Strategy Analysis & Choice

Whether its broke or not, fix itmake it

better. Not just products, but the whole
company if necessary.

-- Bill Saporito

Ch 6-1
Fred R. David
 Strategy Analysis & Choice

Strategic analysis and choice largely

involves making subjective decisions
based on objective information.

Ch 6-2
Fred R. David
 Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice

Establishing long-term objectives

Generating alternative strategies
Selecting strategies to pursue
Best alternative to achieve mission and objectives

Ch 6-3
Fred R. David
 Strategy Analysis & Choice

Participation in generating alternative

strategies should be broad

Ch 6-4
Fred R. David
Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch 6-5
Fred R. David
 Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix

Ch 6-6
Fred R. David
 Input Stage

Provides basic input information for the

matching and decision stage matrices
Requires strategists to quantify
subjectivity early in the process
Good intuitive judgment always needed

Ch 6-7
Fred R. David
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-8
Fred R. David
 Matching Stage

Match between organizations internal

resources and skills and the opportunities
and risks created by its external factors.

Ch 6-9
Fred R. David
 Ch 6-10
Fred R. David
 Matching Stage

TOWS Matrix

Threats
Opportunities
Strengths
Weaknesses

Ch 6-11
Fred R. David
 TOWS Matrix

Develop four types of strategies

Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

Ch 6-12
Fred R. David
 SO Strategies

Threats Use a firms

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities

Ch 6-13
Fred R. David
 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities

Ch 6-14
Fred R. David
 ST Strategies

Threats Using firms

ST strengths to
Opportunities
avoid or reduce
Weaknesses Strategies the impact of
Strengths external threats.
(TOWS)

Ch 6-15
Fred R. David
 WT Strategies

Defensive
Threats tactics aimed at
Opportunities WT reducing internal
Weaknesses Strategies weaknesses
Strengths and avoiding
(TOWS) environmental
threats.

Ch 6-16
Fred R. David
 TOWS Matrix

Steps in developing the TOWS Matrix

1. List the firms key external opportunities

2. List the firms key external threats
3. List the firms key internal strengths
4. List the firms key internal weaknesses

Ch 6-17
Fred R. David
 TOWS Matrix
Developing the TOWS Matrix

5. Match internal strengths with external opportunities

and record the resultant SO Strategies
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

Ch 6-18
Fred R. David
 TOWS Matrix
Leave Blank Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats

Ch 6-19
Fred R. David
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-20
Fred R. David
 SPACE Matrix
Strategic Position and Action Evaluation Matrix

Four quadrant framework

Determines appropriate strategies
Aggressive
Conservative
Defensive
Competitive

Ch 6-21
Fred R. David
 SPACE Matrix

Two Internal Dimensions

Financial Strength [FS]
Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]
Industry Strength [IS]

Ch 6-22
Fred R. David
 SPACE Matrix

Developing the SPACE Matrix:

EFE Matrix

IFE Matrix

Reconsider info not included in final lists of

Ss, Ws, Os & Ts
Ch 6-23
Fred R. David
 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Ease of exit from market Competitive pressure
Risk involved in business Price elasticity of demand

Ch 6-24
Fred R. David
 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competitions capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization

Ch 6-25
Fred R. David
 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 Ch 6-26
Fred R. David
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-27
Fred R. David
 BCG Matrix
Boston Consulting Group Matrix

Enhances multidivisional firms efforts

to formulate strategies
Autonomous divisions (or profit centers)
constitute the business portfolio
Firms divisions may compete in
different industries requiring separate
strategy
Ch 6-28
Fred R. David
 BCG Matrix
Boston Consulting Group Matrix

Graphically portrays differences among

divisions
Focuses on market share position and
industry growth rate
Manage business portfolio through
relative market share position and
industry growth rate
Ch 6-29
Fred R. David
 BCG Matrix
Relative market share position defined:

Ratio of a divisions own market share

in a particular industry to the market
share held by the largest rival firm in
that industry.

Ch 6-30
Fred R. David
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
Industry Sales Growth Rate

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
-20
Ch 6-31
Fred R. David
 BCG Matrix
Question Marks

Low relative market share position yet

compete in high-growth industry.
Cash needs are high
Cash generation is low

Decision to strengthen (intensive

strategies) or divest

Ch 6-32
Fred R. David
 BCG Matrix
Stars

High relative market share and high industry

growth rate.
Best long-run opportunities for growth and
profitability

Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures

Ch 6-33
Fred R. David
 BCG Matrix
Cash Cows

High relative market share position, but compete

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 becomes weakretrenchment or divestiture

Ch 6-34
Fred R. David
 BCG Matrix
Dogs

Low relative market share position and

compete in slow or no market growth
Weak internal and external position

Decision to liquidate, divest, retrenchment

Ch 6-35
Fred R. David
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-36
Fred R. David
 Grand Strategy Matrix
Popular tool for formulating alternative
strategies

All organizations (or divisions) can be

positioned in one of four quadrants

Based on two evaluative dimensions:

Competitive position
Market growth
Ch 6-37
Fred R. David
 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
Ch 6-38
Fred R. David
 Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets and
products
Take risks aggressively when necessary

Ch 6-39
Fred R. David
 Grand Strategy Matrix

Quadrant II

Evaluate present approach seriously

How to change to improve competitiveness
Rapid market growth requires intensive
strategy

Ch 6-40
Fred R. David
 Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated
(retrenchment)

Ch 6-41
Fred R. David
 Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification indicated to more promising
growth areas

Ch 6-42
Fred R. David
 Formulation Framework

Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)

Ch 6-43
Fred R. David
 QSPM

Quantitative Strategic Planning Matrix

Only technique designed to determine the

relative attractiveness of feasible
alternative actions

Ch 6-44
Fred R. David
 QSPM

Quantitative Strategic Planning Matrix

Tool for (?objective?) evaluation of

alternative strategies
Based on identified external and
internal Critical Success Factors
Requires good intuitive judgment

Ch 6-45
Fred R. David
 Ch 6-46
Fred R. David
 QSPM

Limitations:

Requires intuitive judgments and

educated assumptions

Only as good as the prerequisite inputs

Ch 6-47
Fred R. David
 QSPM

Positives:

Sets of strategies examined simultaneously

or sequentially

Requires the integration of pertinent external

and internal factors in the decision-making
process

Ch 6-48
Fred R. David
 Cultural Aspects of Strategy
Choice

Culture:

The set of shared values, beliefs,

attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm

Ch 6-49
Fred R. David
 Cultural Aspects of Strategy
Choice

Culture:

Successful strategies depend on

degree of support from a firms culture

Ch 6-50
Fred R. David
 Politics of Strategy Choice

Politics in organizations:

Management hierarchy
Career aspirations
Allocation of scarce resources

Ch 6-51
Fred R. David
 Politics of Strategy Choice

Political tactics for strategists:

Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues

Ch 6-52
Fred R. David
 Role of A Board of Directors

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stockholders rights

Ch 6-53
Fred R. David