Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
11th Edition
Fred David
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 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
Strategy-Formulation Analytical
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
Grand Strategy Matrix
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
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Grand Strategy Matrix
Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
Strategy-Formulation Analytical
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
