Strategy
Analysis and
Choice
Chapter Five
Chapter Objectives
1. Describe a three-stage framework for
choosing among alternative strategies.
2. Explain how to develop a SWOT Matrix, BCG
Matrix, and QSPM.
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Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage
A Comprehensive Strategy-Formulation
Framework
 Stage 1 - Input Stage:
 Summarizes the basic input information
needed to formulate strategies.
 Consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM).
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Competitive Profile Matrix (CPM)
 Competitive Profile Matrix (CPM):
 Identifies firm’s major competitors and their
strengths and weaknesses in relation to a
design firm’s strategic positions.
Copyright 2007 Prentice Hall
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Strategy-Formulation Analytical Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
Competitive Profile Matrix
(CPM)
External Factor Evaluation
Matrix (EFE)
Note: EFE and CPM form external and IFE from internal (assessment)
A Comprehensive Strategy-Formulation
Framework
 Stage 2 - Matching Stage:
 Focuses on generating possible alternative
strategies by Matching key external and
internal factors.
 Techniques include :
 (SWOT) Matrix .
 The Boston Consulting Group (BCG) Matrix.
The Grand Strategy Matrix.
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Stage 2 :The Matching Stage
SWOT Matrix
Stage 2:
The Matching Stage
BCG Matrix
Grand Strategy Matrix
Stage 2 :The Matching Stage
1. (SWOT) Matrix: Strengths-WeaknessesOpportunities-Threats.
 helps managers to develop four types of
strategies:




SO (strengths-opportunities) Strategies.
WO (weaknesses-opportunities) Strategies.
ST (strengths-threats) Strategies.
WT (weaknesses-threats) Strategies.
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(SWOT) Matrix
 “SO” Strategies
 use a firm’s
internal strengths
to take advantage
of external
opportunities.
 “WO” Strategies
 aim at improving
internal
weaknesses by
taking advantage of
external
opportunities.
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(SWOT) Matrix
 “ST ” Strategies
 “WT” Strategies
 use a firm’s
strengths to avoid
or reduce the
impact of external
threats.
 defensive tactics
directed at
reducing internal
weakness and
avoiding external
threats.
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SWOT Matrix
Strengths – S
Weaknesses – W
SWOT
List Strengths
List Weaknesses
Opportunities – O
SO Strategies
WO Strategies
List Opportunities
Match and
determine strategy
Threats – T
ST Strategies
WT Strategies
List Threats
Match and
determine strategy
Match and determine
strategy
Match and determine
strategy
SWOT Matrix
Strengths – S
Weaknesses – W
List Strengths
List Weaknesses
SO Strategies
WO Strategies
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
SWOT
Opportunities – O
List Opportunities
SWOT Matrix
Key Internal Factor
Great working
capacity (strength)
+
Insufficient capacity
(weakness)
+
Strong R&D
(strength)
+
Poor employee
morale (weakness)
+
Key External Factor
20% annual growth
in the cell phone
industry
(opportunity)
Exit of two major
foreign competitors
from the industry
(opportunity)
Decreasing numbers
of young adults
(threat)
Strong union
activity (threat)
Result Strategy
=
Acquire Cellphone, Inc.
=
Pursue horizontal
integration by buying
competitor's facilities
=
Develop new products
for older adults
=
Develop a new
employee benefits
package
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A SWOT Matrix for a Retail
Computer Store
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The Boston Consulting Group
(BCG) Matrix
2. BCG Matrix :
 Graphically shows differences among
divisions in terms of relative market share
position and industry growth rate.
 allows a multidivisional organization to
manage its portfolio of businesses by
examining the relative market share position
and the industry growth rate of each division
relative to all other divisions in the
organization.
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The BCG Matrix
 The major benefit of the BCG Matrix is
that it draws attention to the cash flow,
investment characteristics, and needs of
an organization’s various divisions.
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BCG Matrix
High
Industry Growth
High
Low
Market Share Position
Stars II
 High market share
 High growth Industry
Cash Cows III
 High market share
 low-growth industry
Low
Question Marks I
 Low market share
 high-growth industry
Dogs IV
 Low market share
 low-growth industry
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BCG Matrix
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BCG Matrix
1. Question Marks:
 Low relative market share – compete in
high-growth industry.
 Cash needs are high.
 Cash generation is low.
 Decision to strengthen (intensive strategies)
or divest.
BCG Matrix
2. Stars:
 High relative market share and high growth
rate.
 Best long-run opportunities for growth &
profitability.
 Large investment to maintain or
strengthen leading position.
 Integration strategies, intensive
strategies, joint ventures.
BCG Matrix
3. Cash Cows:
 High relative market share, competes in lowgrowth industry.
 Generate cash in excess of their needs.
 Milked for other purposes.
 Maintain strong position as long as possible.
Product development, concentric diversification.
 retrenchment or divestiture.
BCG Matrix
4. Dogs:
 Low relative market share compete in slow
or no growth industry.
 Weak internal and external position.
 Liquidation, divestiture, retrenchment.
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
1. Competitive position
2. Market growth
Rapid Market Growth
Quadrant I
Quadrant II
1.
2.
3.
4.
5.
Weak
6.
Competitive
Position
1.
2.
3.
4.
5.
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
Quadrant III
1.
2.
3.
4.
5.
6.
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Strong
Competitive
Quadrant IV
Position
Retrenchment
1.
Concentric diversification
Concentric diversification
2.
Horizontal diversification
Horizontal diversification
3.
Conglomerate
diversification
Conglomerate
diversification
4.
Joint ventures
Liquidation
Slow Market Growth
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Grand Strategy Matrix
Quadrant I
 Excellent strategic position
 Concentration on current markets/products
 Take risks aggressively when necessary
 Which type of strategy would you suggest?
Grand Strategy Matrix
Quadrant II
 Evaluate present approach
 How to improve competitiveness
 Rapid market growth requires intensive
strategy
Grand Strategy Matrix
Quadrant III
 Compete in slow-growth industries
 Weak competitive position
 Drastic changes quickly
 Cost & asset reduction (retrenchment)
Grand Strategy Matrix
Quadrant IV
 Strong competitive position
 Slow-growth industry
 Diversification to more promising growth
areas
Strategy-Formulation Analytical Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
A Comprehensive Strategy-Formulation
Framework
 Stage 3 - Decision Stage:
 Involves the Quantitative Strategic Planning
Matrix (QSPM).
 Discloses the relative attractiveness of
alternative strategies and thus provides
objective basis for selecting specific
strategies.
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The Quantitative Strategic Planning
Matrix (QSPM)
 Quantitative Strategic Planning Matrix
(QSPM):
 Objectively indicates which alternative
strategies are best .
 Uses input from Stage 1 analyses and
matching results from Stage 2 analyses to
decide objectively among alternative
strategies.
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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 (A.S)
5. Compare the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Positive Features of the QSPM
 Sets of strategies can be examined
sequentially or simultaneously.
 Requires strategists to integrate pertinent
external and internal factors into the decision
process.
 Can be adapted for use by small and large
for-profit and nonprofit organizations.
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