Strategy Analysis & Choice: Strategic Management: Concepts & Cases 11 Edition Fred David

Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Alternative Strategies Derive From:
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile Matrix

(CPM)
Stage 1: The Input Stage
Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix

Stage 2: The Matching Stage
Match between organization’s

internal resources & skills and the
opportunities & risks created by its
external factors
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
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 ST reduce the impact
Strategies of external
threats
SWOT
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
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
SWOT Matrix
Strengths – S Weaknesses – W
Blank
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies
Use strengths to take Overcoming weaknesses

List Opportunities advantage of by taking advantage of
opportunities opportunities
Threats – T ST Strategies WT Strategies
Use strengths to avoid Minimize weaknesses and

List Threats threats avoid threats
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy

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
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)

Competitive Advantage (CA)
SPACE Matrix
Two External Dimensions
Environmental Stability (ES)

Industry Strength (IS)
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
SPACE Factors
Steps to Developing a SPACE Matrix
1. Select a set of variables to define FS, CA,

ES, & IS
2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. 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
4. Plot the average score on the appropriate

axis
5. 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
6. 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
BCG Matrix
Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an

industry to the market share held by the largest
rival firm in that industry
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Medium
0
Low
-20
BCG Matrix
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or

divest
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
BCG Matrix
Cash Cows
High relative market share, competes in low-
growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible

Product development, concentric diversification
If weakens—retrenchment or divestiture
BCG Matrix
Dogs
Low relative market share & compete in slow or

no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment

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
Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth
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
WEAK 7. Concentric diversification
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
Quadrant I
Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Quadrant II
Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive strategy
Quadrant III
Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Quadrant IV
Strong competitive position

Slow-growth industry
Diversification to more promising growth areas
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative

attractiveness of feasible alternative actions
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
QSPM
Advantages
Sets of strategies considered simultaneously or

sequentially
Integration of pertinent external & internal
factors in the decision making process

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Chapter 6

Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

Stage 1: External Factor Evaluation

Competitive Profile Matrix

Basic input information for the matching &

Stage 2: BCG Matrix

Grand Strategy Matrix

Match between organization’s

Four Types of Strategies

Strengths Use a firm’s

Developing the SWOT

List firm’s key internal Strengths

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and

Key Internal Factor Key External Factor Resultant Strategy

 Does not show how to achieve a competitive

Two Internal Dimensions

Financial Strength (FS)

Two External Dimensions

Environmental Stability (ES)

Financial Strength (FS) Environmental Stability (ES)

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

4. Plot the average score on the appropriate

Boston Consulting Group Matrix

Relative Market Share Position

Ratio of a division’s own market share in an

Decision to strengthen (intensive strategies) or

Substantial investment to maintain or

Maintain strong position as long as possible

Low relative market share & compete in slow or

Liquidation, divestiture, retrenchment

 Positions an organization’s various divisions

 Based on two key dimensions

Tool for formulating alternative strategies

Excellent strategic position

Evaluate present approach

Compete in slow-growth industries

Strong competitive position

Quantitative Strategic Planning Matrix

Technique designed to determine the relative

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

4. Determine the Attractiveness Scores

Requires intuitive judgments & educated

Sets of strategies considered simultaneously or

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