Strategic Plan Formulation

Strategy Analysis & Choice

Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Strategy Analysis & Choice

Alternative Strategies Driven From --

 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies

Ch 6 -3
 4
A Comprehensive Strategy-Formulation
Analytical Framework (SFAF)

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Comprehensive Strategy-Formulation
Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix
Ch 6 -5
 Ch
6-6
Input Stage

 Provides basic input information for the matching and

decision stage matrices
 Requires strategists to quantify subjectivity early in the
process
 Good intuitive judgment always needed
Formulation Framework

SWOT Matrix

SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix

IE Matrix

Grand Strategy Matrix

 Ch
6-8
Matching Stage

 Match between organization’s internal resources

and skills and the opportunities and risks created
by its external factors.
 Stage 2: The Matching Stage

SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats

Ch 6 -9
SWOT Matrix

Four Types of Strategies

Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

Ch 6 -10
SO Strategies

Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
WO Strategies

Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
ST Strategies

Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats reduce the impact
ST of external
Strategies threats
SWOT
WT Strategies

Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats avoiding
WT environmental
Strategies threats
SWOT
SWOT Matrix

Developing the SWOT

List firm’s key internal Strengths
List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats

Ch 6 -15
SWOT Matrix
Strengths – S Weaknesses – W

Leave Blank List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Use strengths to take advantage Overcoming weaknesses by taking
List Opportunities of opportunities advantage of opportunities

Threats – T ST Strategies WT Strategies

Use strengths to avoid threats Minimize weaknesses and avoid
List Threats threats
Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth

Excess working in the cell phone
+ = Acquire Cellfone, Inc.
capacity (strength) industry
(opportunity)
Exit of two major
Pursue horizontal
Insufficient capacity foreign competitors
+ = integration by buying
(weakness) from the industry
competitor's facilities
(opportunity)
Decreasing
Strong R&D Develop new products
+ numbers of young =
(strength) for older adults
adults (threat)
Develop a new
Poor employee Strong union
+ = employee benefits
morale (weakness) activity (threat) package
Limitations with SWOT Matrix

 Does not show how to achieve a competitive advantage

 Provides a static assessment in time
 May lead the firm to overemphasize a single internal or
external factor in formulating strategies
Strategy-Formulation Analytical
Framework
SWOT Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix Ch 6 -19

 SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive
Conservative
Defensive
Competitive
Ch 6 -20
SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Ch 6 -21
 SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

Ch 6 -22
SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
 Ch
6-
SPACE Factors 24

Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA, ES, & IS

2. Assign a numerical value:
a) From +1 to +6 to each FS & IS dimension
b) From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, & IS
Steps to Developing a SPACE Matrix

1. Plot the average score on the appropriate axis

2. Add the two scores on the x-axis and plot the point. Add the
two scores on the y-axis and plot the point. Plot the
intersection of the new xy point
3. Draw a directional vector from the origin through the new
intersection point.
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3

-4
-5
Defensive Competitive
-6
ES
Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

The Internal-External Matrix

 Positions an organization’s various divisions in a nine-

cell display
 Similar to BCG Matrix except the IE Matrix:
 Requires more information about the divisions
 Strategic implications of each matrix are different
IE Matrix

 Based on two key dimensions

 The IFE total weighted scores on the x-axis
 The EFE total weighted scores on the y-axis
 Divided into three major regions
 Grow and build – Cells I, II, or IV
 Hold and maintain – Cells III, V, or VII
 Harvest or divest – Cells VI, VIII, or IX
Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions
 Competitive position
 Market growth

Ch 6 -34
 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Grand Strategy Matrix

Quadrant I
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary

Ch 6 -36
Grand Strategy Matrix

Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive
strategy

Ch 6 -37
Grand Strategy Matrix

Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Ch 6 -38
Grand Strategy Matrix

Quadrant IV
Strong competitive position
Slow-growth industry
Diversification to more promising growth
areas

Ch 6 -39
Strategy-Formulation Analytical
Framework

Quantitative Strategic
Stage 3:
The Decision Stage
Planning Matrix
(QSPM)

Ch 6 -40
QSPM

Quantitative Strategic Planning Matrix

Technique designed to determine the
relative attractiveness of feasible
alternative actions

Ch 6 -41
 QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Steps to Develop a QSPM

1. Make a list of the firm’s key external

opportunities/threats and internal strengths/weaknesses
in the left column
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 to Develop a QSPM

4. Determine the Attractiveness Scores

5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
 QSPM

Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs

Ch 6 -45
QSPM

Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the
decision making process

Ch 6 -46
Cultural Aspects of Strategy Choice

Organization Culture
Successful strategies depend on the degree
of consistency with the firm’s culture

Ch 6 -47
Politics of Strategy Choice

Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources

Ch 6 -48
Feel Free to ask or give a comment, Please 