Chapter 6

Strategy Analysis And Choice

Do.Dr.Mustafa KILI

Ch 6-1

Strategy Analysis & Choice

Strategic analysis and choice largely
involves making subjective decisions
based on objective information.

Do.Dr.Mustafa KILI

Ch 6-2

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

Do.Dr.Mustafa KILI

Ch 6-3

Strategy Analysis & Choice

Alternative strategies derive from
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Do.Dr.Mustafa KILI

Ch 6-4

Strategy Analysis & Choice

Participation in generating alternative

strategies should be broad

Do.Dr.Mustafa KILI

Ch 6-5

Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Do.Dr.Mustafa KILI

Ch 6-6

Formulation Framework
Internal Factor Evaluation
Matrix (IFE)

Stage 1:
The Input Stage

External Factor Evaluation

Matrix (EFE)
Competitive Profile
Matrix

Do.Dr.Mustafa KILI

Ch 6-7

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

Do.Dr.Mustafa KILI

Ch 6-8

Matching Stage

Match between organizations internal

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

Do.Dr.Mustafa KILI

Ch 6-9

Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix

Do.Dr.Mustafa KILI

Ch 6-10

Matching Stage
SWOT Matrix
Threats
Opportunities
Strengths
Weaknesses
Do.Dr.Mustafa KILI

Ch 6-11

SWOT Matrix
Develop four types of strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Do.Dr.Mustafa KILI

Ch 6-12

SO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

Do.Dr.Mustafa KILI

SO
Strategies

Use a firms
internal strengths
to take advantage
of external
opportunities

Ch 6-13

WO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

Do.Dr.Mustafa KILI

WO
Strategies

Improving internal
weaknesses by
taking advantage
of external
opportunities

Ch 6-14

ST Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

Do.Dr.Mustafa KILI

ST
Strategies

Use a firms
strengths
to avoid or
reduce the impact
of external
threats

Ch 6-15

WT Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT

Do.Dr.Mustafa KILI

WT
Strategies

Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
environmental
threats

Ch 6-16

SWOT Matrix
Steps in developing the SWOT Matrix
1.
2.
3.
4.

List the firms key external opportunities

List the firms key external threats
List the firms key internal strengths
List the firms key internal weaknesses

Do.Dr.Mustafa KILI

Ch 6-17

SWOT Matrix
Developing the SWOT Matrix
5.
6.
7.
8.

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

Do.Dr.Mustafa KILI

Ch 6-18

SWOT Matrix
Leave Blank

Strengths-S

Weaknesses-W

List Strengths

List Weaknesses

Opportunities-O

SO Strategies

WO Strategies

List Opportunities

Use strengths to take

advantage of opportunities

Overcome weaknesses
by taking advantage of
opportunities

Threats-T

ST Strategies

WT Strategies

List Threats

Use strengths to avoid

threats

Minimize weaknesses
and avoid threats

Do.Dr.Mustafa KILI

Ch 6-19

Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor

Key External Factor

Resultant Strategy

20% annual growth in the

cell phone industry
=
(opportunity)

Insufficient capacity
(weakness)

Exit of two major foreign

competitors from the
industry (opportunity)

Pursue horizontal integration

by buying competitor's
facilities

Strong R&D (strength)

Decreasing numbers of
young adults (threat)

Develop new products for

older adults

Poor employee morale

(weakness)

+ Strong union activity

(threat)

Excess working capacity

(strength)

Do.Dr.Mustafa KILI

Acquire Cellfone, Inc.

Develop a new employee

benefits package
Ch 6-20

Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix

Do.Dr.Mustafa KILI

Ch 6-21

SPACE Matrix
Developing the SPACE Matrix:

EFE Matrix
IFE Matrix
Financial Strength
Competitive Advantage
Environmental Stability
Industry Strength
Do.Dr.Mustafa KILI

Ch 6-22

SPACE Matrix
Two Internal Dimensions

Financial Strength [FS]

Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]

Industry Strength [IS]

Do.Dr.Mustafa KILI

Ch 6-23

SPACE Matrix
Overall Strategic position determined by:

Financial Strength [FS]

Competitive Advantage [CA]
Environmental Stability [ES]
Industry Strength [IS]

Do.Dr.Mustafa KILI

Ch 6-24

SPACE Factors
Internal Strategic Position

External Strategic Position

Financial Strength (FS)

Environmental Stability (ES)

Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business

Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand

Do.Dr.Mustafa KILI

Ch 6-25

SPACE Factors
Internal Strategic Position

External Strategic Position

Competitive Advantage CA

Industry Strength (IS)

Market share
Product quality
Product life cycle
Customer loyalty
Competitions capacity utilization
Technological know-how
Control over suppliers & distributors

Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensify
Ease of entry into market
Productivity, capacity utilization

Do.Dr.Mustafa KILI

Ch 6-26

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
Do.Dr.Mustafa KILI

Ch 6-27

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.

Do.Dr.Mustafa KILI

Ch 6-28

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
Do.Dr.Mustafa KILI

-6

ES

Competitive
Ch 6-29

SPACE Matrix
Strategic Position and Action Evaluation Matrix

Four quadrant framework

Determines appropriate strategies

Aggressive
Conservative
Defensive
Competitive

Do.Dr.Mustafa KILI

Ch 6-30

Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix

Do.Dr.Mustafa KILI

Ch 6-31

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
Do.Dr.Mustafa KILI

Ch 6-32

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
Do.Dr.Mustafa KILI

Ch 6-33

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.

Do.Dr.Mustafa KILI

Ch 6-34

BCG Matrix
Relative Market Share Position
Industry Sales Growth Rate

High
1.0

Medium
.50

High
+20

Low
0.0

Stars
II

Question Marks
I

Cash Cows
III

Dogs
IV

??

Medium
0

Low
-20
Do.Dr.Mustafa
KILI

Ch 6-35

BCG Matrix

Question Marks
Stars
Cash Cows
Dogs

Do.Dr.Mustafa KILI

Ch 6-36

BCG Matrix
Question Marks

Low relative market share position yet

compete in high-growth industry.

Cash needs are high

Case generation is low

Decision to strengthen (intensive

strategies) or divest

Do.Dr.Mustafa KILI

Ch 6-37

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

Do.Dr.Mustafa KILI

Ch 6-38

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

Do.Dr.Mustafa KILI

Ch 6-39

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

Do.Dr.Mustafa KILI

Ch 6-40

Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix

Do.Dr.Mustafa KILI

Ch 6-41

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

Do.Dr.Mustafa KILI

Ch 6-42

RAPID MARKET GROWTH

1.
2.
3.
4.
5.
6.

WEAK
COMPETITIVE
POSITION
1.
2.
3.
4.
5.

Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation

1.
2.
3.
4.
5.
6.
7.

Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification

Quadrant IV
Quadrant III
1.
Retrenchment
Concentric diversification
2.
Concentric diversification
Horizontal diversification
3.
Horizontal diversification
Conglomerate
diversification
Conglomerate
4.
diversification
Joint ventures
Liquidation
SLOW MARKET GROWTH

Do.Dr.Mustafa KILI

STRONG
COMPETITIVE
POSITION

Ch 6-43

Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets and
products
Take risks aggressively when necessary

Do.Dr.Mustafa KILI

Ch 6-44

Grand Strategy Matrix

Quadrant II
Evaluate present approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive
strategy

Do.Dr.Mustafa KILI

Ch 6-45

Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

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

Do.Dr.Mustafa KILI

Ch 6-46

Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification indicated to more promising
growth areas

Do.Dr.Mustafa KILI

Ch 6-47

Formulation Framework

Stage 3:
The Decision Stage

Do.Dr.Mustafa KILI

Quantitative Strategic
Planning Matrix
(QSPM)

Ch 6-48

QSPM
Quantitative Strategic Planning Matrix

Only technique designed to determine the

relative attractiveness of feasible
alternative actions

Do.Dr.Mustafa KILI

Ch 6-49

QSPM
Quantitative Strategic Planning Matrix

Tool for objective evaluation of

alternative strategies
Based on identified external and
internal crucial success factors
Requires good intuitive judgment
Do.Dr.Mustafa KILI

Ch 6-50

QSPM
Quantitative Strategic Planning Matrix

List the firms key external opportunities &

threats; list the firms key internal strengths
and weaknesses

Assign weights to each external and internal

critical success factor

Do.Dr.Mustafa KILI

Ch 6-51

QSPM
Quantitative Strategic Planning Matrix

Examine the Stage 2 (matching) matrices

and identify alternative strategies that the
organization should consider implementing

Determine the Attractiveness Scores (AS)

Do.Dr.Mustafa KILI

Ch 6-52

QSPM
Quantitative Strategic Planning Matrix

Compute the total Attractiveness

Scores

Compute the Sum Total Attractiveness

Score
Do.Dr.Mustafa KILI

Ch 6-53

QSPM
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive

Strategic Alternatives
Weight

Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Do.Dr.Mustafa KILI

Ch 6-54

QSPM
Limitations:

Requires intuitive judgments and

educated assumptions

Only as good as the prerequisite inputs

Do.Dr.Mustafa KILI

Ch 6-55

QSPM
Positives:

Sets of strategies examined simultaneously

or sequentially

Requires the integration of pertinent external

and internal factors in the decision-making
process

Do.Dr.Mustafa KILI

Ch 6-56

Cultural Aspects of Strategy

Choice
Culture:

The set of shared values, beliefs,

attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm
Do.Dr.Mustafa KILI

Ch 6-57

Cultural Aspects of Strategy

Choice
Culture:

Successful strategies depend on

degree of support from a firms culture

Do.Dr.Mustafa KILI

Ch 6-58

Politics of Strategy Choice

Politics in organizations:

Management hierarchy
Career aspirations
Allocation of scarce resources
Do.Dr.Mustafa KILI

Ch 6-59

Politics of Strategy Choice

Political tactics for strategists:

Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues
Do.Dr.Mustafa KILI

Ch 6-60

Role of A Board of Directors

Duties and Responsibilities:

1.
2.
3.
4.

Control and oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholders rights

Do.Dr.Mustafa KILI

Ch 6-61