Chapter 6: Strategy Analysis and Choice

Copyright © 2016 Fajar S. A. Prabowo. All Rights Reserved.

,PRESENTED BY; DR. RIEMA AFRIANI. MM

The entire materials presented in these slides were excerpt – unless stated otherwise – from:
David, Fred R. (2011). Strategic Management: Concepts and Cases. Pearson Education Limited
 Fakultas Ekonomi dan Bisnis
School Economics and Business Comprehensive Strategic-Management Model
Telkom University

2 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business STRATEGY FORMULATION ANALYTICAL FRAMEWORK
Telkom University

• External Factors (EFE Matrix)  To utilize the nine tools of strategic

• Internal Factors (IFE Matrix) planning, integration of intuition and
• Competitive Profil Matrix (CPM)
analysis is needed

 Shift from word-oriented to number-

• SWOT Matrix • Internal-External
oriented planning process can give rise
• SPACE Matrix Matrix
• BCG Matrix • Grand Strategy Matrix to a false sense of certainty

 Communication and dialogue are still

the important factors in strategic
Quantitative Strategic Planning Matrix (QSPM) planning process

3 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business

SWOT Matrix
Section 01

4 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business SWOT MATRIX
Telkom University
STRENGTHS WEAKNESSES
S/O Strategies

OPPORTUNITIES
 Use firm’s internal strengths to take advantage
of external opportunities
 The most favorable position for managers
W/O Strategies
S/O W/O
 Improving internal weaknesses by taking advantage
of external opportunities
S/T Strategies
 Use a firm’s strengths to avoid or reduce the
impact of external threats

THREATS
W/T Strategies
 Reducing internal weakness and avoid external
threats
S/T W/T
 Part of defensive strategies: merge, retrench,
declare bankruptcy, or liquidate

5 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business NOTES ON SWOT MATRIX
Telkom University

 Always be specific to the possible in

stating factors and strategies

 Include quantitative data

 Type notation after each strategy in

SWOT Matrix to exemplifies matching
process (example: S1, O2)

 Not all of the strategies developed in

SWOT Matrix will be selected for
implementation

6 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business THE WEAKNESSES OF SWOT
Telkom University
STRENGTHS WEAKNESSES
1. SWOT does not show how to achieve a

OPPORTUNITIES
competitive advantage so it must not be an

2.
end in itself

SWOT is a static statement (snapshot) in time

S/O W/O
3. SWOT analysis may lead the firm to
overemphasize a single internal and external
factors

THREATS
4. There are interrelationship among key
internal and external factors that SWOT does
not reveal that may be important in devising
S/T W/T
strategies

7 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business

SPACE Matrix
Section 02

8 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
Telkom University

Financial Position FP
 ROI, leverage, liquidity, capital available, ease of
exit, and risk involved in business

Competitive Position
 Market share, product quality, product life cycle,
and product replacement cycle

CP IP
Industry Strength Position
 Growth and profit potential, financial stability,
technological know-how, resource utilization, capital
intensity, ease of entry, and capacity utilization
Environmental Stability Position
 Technological change, rate of inflation, demand
variability, price range of competing products, barriers
to entry, competitive pressure, and price elasticity of
demand
SP
9 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business EXAMPLE OF STRATEGIC PROFILE
Telkom University

???

10 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business STRATEGIC POSTURES AND APPROPRIATE STRATEGIES
Telkom University

Strategic Posture
Dimension
Aggressive Competitive Conservative Defensive
Environment Stable Unstable Stable Unstable

Industry Attractive Attractive Unattractive Unattractive

Competitiveness Strong Strong Weak Weak

Financial Strengths High Weak High Weak

Appropriate • Growth – Possibly by
Strategies acquisition
• Capitalize on
opportunities
• Innovate to sustain
competitive advantage
• Cost reduction, • Cost reduction and • Rationalization
productivity product / service • Divestment as
improvement, raising rationalization appropriate
more capital to follow • Invest in search for
opportunities and new products,
strengthen services, and
competitiveness competitive
• Possibly merge with a opportunities
less competitive but
cash-rich organization

11 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business

Portfolio Matrices
Section 03

12 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business BOSTON CONSULTING GROUP (BCG) MATRIX
Telkom University
 QUESTION MARK
 This division have low relative market share position yet
they compete in a high growth industry.
RELATIVE MARKET SHARE
 Usually need alot of cash support.
1,0 0,5 0,0
 Can be strengthened or sold.
+20%
STARS QUESTION MARK  STARS
•
INDUSTRY GROWTH RATE

Backward, forward, • Market penetration

horizontal  This division represent best long run opportunity for
• Market development growth and profitability.
• Market penetration
• Market development • Product development
• Divestiture  Should receive substantial investment to maintain or
• Product development strengthen it’s position
 CASH COW
CASH COWS  This division have high relative market share and
DOGS
• Product development operated in low growth industry.
• Retrenchment
• Diversification
• Divestiture  They are the source of cash to support growth of
• Retrenchment another divisions
• Liquidation
• Divestiture
-20%  DOGS
 This division have low relative market share and
operated in a slow or no growth industry

13 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business WEAKNESSES OF BOSTON CONSULTING GROUP (BCG)
Telkom University
Fig.1 More-frequent Cycle
Stars

Question
Cash Cow
 BCG only provide a snapshot. It does not
Marks
capture the cycle of a division.

Dogs
 BCG only include 2 variables as the most
important factors in aiding decision making. It
does not include market size, competitive
Fig.2 Less-frequent Cycle
Stars advantage, etc.

 BCG classified every divisions in one of four

Question
Cash Cow marks categories while sometime divisions fell in the
middle of those four categories

Dogs

14 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business INTERNAL-EXTERNAL (IE) MATRIX
Telkom University
THE IFE TOTAL WEIGHTED SCORE
Strong Average Weak
3,0 – 4,0 2,0 – 2,99 1,0 – 1,99
QUADRANT I – II – IV
(Grow and Build)
THE EFE TOTAL WEIGHTED SCORE

High
3,0 – 4,0 I II III • Integration
• Market Penetration
• Market Development
• Product Development

Medium QUADRANT III – V – VII

2,0 – 2,99 IV V VI (Hold and Maintain)
• Market Penetration
• Product Development

QUADRANT VI – VIII – IX
Low (Harvest or Divest)
2,0 – 2,99 VII VIII IX • Retrenchment
• Divestiture

15 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business EXAMPLE OF INTERNAL-EXTERNAL (IE) MATRIX
Telkom University

You can also build ...

• Profile matrices for
competitors
• Profile matrices from time
to time
• Profile matrices for
current and expected
condition

16 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business

Grand Strategy Matrix

Section 04

17 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business
Telkom University RAPID MARKET GROWTH
QUADRANT II
• Market Development
• Market Penetration
GRAND STRATEGY MATRIX
QUADRANT I
QUADRANT I • The firm is in excellent position
• Market Development
• It can pursue integration strategy if it has excessive
• Market Penetration resources. It can also pursue diversification strategy if it

STRONG COMPETITIVE POSITION

WEAK COMPETITIVE POSITION

• Product Development • Product Development relies heavily on single product

• Horizontal Integration • Integration
• Divestiture • Related QUADRANT II
• Liquidation DIversification • The firm must evaluate their present approach to identify
their source of ineffectiveness and improve it
• Intensive strategies can be considered as it’s first option. It
can also move to different area of business (diversify)
QUADRANT III QUADRANT IV
• Retrenchment QUADRANT III
• Related
• Related Diversification Diversification • Make some drastic changes quickly to avoid further decline
• Unrelated and possible liquidation
• Unrelated
Diversification
Diversification • Extensive cost and asset reduction must be pursued first
• Divestiture
• Liquidation • Joint Ventures
QUADRANT IV
• Launch diversification strategies to obtain growth from
other business areas. It can also pursue joint venture.
SLOW MARKET GROWTH
18 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

QSPM
Section 05

19 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business QUANTITATIVE STRATEGY PROFILE MATRIX
Telkom University
Step 1 Make a list of the firm’s O and T and S and T
(taken from EFE and IFE matrix min. 10
each)
Step 2 Assign weight to each factors (identical to
EFE and IFE matrix) with 1,00 as the total of
each factor
Step 3 Examine matching matrices and identify
alternative strategies that should be
implemented.
Step 4 Determine the attractiveness score (AS) that
indicate the attractiveness of each strategy
in a given set of alternatives (from 1 = not
attractive to 4 = highly attractive).
Step 5 Compute Total Attractiveness Score (TAS) as
the product of step 2 time step 4.
Step 6 Compute the Sum Total of Attractiveness
Score (STAS) to reveal the most attractive
strategy in each set of alternatives.

20 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business QSPM: PROS AND CONS

PROS CONS

• Sets of strategies can be evaluated

• It requires intuitive judgement and
sequentially or simultaneously
educated assumption
• There is no limit of strategies that can be
evaluated or examined at once • It can be only as good as the prerequisite
information and matching analysis upon
• It requires strategist to integrate
pertinent external and internal factors which it is based
into the decision process

• Can be used applied to virtually any type

of organizations

21 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business

Perspectives in Strategy
Formulation
Section 06

22 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School Economics and Business
Telkom University
Rites
Culture Perspective
What is a culture?
A pattern of behavior that has been developed by an organization as it
learns to cope with its problem of external adaptation and internal
integration and that has worked well enough to be considered valid
and to be taught to new members as the correct way to perceive,
think, and feel

Beliefs Rituals

Culture

Values Saga Can you imagine what will happen if a business organization do not
have culture? For more about culture read Hofstede (2011)

Heroes

Figure 1. Products of Culture

“A sandbox header upon hitting a page”. Cropped. By PrismTheDragon (Own work) [CC BY-SA 4.0
(http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

23 Creating the great business leaders