Strategic Management
Session 6
Strategy Analysis & Choice
1
Comprehensive Strategic Management Model
External
Audit
Chapter 3
Vision Strategy Implement
Strategies Implement Measure &
& Analysis Strategies:
In Strategies: Evaluate
Mission & Mgmt Issues
Marketing, Performance
Statements Action Fin/Acct,
Choice
R&D, CIS
Chapter 5 Chapter 7 Chapter 9
Chapter 2 Chapter 6 Chapter 8
Internal
Audit
Chapter 4
2
Strategy Analysis & Choice
Strategic Analysis and Choice:
Making subjective decisions based on
objective information
3
Strategy Analysis & Choice
Strategic Analysis and Choice:
• Generate feasible alternatives
• Evaluate alternatives
• Select specific course of action
4
Strategy Analysis & Choice
Generating & Selecting Strategies
Develop set of most attractive alternative
strategies
Determine for the set
• Advantages
• Disadvantages
• Trade-offs
• Costs
• Benefits
5
Strategy Analysis & Choice
Generating & Selecting Strategies
Involve a broad mix of personnel
• Representation from each department/function
• Provides opportunity to gain understanding of
firm’s direction
• Provides vehicle to develop commitment to
attainment of organizational objectives
6
Strategy Analysis & Choice
Generating & Selecting Strategies
Evaluate each alternative
• Internal and external audit information
• Firm’s mission statement
• Listed in writing
• Ranked in order of attractiveness
7
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
8
Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
External Internal
Factor Factor
Evaluation Evaluation
Matrix (EFE) Matrix (IFE)
9
Strategy-Formulation Analytical Framework
Stage 2: The Matching Stage
Threats Strategic Internal-
Opportunities Position & External Grand
Weaknesses Action Matrix Strategy
Strengths Evaluation (IE) Matrix
(TOWS) (SPACE)
10
Strategy-Formulation Analytical Framework
Stage 3: The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
11
Strategy Analysis & Choice
Stage 1: The Input Stage
Provides Basic Input for Stages 2 and 3
• External Factor Evaluation Matrix (EFE)
• Internal Factor Evaluation Matrix (IFE)
12
Strategy Analysis & Choice
Stage 2: The Matching Stage
Strategy is characterized by the
organizational match between
• Internal resources and skills
• Opportunities & risks created by external
factors
13
Matching Key Factors
Key Internal Key External Resultant Strategy
Factor 20%Factor
annual
Excess working growth in the
Acquire
capacity + cablevision =
industry Visioncable, Inc.
(strength)
(opportunity)
Exit of two major Pursue horizontal
Insufficient foreign integration by
capacity + competitors form = buying
(weakness) the industry competitor's
(opportunity) facilities
Decreasing
Develop new
Strong R&D numbers of
+ = products for older
(strength) young adults
(threat) adults
Develop a new
Poor employee Strong union employee
morale + activity =
benefits
(weakness) (threat)
package 14
Four Types of Strategies
SO WO
Threats
Opportunities Strategies Strategies
Weaknesses
Strengths ST WT
(TOWS)
Strategies Strategies
15
SO Strategies
Use a firm’s
Threats internal
Opportunities SO strengths to
Weaknesses Strategies take
Strengths advantage of
(TOWS) external
opportunities
16
WO Strategies
Improving
Threats internal
Opportunities WO weaknesses
Weaknesses Strategies by taking
Strengths advantage of
(TOWS) external
opportunities
17
ST Strategies
Using firm’s
Threats strengths to
Opportunities ST avoid or
Weaknesses Strategies reduce the
Strengths impact of
(TOWS) external
threats.
18
WT Strategies
Defensive
Threats tactics aimed
Opportunities WT at reducing
internal
Weaknesses Strategies
weaknesses
Strengths and avoiding
(TOWS) environmental
threats.
19
Strategy Analysis & Choice
The TOWS Matrix
List the firm’s key external opportunities
List the firm’s key external threats
List the firm’s key internal strengths
List the firm’s key internal weaknesses
20
Strategy Analysis & Choice
The TOWS Matrix
Match internal strengths with external opportunities and
record the resultant SO Strategies
Match internal weaknesses with external opportunities and
record the resultant WO Strategies
Match internal strengths with external threats and record
the resultant ST Strategies
Match internal weaknesses with external threats and
record the resultant WT Strategies
21
TOWS Matrix
Leave Blank Strengths-S Weaknesses-W
List Strengths List Weaknesses
Opportunities SO Strategies WO Strategies
-O
Use strengths to take Overcome
List Opportunities advantage of weaknesses by
opportunities taking advantage of
opportunities
Threats-T ST Strategies WT Strategies
List Threats Use strengths to avoid Minimize
threats weaknesses and
avoid threats 22
Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)
Four quadrant framework
Determines appropriate strategies
Aggressive
Conservative
Defensive
Competitive
23
Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)
Two Internal Dimensions
FinancialStrength [FS]
Competitive Advantage [CA]
Two External Dimensions
Environmental Stability [ES]
Industry Strength [IS]
24
Strategy Analysis & Choice
The SPACE Matrix
Select variables to define FS, CA, ES, & IS
Assign numerical ranking from +1 (worst) to +6
(best) for FS and IS; Assign numerical ranking
from –1 (best) to –6 (worst) for ES and CA.
Compute average score for FS, CA, ES, & IS
25
Strategy Analysis & Choice
The SPACE Matrix
Plot the average scores on the Matrix
Add the two scores on the x-axis and plot point on
X. Add the scores on the y-axis and plot Y. Plot
the intersection of the new xy point.
Draw a directional vector from origin through the
new intersection point.
26
SPACE Factors
Internal External
Strategic Strategic
Position
Financial Strength Position
Environmental Stability
(FS) (ES)
Return on Technological changes
investment Rate of inflation
Leverage Demand variability
Liquidity Price range of
Working capital competing products
Cash flow Barriers to entry
Ease of exit from Competitive pressure
market Price elasticity of
Risk involved in demand
business
27
SPACE Factors
External
Internal Strategic
Strategic
Position
Competitive Advantage CA Position
Industry Strength (IS)
Market share Growth potential
Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity Resource utilization
utilization Capital intensify
Technological know-how Ease of entry into market
Control over suppliers & Productivity, capacity
distributors utilization
28
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 -6 Competitive
ES 29
Strategy Analysis & Choice
Grand Strategy Matrix
Popular tool for formulating alternative strategies
Based on two evaluative dimensions
Competitiveposition
Market growth
30
Grand Strategy Matrix
RAPID MARKET GROWTH
Quadrant II Quadrant I
• Market development • Market development
• Market penetration • Market penetration
• Product development • Product development
• Horizontal integration • Forward integration
• Divestiture • Backward integration
• Liquidation • Horizontal integration
WEAK • Concentric STRONG
COMPETITIVE diversification COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
• Retrenchment • Concentric
• Concentric diversification
diversification • Horizontal
• Horizontal diversification
diversification • Conglomerate
• Conglomerate diversification
diversification • Joint ventures
• Liquidation SLOW MARKET GROWTH 31
Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current markets and products
Take risks aggressively when necessary
32
Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant II
Evaluatepresent approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive strategy
33
Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated (retrenchment)
34
Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Diversification indicated to more promising growth
areas
35
Strategy Analysis & Choice
Quantitative Strategic Planning Matrix
(QSPM)
Comprises Stage 3 of the analytical framework
Analytical technique designed to determine the
relative attractiveness of feasible alternative
actions.
Uses input from Stage 1 and Stage 2
36
Strategy Analysis & Choice
Quantitative Strategic Planning Matrix
(QSPM)
Tool for objective evaluation of alternative
strategies
Based on identified external and internal crucial
success factors
Requires good intuitive judgment
37
QSPM Strategic Alternatives
Key External Weight Strategy Strategy Strategy 3
1 2
Factors
Economy
Political/Legal/Governmen
tal
Social/Cultural/Demograp
hic/Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and
Development
Computer Information
Systems
38
Strategy Analysis & Choice
QSPM
List the firm’s key external opportunities &
threats; list the firm’s key internal strengths
and weaknesses
Assign weights to each external and
internal critical success factor
39
Strategy Analysis & Choice
QSPM
Examine the Stage 2 (matching) matrices
and identify alternative strategies that the
organization should consider implementing
Determine the Attractiveness Scores (AS)
40
Strategy Analysis & Choice
QSPM
Compute the total Attractiveness Scores
Compute the Sum Total Attractiveness
Score
41
