2.

4 Strategy Formulation Analytical Framework

2.4.1 The Matching Stage

Identification of different alternatives is by and large based on the

internal and external assessment we made.
Based on the identified internal strengths and weaknesses and external
threats and opportunities, we have to identify all the possible alternative
strategies that can best be adopted.

There are Five techniques that we can use in identifying the desired
strategies, which match the internal and external environment. 1 & 2 for
single business, 3 & 4 for multi-divisional business and 5 general.
1. The TOWS Matrix – Four variables and Nine quadrant model
2. The SPACE Matrix – Four variables and Four quadrant model
3. The BCG Matrix–Two variables and Four quadrant model (PP)
4. The IE Matrix – Two variables and Nine quadrant model (PP)
5. The Grand Strategy Matrix – Two variables and Four quadrant model
1.The TOWS Matrix or SWOT Analysis
It helps managers to develop Four types of strategies

1. SO Strategies – use firm’s internal strengths to take advantage of

external opportunities

2. WO Strategies – aim at improving internal weaknesses by taking

advantage of external opportunities

3. ST Strategies – use firm’s strengths to avoid or reduce the impact of

external threats

4. WT Strategies – are defensive tactics directed at reducing internal

weaknesses and avoiding external threats

Constructing TOWS Matrix involves 8 steps. Listing 4 steps and

matching 4 steps.
A Model Framework of TOWS Matrix
STRENGTHS – S WEAKNESSES – W
1. 1.
2. 2.
3. 3.
4. 4.
5. List Strengths 5. List Weaknesses
Always leave blank 6. 6.
7. 7.
8. 8.
9. 9.
10. 10.
OPPORTUNITIES – O SO STRATEGIES WO STRATEGIES
1. 1. 1.
2. 2. 2.
3. 3. 3.
4. 4. Use strengths to 4. Overcome
5. List 5. take advantage 5. weakness by taking
6. Opportunities 6. of opportunities 6. advantage of
7. 7. 7. opportunities
8. 8. 8.
9. 9. 9.
10. 10. 10.
THREATS – T ST STRATEGIES WT STRATEGIES
1. 1. 1.
2. 2. 2.
3. 3. 3.
4. 4. Use strengths 4. Minimize
5. List Threats 5. to avoid threats 5. weaknesses and
6. 6. 6. avoid threats
7. 7. 7.
8. 8. 8.
9. 9. 9.
10. 10. 10.

2.The SPACE Matrix

Its four-quadrant framework indicates whether aggressive /
conservative / defensive / competitive strategies are most appropriate for
a given organization.

The axes of the SPACE Matrix represent

two internal dimensions (financial strength [FS] and competitive
advantage [CA]), and
two external dimensions (environmental stability [ES] and industry
strength [IS])

These four factors are the most important determinants of an

organization’s overall strategic position.

Depending upon the type of organization, numerous variables could

comprise each of the dimensions represented on the axes of the SPACE
Matrix.
Steps in Developing the SPACE Matrix:
1. Select a set of variables to comprise financial strength (FS),
competitive advantage (CA), environmental stability (ES), and
industry strength (IS).
2. Assign a numerical value ranging from +1 (worst) to +6 (best) to
each of the variables that comprise the FS and IS dimensions. Assign
a numerical value ranging from –1 (best) to –6 (worst) to each of the
variables that comprise the ES and CA dimensions.
3. Compute an average score for FS, CA, IS, and ES by summing the
values given to the variables of each dimension and dividing by the
number of variables included in the respective dimension.
4. Plot the average scores for FS, IS, ES, and CA on the appropriate axis
in the SPACE Matrix.
5. Add the two scores on the X-axis and plot resultant point on X. Add
the two scores on the Y-axis and plot the resultant point on Y. Plot the
intersection of the new XY point.
6. Draw a directional vector from the origin of the SPACE Matrix
through the new intersection point.
This vector reveals the type of strategies recommended for the
organization: aggressive, competitive, defensive, or conservative.

Aggressive – excellent position to use its internal strengths to take

advantage of external opportunities, overcome internal weaknesses,
and avoids external threats. Ex: all integration and diversification
strategies it can use.
Conservative – staying close to firm’s basic competencies and not
taking excessive risk. Ex: market penetration, market development,
product development, and concentric diversification.
Competitive – go for competing. Ex: backward, forward and horizontal
integration, market penetration, market development, product
development, and joint venture.
Defensive – firm should focus on improving internal weaknesses and
avoiding external threats. EX: retrenchment, divestiture, liquidation,
and concentric diversification.
The SPACE Matrix
FS
+6
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6
-1
-2
-3
-4
-5
-6

ES
Strategy Identification tools for Multi-divisional Firms
Each division may operate in different environment, got different market
share or competitiveness and require different set of strategies. It needs
‘Business Portfolio Analysis’. Two tools are most popularly used.

3. The BCG Matrix and 4. The IE Matrix

3. The BCG Matrix

A major tool to analyze business portfolio of a multi-divisional enterprise
Two major variables are used to build a Four-quadrant strategy analytical
framework/model. Each quadrant explains the real strength of that
division and helps us identify suitable strategies.
Variables:
1. Relative market share position (x- axis) – ratio of market share
held by the division in a particular industry to the market share held
by the largest rival firm in that industry (value 0.0 to 1.0).
 2. Industry sales growth rate (y- axis) – Growth rate percentages on the
y- axis could range from –20 to +20 percent, with 0 being the mid-
point.

Four Quadrants: Characteristics and strategies

The BCG Matrix
RELATIVE MARKET SHARE POSITION
1.0 High 0.50 Medium Low 0.0
High+20 II Stars I Question Marks
INDUSTRY SALES GROWTH RATE

Medium 0
III Cash Cows IV Dogs
(Percentage)

Low -20
I. Question Marks – High industry growth rate and low market
share. High scope exists for growth. Cash needs are high. Decide
whether to strengthen or sell them. Pursue intensive strategies:
market penetration, development, or product development.
II. Stars – strong position in portfolio. Needs substantial investment
to retain or strengthen their dominant position. Suited strategies:
Forward, backward, and horizontal integration, market penetration
and development, product development and joint ventures.
III. Cash Cows – Stars in stagnant industry. Generate cash in excess of
needs and often milked to invest elsewhere. Maintain strong
position as long as possible. Strategies: Product development,
concentric diversification, and if milk yield is declining better go
for retrenchment or divestiture.
IV. Dogs – First instance – retrenchment strategy to try whether it can
bounce back. If this weak internal and external position continues,
better go for divested or liquidated.
Limitation: Over-simplified classification, No temporal analysis is
possible. Many other variables also influence performance.
 4. The Internal-External (IE) Matrix
It positions an organization’s various divisions in a nine-cell display.
The IE Matrix is based on two key dimensions – the IFE total weighted
scores on x-axis and the EFE total weighted scores on y-axis.
Model IE Matrix:
THE IFE TOTAL WEIGHTED SCORES
Grow and Build
Strong 3.0 to 4.0 Average 2.0 to 2.99 Weak 1.0 to 1.99
THE EFE TOTAL WEIGHTED SCORE

4.0 3.0 2.0 1.0

High
3.0 to 4.0
I II III
3.0

Medium
2.0 to 2.99
IV V VI
2.0

Low
1.0 to 1.99 VII VIII IX
1.0

Hold and Maintain

Market penetration Harvest or Divest
Product development

5. The Grand Strategy Matrix

 Rapid Market Growth

Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Horizontal integration
5. Divestiture 5. Forward integration
6. Liquidation 6.Backward integration
7. Concentric diversification
Weak Strong
Competitive Competitive
Position Position
Quadrant III Quadrant IV
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Divestiture
6. Liquidation

Slow Market Growth

 The Decision Stage: The Quantitative Strategic Planning
Matrix (QSPM)
Based on data emerged from the Five tools we applied, we can construct this Matrix objectively.
Model QSPM
Strategic Alternatives
Key Factors Weight Strategy 1 Strategy 2 Strategy 3
AS TAS AS TAS AS TAS

External Factors (based on EFE & IFE matrix) (based on Matching stage identification)
1. Economy
2. Political / Legal
3. Social / demographic
4. Technological
5. Competitive, etc.
Internal Factors
1. Management; 2 Marketing; 3. Finance/Accounting
4. Production/Operations; 5. Human resources; 6. R & D
Grand Total: 1 .8 .6
Attractiveness Score (AS) – 1-4 of each among alternatives; Compute Total
Attractiveness Score by multiplying W and AS. Grand total indicates right one