Strategic Management Concepts: A
Competitive Advantage Approach,
Concepts and Cases
Seventeenth Edition
Chapter 6
Strategy Analysis and Choice
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
6.1 Describe the strategy analysis and choice process.
6.2 Diagram and explain the three-stage strategy-formulation
analytical framework.
6.3 Construct and apply the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix.
6.4 Construct and apply the Strategic Position and Action
Evaluation (SPACE) Matrix.
6.5 Construct and apply the Boston Consulting Group (BCG)
Matrix.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
6.6 Construct and apply the Internal-External (IE) Matrix.
6.7 Construct and apply the Grand Strategy Matrix.
6.8 Construct and apply the Quantitative Strategic Planning
Matrix (QSPM).
6.9 Explain how to estimate costs associated with
recommendations.
6.10 Discuss the role of organizational culture in strategic
analysis and choice.
6.11 Identify and discuss important political considerations in
strategy analysis and choice.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.1 The Comprehensive, Integrative
Strategic-Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February 1989):
91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance
Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of
Indonesia,” Journal of Mathematics and Technology, no. 4, (October 2010): 20.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Process of Generating and
Selecting Strategies (1 of 3)
• A manageable set of the most attractive alternative
strategies must be developed.
• The advantages, disadvantages, trade-offs, costs, and
benefits of these strategies should be determined.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Process of Generating and
Selecting Strategies (2 of 3)
• Identifying and evaluating alternative strategies should
involve many of the managers and employees who earlier
assembled the organizational vision and mission
statements, performed the external audit, and conducted
the internal audit.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Process of Generating and
Selecting Strategies (3 of 3)
• Alternative strategies proposed by participants should be
considered and discussed in a series of meetings.
• Proposed strategies should be listed in writing.
• When all feasible strategies identified by participants are
given and understood, the strategies should be ranked in
order of attractiveness.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.2 The Strategy-Formulation
Analytical Framework
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-
Formulation Framework (1 of 3)
• Stage 1 - Input Stage
– summarizes the basic input information needed to
formulate strategies
– consists of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM)
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-
Formulation Framework (2 of 3)
• Stage 2 - Matching Stage
– focuses on generating feasible alternative strategies by
aligning key external and internal factors
1. Strengths-Weaknesses-Opportunities-Threats (SWO
T) Matrix: Done
2. the Strategic Position and Action Evaluation (SPACE)
Matrix: NO
3. the Boston Consulting Group (BCG) Matrix: Done
4. the Internal-External (IE) Matrix: No
5. and the Grand Strategy Matrix: Done
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-
Formulation Framework (3 of 3)
• Stage 3 - Decision Stage
– involves the Quantitative Strategic Planning Matrix (QS
PM)
– reveals the relative attractiveness of alternative
strategies and thus provides objective basis for
selecting specific strategies
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
1- SWOT matrix...
• The Strengths-Weaknesses-Opportunities-Threats (SW
OT) Matrix helps managers develop four types of
strategies:
– SO (strengths-opportunities) Strategies
– WO (weaknesses-opportunities) Strategies
– ST (strengths-threats) Strategies
– WT (weaknesses-threats) Strategies
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Matching Stage (2 of 3)
• SO Strategies
– use a firm’s internal strengths to take advantage of
external opportunities
• WO Strategies
– aim at improving internal weaknesses by taking
advantage of external opportunities
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Matching Stage (3 of 3)
• ST Strategies
– use a firm's strengths to avoid or reduce the impact of
external threats
• WT Strategies
– defensive tactics directed at reducing internal
weakness and avoiding external threats
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.3 A SWOT Matrix for a Retail Computer Store
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
SWOT Matrix (1 of 2)
1. List the firm’s key external opportunities.
2. List the firm’s key external threats.
3. List the firm’s key internal strengths.
4. List the firm’s key internal weaknesses.
5. Match internal strengths with external opportunities,
and record the resultant SO strategies.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
SWOT Matrix (2 of 2)
6. Match internal weaknesses with external opportunities,
and record the resultant WO strategies.
7. Match internal strengths with external threats, and record
the resultant ST strategies.
8. Match internal weaknesses with external threats, and
record the resultant WT strategies.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
2- The Boston Consulting Group (B C
G) Matrix...
• BCG Matrix
– graphically portrays differences among divisions in
terms of relative market share position and industry
growth rate
– allows a multidivisional organization to manage its
portfolio of businesses by examining the relative
market share position and the industry growth rate of
each division relative to all other divisions in the
organization
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.7 The BCG Matrix (1 of 4)
Source: Based on the BCG Portfolio Matrix from the Product
Portfolio Matrix, © 1970, The Boston Consulting Group.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.7 The BCG Matrix (2 of 4)
• Question Marks - Quadrant I
– Organization must decide whether to strengthen them
by pursuing an intensive strategy (market penetration,
market development, or product development) or to sell
them
• Stars - Quadrant II
– represent the organization’s best long-run opportunities
for growth and profitability
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.7 The BCG Matrix (3 of 4)
• Cash Cows - Quadrant III
– generate cash in excess of their needs
– should be managed to maintain their strong position for
as long as possible
• Dogs - Quadrant IV
– compete in a slow- or no-market-growth industry
– businesses are often liquidated, divested, or trimmed
down through retrenchment
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.7 The BCG Matrix (4 of 4)
• The major benefit of the BCG Matrix is that it draws
attention to the cash flow, investment characteristics, and
needs of an organization's various divisions.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.8 An Example BCG Matrix
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
3- The Grand Strategy Matrix..
• Grand Strategy Matrix
– based on two evaluative dimensions: competitive
position and market (industry) growth
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Figure 6.13 The Grand Strategy Matrix
Source: Based on Roland Christensen, Norman Berg, and Malcolm Salter, Policy
Formulation and Administration (Homewood, IL: Richard D. Irwin, 1976), 16-18.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Grand Strategy Matrix (2 of 3)
• Quadrant I
– continued concentration on current markets (market
penetration and market development) and products
(product development) is an appropriate strategy
• Quadrant II
– unable to compete effectively
– need to determine why the firm's current approach is
ineffective and how the company can best change to
improve its competitiveness
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Grand Strategy Matrix (3 of 3)
• Quadrant III
– must make some drastic changes quickly to avoid
further decline and possible liquidation
– Extensive cost and asset reduction (retrenchment)
should be pursued first
• Quadrant IV
– have characteristically high cash-flow levels and limited
internal growth needs and often can pursue related or
unrelated diversification successfully
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Quantitative Strategic Planning
Matrix (QSPM)
• Quantitative Strategic Planning Matrix (Q SPM)
– objectively indicates which alternative strategies are
best
– uses input from Stage 1 analyses and matching results
from Stage 2 analyses to decide objectively among
alternative strategies
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Table 6.4 The Quantitative Strategic
Planning Matrix (QSPM)
Strategic Alternatives
Key Factors Weight Strategy 1 Strategy 2 Strategy 3
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information Systems
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Steps in a QSPM (1 of 2)
1. Make a list of the firm’s key external opportunities and
threats and internal strengths and 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.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Steps in a QSPM (2 of 2)
4. Determine the Attractiveness Scores (AS).
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Positive Features of the QSPM
• Sets of strategies can be examined sequentially or
simultaneously
• Requires strategists to integrate pertinent external and
internal factors into the decision process
• Can be adapted for use by small and large for-profit and
nonprofit organizations
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Limitations of the QSPM
• Always requires informed judgments
• It is only as good as the prerequisite information and
matching analyses on which it is based
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Table 6.5 A QSPM for a Retail
Computer Store (1 of 3)
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Table 6.5 A QSPM for a Retail
Computer Store (2 of 3)
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Table 6.5 A QSPM for a Retail
Computer Store (3 of 3)
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Estimating Costs Associated With
Recommendations
• The term recommendation is used to refer to “any
alternative strategy that is selected for implementation.”
• Due to monetary and/or non-monetary constraints, no firm
can implement all alternative strategies proposed in the
matching matrices, so firms utilize the QSPM and expert
judgment to select particular strategies.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
The Culture and Politics of Strategy
Choice
• Strategies that require fewer cultural changes may be
more attractive because extensive changes can take
considerable time and effort
• Political maneuvering consumes valuable time, subverts
organizational objectives, diverts human energy, and
results in the loss of some valuable employees
• Political biases and personal preferences get unduly
embedded in strategy choice decisions
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Governance Issues ا لحوكمة
BoD:
• Group pf individuals who are
• by the ownership of the corporation stockholders to
have oversight and guidance over management and who
will look for the shareholders interest .
• They might be sued by shareholders for mismanagement
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
On a separate sheet of paper, number vertically from 1 to 10. Think of 1 as “most
risky” and 10 as “least risky.”
Write the following strategies beside the appropriate number to indicate
how risky you believe the strategy is to pursue:
1- less risky
10: most risky
7- Horizontal integration,
9- Liquidation, most risky
3- Forward integration,
5- Backward integration,
2- Product development,
4- Market development,
1- Market penetration,
6- Joint venture, and
8- Unrelated diversification.
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
What is the name of the strategy and the
mean of achieving the strategy
KB Toys filed for bankruptcy and announced plans to close half of its 1,217
stores in the USA. Toys R Us is the #1 specialty toy retailer. KB is #2.
Divestiture, retrenchment
Viacom sold its 82 percent stake in Blockbuster. Divestiture
RJR and Brown & Williamson, two large tobacco films, merged. Horizontal
integration
FedEx acquired Kinko’s for $2.5 billion in order to gain thousands of retail
shipping locations. Forward through acquisition
Fishing Charters, Inc. acquired a local radio station. Unrelated divarication
through acquisition
Marriott acquired a furniture manufacturer. Backward integration
Lonestar Steakhouse expanded into Europe. Market development
IBM began opening its own chain of retail stores to exclusively sell its own
products. Forward integration
Avon doubled its advertising efforts worldwide. Market penetration
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
