Chapter 6
Strategy Analysis & Choice
Ch 6 -1
Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -2
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage
Ch 6 -3
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 -4
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 6 -5
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -6
SO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
SO
Strategies
Use a firm’s
internal strengths
to take advantage
of external
opportunities
Ch 6 -7
WO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
WO
Strategies
Improving internal
weaknesses by
taking advantage
of external
opportunities
Ch 6 -8
ST Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
ST
Strategies
Use a firm’s
strengths
to avoid or
reduce the impact
of external
threats
Ch 6 -9
WT Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
WT
Strategies
Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
environmental
threats
Ch 6 -10
SWOT Matrix
Strengths – S
Weaknesses – W
List Strengths
List Weaknesses
Opportunities – O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of
opportunities
Overcoming weaknesses
by taking advantage of
opportunities
Threats – T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses and
avoid threats
Leave Blank
Ch 6 -11
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Excess working capacity
(strength)
20% annual growth in
the cell phone industry
(opportunity)
Insufficient capacity
(weakness)
Strong R&D (strength)
Poor employee morale
(weakness)
+
Resultant Strategy
=
Acquire Cellfone, Inc.
Exit of two major foreign
+ competitors form the
=
industry (opportunity)
Pursue horizontal integration
by buying competitor's
facilities
Decreasing numbers of
young adults (threat)
Develop new products for
older adults
+
+
Strong union
activity (threat)
=
=
Develop a new
employee benefits
package
Ch 6 -12
SPACE Factors
Internal Strategic Position
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
External Strategic Position
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -13
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 -14
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
Defensive
-5
Competitive
-6
ES
Ch 6 -15
BCG Matrix
Relative Market Share Position
Industry Sales Growth Rate
High
1.0
Medium
.50
Low
0.0
High
+20
Stars
II
Question Marks
I
Cash Cows
III
Dogs
IV
Medium
0
Low
-20
Ch 6 -16
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 III
Retrenchment
1.
Concentric diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate
diversification
Joint ventures
STRONG
COMPETITIVE
POSITION
GROWTH
Ch 6 -17
Strategy-Formulation Analytical
Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
Ch 6 -18
Strategic Alternatives
QSPM
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
Ch 6 -19
Corporate Governance Issues
Business Week’s “principles of good governance”
1. No more than 2 directors current or former company executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Ch 6 -20