Slide 1 ### Chapter 6Strategy Analysis And Choice

Strategic Management:

Concepts and Cases. 9th edition

Fred R. David

PowerPoint Slides by

Anthony F. Chelte

Western New England College

Fred R. David

Prentice Hall

Slide 2 ### Chapter Outline

- The Nature of Strategy Analysis and Choice
- A Comprehensive Strategy-Formulation Framework
- The Input Stage

Fred R. David

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Slide 3 ### Chapter Outline

- The Matching Stage
- The Decision Stage
- Cultural Aspects of Strategy Choice

Fred R. David

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Slide 4 ### Chapter Outline

- The Politics of Strategy Choice
- The Role of a Board of Directors

Fred R. David

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Slide 5 ### Strategy Analysis & Choice

Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary.

-- Bill Saporito

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Slide 6 ### Strategy Analysis & Choice

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

Fred R. David

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Slide 7 ### 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

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Slide 8 ### Strategy Analysis & Choice

Alternative strategies derive from –

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

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Slide 9 ### Strategy Analysis & Choice

Participation in generating alternative strategies should be broad –

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Slide 10 Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

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Slide 11 ### Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1:

The Input Stage

External Factor Evaluation

Matrix (EFE)

Competitive Profile

Matrix

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Slide 12 ### 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

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Slide 13 ### Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Slide 14 ### Matching Stage

- Match between organization’s internal resources and skills and the opportunities and risks created by its external factors.

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Slide 15 Excess working capacity (strength)

+

20% annual growth in the cell phone industry (opportunity)

=

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

+

Exit of two major foreign competitors form 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)

+

=

Develop a new employee benefits package

Strong union activity (threat)

### Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor

Key External Factor

Resultant Strategy

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Slide 16 ### Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Slide 17 ### Matching Stage

TOWS Matrix

- Threats
- Opportunities
- Strengths
- Weaknesses

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Slide 18 ### TOWS Matrix

Develop four types of strategies

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

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Slide 19 SO

Strategies

Use a firm’s internal strengths to take advantage of external opportunities

### SOStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

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Slide 20 WO

Strategies

Improving internal weaknesses by taking advantage of external opportunities

### WOStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

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Slide 21 ST

Strategies

Using firm’s strengths to avoid or reduce the impact of external threats.

### STStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

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Slide 22 WT

Strategies

Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.

### WTStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

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Slide 23 ### TOWS Matrix

Steps in developing 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

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Slide 24 ### TOWS Matrix

Developing 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

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Slide 25 Leave Blank

Strengths-S

List Strengths

Weaknesses-W

List Weaknesses

Opportunities-O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcome weaknesses by taking advantage of opportunities

Threats-T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats

### TOWS Matrix

Fred R. David

Prentice Hall

Slide 26 ### Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Slide 27 ### SPACE Matrix

Strategic Position and Action Evaluation Matrix

- Four quadrant framework
- Determines appropriate strategies
- Aggressive
- Conservative
- Defensive
- Competitive

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Slide 28 ### SPACE Matrix

Two Internal Dimensions

- Financial Strength [FS]
- Competitive Advantage [CA]
Two External Dimensions

- Environmental Stability [ES]
- Industry Strength [IS]

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Slide 29 ### SPACE Matrix

Overall Strategic position determined by:

- Financial Strength [FS]
- Competitive Advantage [CA]
- Environmental Stability [ES]
- Industry Strength [IS]

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Slide 30 ### SPACE Matrix

Developing the SPACE Matrix:

- EFE Matrix
- IFE Matrix
- Financial Strength
- Competitive Advantage
- Environmental Stability
- Industry Strength

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Slide 31 ### 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

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Slide 32 ### 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.

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Slide 33 Internal Strategic Position

External Strategic Position

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Ease of exit from market

Risk involved in business

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demand

### SPACE Factors

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Slide 34 Internal Strategic Position

External Strategic Position

Competitive Advantage CA

Market share

Product quality

Product life cycle

Customer loyalty

Competition’s capacity utilization

Technological know-how

Control over suppliers & distributors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Capital intensify

Ease of entry into market

Productivity, capacity utilization

### SPACE Factors

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Slide 35 ### SPACE Matrix

FS

Conservative

Aggressive

+6

+5

+4

+3

+2

+1

CA

IS

-6

-5

-4

-3

-2

-1

+1

+2

+3

+4

+5

+6

-1

-2

-3

-4

-5

Competitive

Defensive

-6

ES

Fred R. David

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Slide 36 ### Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Slide 37 ### BCG Matrix

Boston Consulting Group Matrix

- Enhances multidivisional firms’ efforts to formulate strategies
- Autonomous divisions (or profit centers) constitute the business portfolio
- Firm’s divisions may compete in different industries requiring separate strategy

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Slide 38 ### 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

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Slide 39 ### BCG Matrix

Relative market share position defined:

- Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.

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Slide 40 Stars

II

Question Marks

I

Cash Cows

III

Dogs

IV

### BCG Matrix

Relative Market Share Position

High

1.0

Medium

.50

Low

0.0

Industry Sales Growth Rate

High

+20

Medium

0

Low

-20

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Slide 41 ### BCG Matrix

- Question Marks
- Stars
- Cash Cows
- Dogs

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Slide 42 ### 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

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Slide 43 ### 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

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Slide 44 ### 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 weak—retrenchment or divestiture

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Slide 45 ### 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

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Slide 46 ### Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Slide 47 ### 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

Fred R. David

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Slide 48 RAPID MARKET GROWTH

Quadrant II

- Market development
- Market penetration
- Product development
- Horizontal integration
- Divestiture
- Liquidation

Quadrant I

- Market development
- Market penetration
- Product development
- Forward integration
- Backward integration
- Horizontal integration
- Concentric diversification

WEAK

COMPETITIVE

POSITION

STRONG

COMPETITIVE

POSITION

Quadrant III

- Retrenchment
- Concentric diversification
- Horizontal diversification
- Conglomerate diversification
- Liquidation

Quadrant IV

- Concentric diversification
- Horizontal diversification
- Conglomerate diversification
- Joint ventures

SLOW MARKET GROWTH

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Slide 49 ### Grand Strategy Matrix

Quadrant I

- Excellent strategic position
- Concentration on current markets and products
- Take risks aggressively when necessary

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Slide 50 ### Grand Strategy Matrix

Quadrant II

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

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Slide 51 ### Grand Strategy Matrix

Quadrant III

- Compete in slow-growth industries
- Weak competitive position
- Drastic changes quickly
- Cost and asset reduction indicated (retrenchment)

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Slide 52 ### Grand Strategy Matrix

Quadrant IV

- Strong competitive position
- Slow-growth industry
- Diversification indicated to more promising growth areas

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Slide 53 ### Formulation Framework

Stage 3:

The Decision Stage

Quantitative Strategic

Planning Matrix

(QSPM)

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Slide 54 ### QSPM

Quantitative Strategic Planning Matrix

- Only technique designed to determine the relative attractiveness of feasible alternative actions

Fred R. David

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Slide 55 ### 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

Fred R. David

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Slide 56 ### QSPM

Quantitative Strategic Planning Matrix

- 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

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Slide 57 ### 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)

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Slide 58 ### QSPM

Quantitative Strategic Planning Matrix

- Compute the total Attractiveness Scores
- Compute the Sum Total Attractiveness Score

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Slide 59 Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Weight

Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Strategic Alternatives

### QSPM

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Slide 60 ### QSPM

Limitations:

- Requires intuitive judgments and educated assumptions
- Only as good as the prerequisite inputs

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Slide 61 ### QSPM

Positives:

- Sets of strategies examined simultaneously or sequentially
- Requires the integration of pertinent external and internal factors in the decision-making process

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Slide 62 ### Cultural Aspects of Strategy Choice

Culture:

- The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm

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Slide 63 ### Cultural Aspects of Strategy Choice

Culture:

- Successful strategies depend on degree of support from a firm’s culture

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Slide 64 ### Politics of Strategy Choice

Politics in organizations:

- Management hierarchy
- Career aspirations
- Allocation of scarce resources

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Slide 65 ### Politics of Strategy Choice

Political tactics for strategists:

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

Fred R. David

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Slide 66 ### Role of A Board of Directors

Duties and Responsibilities:

- Control and oversight over management
- Adherence to legal prescriptions
- Consideration of stakeholder interests
- Advancement of stockholders’ rights

Fred R. David

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Slide 67 ### Key Terms

- Aggressive quadrant
- Attractiveness Scores (AS)
- Board of Directors
- Boston Consulting Group (BCG) Matrix
- Business portfolio
- Cash cows
- Champions
- Competitive Advantage (CA)

Fred R. David

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Slide 68 ### Key Terms

- Competitive quadrant
- Conservative quadrant
- Culture
- Decision stage
- Defensive quadrant
- Directional vector
- Dogs
- Environmental Stability (ES)
- Financial Strength (FS)

Fred R. David

Prentice Hall

Slide 69 ### Key Terms

- Grand Strategy Matrix
- Halo error
- Industry Strength (IS)
- Input stage
- Internal-External (IE) Matrix
- Long-term objectives
- Matching
- Matching stage
- Quantitative Strategic Planning Matrix (QSPM)

Fred R. David

Prentice Hall

Slide 70 ### Key Terms

- Question marks
- Relative market share position
- SO strategies
- ST strategies
- Stars
- Strategic Position and Action Evaluation (SPACE) Matrix
- Strategy-formulation framework

Fred R. David

Prentice Hall

Slide 71 ### Key Terms

- Sum total attractiveness scores
- Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix
- Total Attractiveness Scores (TAS)
- WO strategies
- WT strategies

Fred R. David

Prentice Hall