Chapter 3

Strategy Analysis and Choice

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A Comprehensive Strategic-
Management Model

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 The Process of Generating and
Selecting Strategies
 Nature of Strategy Analysis & Choice
 Establishing long-term objectives
• Generating alternative strategies
• Selecting strategies to pursue
• Best alternative – achieve mission & objectives

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 Strategy Analysis & Choice

Alternative Strategies Derive From:

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

Ch 7 -4 Copyright © 2011 Pearson Education

 Strategy Analysis & Choice

Generating Alternatives
• Participation in generating alternative strategies should
be as broad as possible
• Alternative strategies proposed by participants should
be considered, discussed, and ranked in order of
attractiveness

Ch 6 -5
Ch 7 -5 Copyright © 2011 Pearson Education
The Strategy-Formulation
Analytical Framework

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 Comprehensive Strategy-Formulation Framework

Stage 1:
The Input Stage

Stage 2: Stage 3:
The Matching Stage The Decision Stage

Ch 6 -7
Ch 7 -7 Copyright © 2011 Pearson Education
 A Comprehensive Strategy-
Formulation Framework
 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)

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 Strategy-Formulation Analytical Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile Matrix

(CPM)

Ch 6 -9
Ch 7 -9 Copyright © 2011 Pearson Education
 A Comprehensive Strategy-
Formulation Framework
 Stage 2 - Matching Stage
 focuses on generating feasible alternative
strategies by aligning key external and internal
factors
 techniques include the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix, the
Strategic Position and Action Evaluation
(SPACE) Matrix, the Boston Consulting Group
(BCG) Matrix, the Internal-External (IE) Matrix,
and the Grand Strategy Matrix
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 Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -11
Ch 7 -11 Copyright © 2011 Pearson Education
Matching Key External and Internal Factors
to Formulate Alternative Strategies

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 SWOT Matrix

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

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 The Matching Stage

 The Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix
helps managers develop four types of
strategies:
 SO (strengths-opportunities) Strategies
 WO (weaknesses-opportunities) Strategies
 ST (strengths-threats) Strategies
 WT (weaknesses-threats) Strategies

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 SO Strategies

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

Ch 7 -15 Copyright © 2011 Pearson Education

 WO Strategies

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

Ch 7 -16 Copyright © 2011 Pearson Education

 ST Strategies

Strengths Use a firm’s

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

Ch 7 -17 Copyright © 2011 Pearson Education

 WT Strategies

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

Ch 7 -18 Copyright © 2011 Pearson Education

 SWOT Matrix
Strengths – Weaknesses –
S W

List Strengths List Weaknesses

Opportunities – SO WO Strategies
O Strategies
Overcoming
weaknesses by taking
Use strengths to
List Opportunities take advantage of
advantage of
opportunities
opportunities

Threats – T ST WT Strategies
Strategies
Minimize weaknesses
List Threats and avoid threats
Use strengths to
avoid threats

Ch 6 -19
Ch 7 -19 Copyright © 2011 Pearson Education
 Limitations with SWOT Matrix

 Does not show how to achieve a

competitive advantage
 May lead the firm to overemphasize a
single internal or external factor in
formulating strategies

Ch 7 -20 Copyright © 2011 Pearson Education

 Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -21
Ch 7 -21 Copyright © 2011 Pearson Education
 SPACE Matrix
Strategic Position & Action Evaluation Matrix

4-quadrants indicate whether the most appropriate

strategy is:
• Aggressive
• Conservative
• Defensive
• Competitive

Ch 6 -22
Ch 7 -22 Copyright © 2011 Pearson Education
 SPACE Matrix
 The axes of the SPACE Matrix represent
1. Two internal dimensions Financial Position [FP]
and Competitive Position [CP]) and

2. Two external dimensions Stability Position [SP]

and Industry Position [IP]).

These four factors are perhaps the most important

determinants of an organization’s overall strategic
position. 6-23
Factors That Make Up the
SPACE Matrix Axes

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Factors That Make Up the
SPACE Matrix Axes

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Steps to Develop a SPACE Matrix

1. Select a set of variables to define

financial position (FP), competitive
position (CP), stability position (SP), and
industry position (IP)

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Steps to Develop a SPACE Matrix

2. Assign a numerical value ranging from +1

(worst) to +7 (best) to each of the
variables that make up the FP and IP
dimensions.
Assign a numerical value ranging from –1
(best) to –7 (worst) to each of the
variables that make up the SP and CP
dimensions

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Steps to Develop a SPACE Matrix

3. Compute an average score for FP, CP, IP, and

SP
4. Plot the average scores for FP, IP, SP, and CP
on the appropriate axis in the SPACE Matrix
5. Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on the
y-axis and plot the resultant point on Y. Plot the
intersection of the new xy point

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Steps to Develop a SPACE Matrix

6. Draw a directional vector from the origin

of the SPACE Matrix through the new
intersection point
 This vector reveals the type of strategies
recommended for the organization:
aggressive, competitive, defensive, or
conservative

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6-30
 6-31
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Example: Strategy Profiles

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 Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -33
Ch 7 -33 Copyright © 2011 Pearson Education
 The Boston Consulting Group
(BCG) 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
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The BCG Matrix

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 The BCG Matrix

 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

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 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
Ch 6 -37
Ch 7 -37 Copyright © 2011 Pearson Education
 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

Ch 6 -38
Ch 7 -38 Copyright © 2011 Pearson Education
 BCG Matrix
Dogs

• Low relative market share, competes in slow or

no market growth
- Weak internal & external position

• Liquidation, divestiture, retrenchment

Ch 6 -39
Ch 7 -39 Copyright © 2011 Pearson Education
 The BCG Matrix

 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

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Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -41
Ch 7 -41 Copyright © 2011 Pearson Education
 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

Ch 7 -42 Copyright © 2011 Pearson Education

The Internal-External (IE) Matrix

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 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

Ch 7 -44 Copyright © 2011 Pearson Education

Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -45
Ch 7 -45 Copyright © 2011 Pearson Education
 The Grand Strategy Matrix

 Grand Strategy Matrix

 based on two evaluative dimensions:
• competitive position and
• market (industry) growth

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The Grand Strategy Matrix

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 The Grand Strategy Matrix
 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

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 The Grand Strategy Matrix

 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
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Thank you!!!

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