Ch 7 -1
Copyright © 2011 Pearson Education
Strategic Management: Concepts
and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali
Chapter 7:
Strategy Analysis and
Choice
Ch 7 -2
Copyright © 2011 Pearson Education
Chapter Outline
• The Nature of Strategy & Choice
• A Comprehensive Strategy-Formulation Framework
• The Input Stage
• The Matching Stage
• The Decision Stage
• Cultural Aspects of Strategy Choice
• The Politics of Strategy Choice
• Governance Issues
Ch 7 -3
Copyright © 2011 Pearson Education
Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
 This
process
seek
to
determine
alternative courses of action that could
best enable the firm to best achieve its
mission and long run objectives
Ch 7 -4
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Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22,
no. 3 (June 1988) 40.
Ch 7 -5
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Strategy Analysis & Choice
Alternative Strategies Derive From:
• Vision
• Mission
• Objectives
• External audit
• Internal audit
• Past successful strategies
Ch 7 -6
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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 -7
Ch 7 -7
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Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage
Ch 6 -8
Ch 7 -8
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Ch 7 -9
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Strategy-Formulation Analytical Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Competitive Profile Matrix
(CPM)
Ch 6 -10
Ch 7 -10
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Stage 1: The Input Stage
• Basic input information for the matching & decision stage
matrices
• Good intuitive judgment always needed
Ch 6 -11
Ch 7 -11
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Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -12
Ch 7 -12
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Stage 2: The Matching Stage
Finding the match between organization’s internal
resources & skills and the opportunities & risks
created by its external factors
Ch 6 -13
Ch 7 -13
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Stage 2: The Matching Stage
SWOT Matrix
A SWOT matrix :it is an important matching tool
that help managers develop four types of
strategies
SO
ST
WO
WT
Ch 6 -14
Ch 7 -14
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SWOT Matrix
internal
external
Strengths – S
Weaknesses – W
List Strengths
List Weaknesses
SO
WO
Strategies
Strategies
Use strengths to take
advantage of
opportunities
Overcoming weaknesses
by taking advantage of
opportunities
ST
WT
Strategies
Strategies
Opportunities – O
List Opportunities
Threats – T
List Threats
Ch 7 -15
Use strengths to
avoid threats
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defensive strategy aim
at
Minimize weaknesses and
avoid threats
SWOT
Example
Key internal factor
Key external
factor
Resultant strategy
20% annual growth in
the cell phone industry
Acquire Cell phone ,Inc.
(SO)
Insufficient capacity
(weakness)
Exit of two major
foreign competitors
Pursue horizontal
integration by buying
competitors ‘s facilities
(WO)
Strong R&D expertise
(strength )
Decreasing number of
younger adults (threat
)
Develop new products
for older adults
(ST)
Poor employees morale
Strong union activity
Develop a new
employees benefits
package
(WT)
Excess working capacity
(strength )
(opportunity )
(weakness)
(opportunity )
(threat)
Ch 6 -16
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -17
Ch 7 -17
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SPACE Matrix
Strategic Position & Action Evaluation
Matrix
4-quadrants indicate whether the most appropriate
strategy is:
• Aggressive
• Conservative
• Defensive
• Competitive
Ch 6 -18
Ch 7 -18
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SPACE Matrix
Two Internal Dimensions:
1. Financial Strength (FS)
2. Competitive Advantage (CA)
Ch 6 -19
Ch 7 -19
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SPACE Matrix
Two External Dimensions:
1. Environmental Stability (ES)
2. Industry Strength (IS)
Ch 6 -20
Ch 7 -20
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SPACE Factors
Internal Strategic
Position
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Inventory turnover
Earnings per share
Price earnings ratio
External Strategic Position
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Ease of exit from market
Risk involved in business
Ch 6 -21
Ch 7 -21
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SPACE Factors
Internal Strategic Position
External Strategic Position
Competitive Advantage (CA)
Industry Strength (IS)
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers &
distributors
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity
utilization
Ch 6 -22
Ch 7 -22
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Steps to Developing a SPACE Matrix
1.
Select a set of variables to define FS, CA, ES, and IS.
2.
Assign a numerical value:
•
From +1 to +6 to each FS & IS dimension
•
From -1 to -6 to each ES & CA dimension
3.
Compute an average score for each FS, CA, ES, and IS.
4.
Plot the average score on the appropriate axis.
5.
Add the two scores on the x-axis and plot the point. Add
the two scores on the y-axis and plot the point. Plot the
intersection of the new xy point.
6.
Draw a directional vector from the origin through the
new intersection point.
Ch 7 -23
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Ch 7 -24
Copyright © 2011 Pearson Education
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -25
Ch 7 -25
Copyright © 2011 Pearson Education
BCG Matrix
Boston Consulting Group Matrix
• Enhances multidivisional firm in formulating
strategies
• Divisions may compete in different industries
• Focus on market-share position & industry
growth rate
Ch 6 -26
Ch 7 -26
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BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an industry to the
market share held by the largest rival firm in that industry
Ch 6 -27
Ch 7 -27
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Ch 7 -28
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BCG Matrix
Question Marks
• Low relative market share, competes in high-growth
industry
- Cash needs are high
- Cash generation is low
• Decision to strengthen (intensive strategies) or divest
Ch 6 -29
Ch 7 -29
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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 -30
Ch 7 -30
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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 -31
Ch 7 -31
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BCG Matrix
Dogs
• Low relative market share, competes in slow or no
market growth
- Weak internal & external position
• Liquidation, divestiture, retrenchment
Ch 6 -32
Ch 7 -32
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Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -33
Ch 7 -33
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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 -34
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Ch 7 -35
Copyright © 2011 Pearson Education
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 -36
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Ch 7 -37
Copyright © 2011 Pearson Education
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -38
Ch 7 -38
Copyright © 2011 Pearson Education
Strategy-Formulation Analytical Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
Ch 6 -39
Ch 7 -39
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QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative
attractiveness of feasible alternative actions
Ch 6 -40
Ch 7 -40
Copyright © 2011 Pearson Education
Ch 7 -41
Copyright © 2011 Pearson Education
Steps to Develop a QSPM
1.
Make a list of the firm’s key external opportunities/threats
and internal strengths/weaknesses in the left column.
2.
Assign weights to each key external and internal factor.
3.
Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should consider
implementing.
4.
Determine the Attractiveness Scores.
5.
Compare the Total Attractiveness Scores.
6.
Compute the Sum Total Attractiveness Score.
Ch 7 -42
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QSPM
Advantages
• Sets of strategies considered simultaneously or
sequentially
• Integration of pertinent external & internal
factors in the decision-making process
Ch 6 -43
Ch 7 -43
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QSPM
Limitations
• Requires intuitive judgments & educated
assumptions
• Only as good as the prerequisite inputs
Ch 6 -44
Ch 7 -44
Copyright © 2011 Pearson Education
Cultural Aspects of Strategy Choice
Organizational Culture
Successful strategies depend on the degree of consistency with
the firm’s culture
Ch 6 -45
Ch 7 -45
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