths – S Weaknesses – W

 1. GPA in Finance is 3.8 1. No work experience
2. My parents will pay for 2. No foreign language
my college education skills
3. Strong communication 3. Degree in construction
skills from two-year
4. Motivated community college
5. Good team player 4. Not certified to do
6. No student loans anything
7. Strong expertise in 5. Weak writing skills
SPSS
8. Yes, I am mobile
Opportunities – O SO Strategies WO Strategies
1. Demand for MBAs 1. Apply to graduate 1. Work full-time while
growing 5% school (S1, S2, O1) going to grad school
2. Health care and 2. Apply to work for a part-time (W1, O1)
biotechnology industries bank (S1, S3, S4, S5, 2. Enroll in an online
growing 10% O6) graduate degree
3. USA GDP growing 1% 3. Apply to work for program, while working
4. Online job searching is national hospital system part-time in the
becoming easier (S1, S7, S8, O2) healthcare industry
5. Online graduate degrees (W1, O2, O5)
are readily available
6. The banking industry is
growing 8%

Threats – T ST Strategies WT Strategies

1. Overabundance of 1. Seek services of a 1. Enroll in an MBA
students receiving BBA national employment Program (S1, T1)
college degrees agency (S7, T4) 2. Start my own
2. Entry-level 2. Aggressively seek construction business
wages/salaries are very outstanding references (W3, T2)
low and put them on my
3. Political unrest in the resume (S3, T4)
Far East and Middle
East
4. My university has weak
placement operations
5. Some cities and states
losing in population
growth
6. Minorities and women
may have edge of me in
being hired simply due
to EEOC
ASSURANCE OF LEARNING EXERCISE 6F:
DEVELOP A BCG MATRIX FOR YOUR UNIVERSITY

ANSWER:

Let the circles stand for schools/colleges at your institution, such as the School or College of
Business. The relative market share position is the number of students enrolled in each school
compared to the number enrolled in the largest peer institution in the state. The industry
growth rate is the % increase/decrease in the number of new students state-wide seeking to
major in that discipline.

Ask the students what implications arise for disciplines at the university in the different
quadrants–how should the university address dogs, question marks, stars, and cash cows? If
the university chose to address these disciplines using this perspective, what implications
would exist for the role and mission of the university?
Color of Circle Relative Market Industry %
Share Position Growth Rate
School of Business Pink 0.8 +03
School of Education Green 0.25 +10
School of Arts Blue 0.4 -15
School of Science and Humanities Yellow 0.4 +08

According to the BCG Matrix, the School of Business is a star but could be moving toward a
position of cash cow. The School of Education in this example is a question mark. The School
of Arts is a dog and the School of Science and Humanities is a question mark. Notice that the
business school is one of the largest in the state, but the School of Arts is one of the smallest in
the state. The School of Arts also has the least growth in majors statewide. Notice that all
four schools have about the same number of students, as indicated by the size of the circles.

Relative Market Share Position

High 1.0 Medium . Low 0.0

50
High +20 Stars Question Marks

Industry Sales
Growth Rate

Medium
0
 Cash Cows Dogs

Low

ASSURANCE OF LEARNING EXERCISE 6G:

THE ROLE OF THE BOARDS OF DIRECTORS

ANSWER:

This exercise sends students into the community to speak with an individual who is a member
of some board of directors, and to report back to class on their findings. This endeavor is well
worth the class time and is a great experience for the student. Other questions that could be
asked of the presenting student(s) are:
1. To what extent is the board member personally liable for performance of the firm?
2. Does the board member have insurance to protect him/her from potential lawsuits?
3. Is the chair of the board the CEO?
4. How many “insiders” are on the board?
5. Is there a requirement that the board member own a certain # of shares of stock of the
firm?
6. Are there interlocking directorates among the board members?

ASSURANCE OF LEARNING EXERCISE 6H:

LOCATE COMPANIES IN A GRAND STRATEGY MATRIX

ANSWER:

The basic premise behind this exercise is that 1) higher industry numbers reveal a higher
market growth since the vertical axis relates to the industry, and 2) higher company numbers
reveal a stronger competitive position, since the horizontal axis relates more to the company.
The only questionable placement is for Nestle, but with an industry average EPS of 0.32,
Nestle could be placed in Quadrant 1 or IV.

The first matrix below illustrates the appropriate strategies for each quadrant. The second
matrix illustrates the quadrant in which each sample company is located.
Rapid Market
Growth
 Quadrant II: Quadrant I:
Market development Market development
Market penetration Market penetration
Product development Product development
Weak
Horizontal integration Forward integration Strong
Competitive
Divestiture Backward integration Competitive
Position
Liquidation Horizontal integration Position

Quadrant III: Quadrant IV:

Retrenchment Unrelated diversification
Related diversification Related diversification
Unrelated diversification Joint ventures
Divestiture
Liquidation

Slow Market
Growth

Rapid Market
Growth
Quadrant II: Quadrant I:

Weak Spirit Airlines Strong

Competitive PepsiCo Competitive
Position Papa Johns International Position
Quadrant III: Quadrant IV:
Polaris Industries

Slow Market
Growth

Answers to the End-of-Chapter 6 Mini-Case Questions

1. Develop a SWOT Matrix for Starbucks that includes the three strategies and
three factors cited above.

Three new strategies: 1) provide beer and wine, and 2) provide an expanded lunch and
dinner menus, and 3) provide advanced mobile ordering.
 Opportunities Threats

1) Rivals Panera Bread, Atlanta Bread, and

Dunkin Donuts are expanding their
menus and growing revenue 15 percent
faster than Starbucks.

Strengths SO Strategies ST Strategies

Weaknesses WO Strategies WT Strategies

1. There have been long 1. Provide advanced mobile ordering

wait times for customers (W1,T1)
to get served at many of
its locations

2. Company business has 1. Provide beer and wine (W2,T1)

fallen off 30% after morning 2. Expand lunch and dinner menus (W2,T1)
breakfast

2. Develop a 3 x 3 QSPM for Starbucks that includes the three strategies and three
factors cited above. Which of your three factors received the highest weight?
Which of your three strategies was most attractive? Explain.

STRATEGIES

FACTORS 1 2 3
Mobile Orders Beer/Wine Lunch/Dinner

Weight AS TAS AS TAS AS TAS

INTERNAL
1. There have been long 0.60 4 0.24 2 1.20 1 0.60
wait times for customers
to get served at many of its
locations

2. Company business has fallen 0.30 2 0.60 3 0.90 4 1.20

off 30% after morning breakfast

EXTERNAL
1. Rivals Panera Bread, Atlanta 0.10 2 0.20 4 0.40 3 0.30
Bread, and Dunkin Donuts are
expanding their menus and
growing revenue 15% faster
than Starbucks
Totals 1.00 1.04 1.50 2.10

Conclusion: Strategy 3 is most attractive.

Note: So few factors were included, we just let the weights sum to 1.0, but remind
students that in a QSPM, the external factors’ weights sum to 1.0 and the internal factors’
weight sum to 1.0.

NOTE – THE FOLLOWING IS AN EXCELLENT, FUN, NOT-IN-THE-BOOK,

ADDITIONAL ASSURANCE OF LEARNING EXERCISE FOR CHAPTER 6

EXERCISE TITLE: How Severe Are Various Subjective Threats in Strategic

Planning?

Purpose

As discussed in Chapter 6, without objective information and analysis, six subjective

threats (personal biases, politics, prejudices, emotions, personalities, and halo
error) oftentimes play a dominant role in the strategy-formulation process, undermining
effectiveness. Halo error is the tendency to put too much weight on a single factor.
The purpose of this exercise is to examine more closely the threats of relying too
heavily on subjectivity in formulating strategies. In addition, the purpose of this exercise is
to examine whether individual decision making is better than group decision making.
Academic research suggests that groups make better decisions than individuals about
eighty percent of the time.

Instructions

Rank the six subjective threats as to their relative severity (1 = most severe, 9 = least
important). First, rank the threats as an individual. Then, rank the threats as part of a
group of three. Thus, determine what person(s) and what group(s) here today can come
closest to the expert ranking. This exercise enables examination of the relative effectiveness
of individual versus group decision making in strategic planning.

The Steps

1. Fill in Column 1 in Table 1 to reveal your individual ranking of the relative

severity of the six subjective threats (1= most severe to 6 = least severe). For
example, if you think Personal Biases is the 3rd most severe threat, then enter a 3
in Table 1 in Column 1 beside Personal Biases.
2. Fill in Column 2 in Table 1 to reveal your group’s ranking of the relative severity
of the six threats (1 = most severe to 6 = least severe).
3. Fill in Column 3 in Table 1 to reveal the expert’s ranking of the six threats.
4. Fill in Column 4 in Table 1 to reveal the absolute difference between Column 1
and Column 3 to reveal how well you performed as an individual in this exercise.
(Note: For absolute difference, disregard negative numbers.)
 5. Fill in Column 5 in Table 1 to reveal the absolute difference between Column 2
and Column 3 to reveal how well your group performed in this exercise.
6. Sum Column 4. Sum Column 5.
7. Compare the Column 4 sum with the Column 5 sum. If your Column 4 sum is less
than your Column 5 sum, then you performed better as an individual than as a
group. Normally, group decision making is superior to individual decision
making, so if you did better than your group, you did excellent.
8. The Individual Winner(s): The individual(s) with the lowest Column 4 sum is the
WINNER.
9. The Group Winners(s): The group(s) with the lowest Column 5 score is the
WINNER.

Table 1 – Assessing Severity of Being Too Subjective in Making Strategic

Decisions: Comparing Individual versus Group Decision Making

Threats of Being Column 1 Column 2 Column 3 Column 4 Column 5

Too Subjective

1. Personal Biases
2. Politics
3. Prejudices
4. Emotions
5. Personalities
6. Halo error

Sums

Answer: The Expert Ranking

Threats of Being Authors’ Ranking (1 = most severe to 6 = least severe)

Too Subjective
1. Personal biases 5
2. Politics 2
3. Prejudices 6
4. Emotions 4
5. Personalities 3
6. Halo error 1

Rationale

The expert rankings are based on the authors’ experience, rather than on findings from
empirical research. The most severe subjective threat in the authors’ informed opinion is halo
error. For this reason, the weights and ratings in the EFEM, CPM, IFEM, and QSPM are
especially important. The second most severe threat is politics. In organizations, as in
governments, politics often confound problems and inhibit effective decision making. The
third most severe threat is personalities; some people have outgoing, strong personalities and
some persons are soft spoken; such differences exist in all firms and oftentimes inhibit
effective decision making. The fourth most severe subjective threat is emotions; people get
attached to various policies, procedures, strategies, and persons and resist change due to
emotional feelings. The fifth and sixth most severe threats are personal biases and prejudices,
respectively. These personal characteristics can surface whenever strategic decisions are
being made and can hamper effectiveness, although generally are not as common as the 1 to 4
ranked threats.