Chapter 6

Strategy Analysis & Choice

Strategy Analysis & Choice

Nature of Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives

Strategy Analysis & Choice

Alternative Strategies Derive From - Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies

Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage

Stage 2:
The Matching Stage

Stage 3:
The Decision Stage

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)

Stage 1: The Input Stage

Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed

Strategy-Formulation Analytical
Framework

Stage 2:
The Matching Stage

SWOT Matrix

BCG Matrix

Grand Strategy Matrix

Stage 2: The Matching Stage

Match between organizations internal

resources & skills and the opportunities & risks
created by its external factors
E.g. internal: strong R and D function
External changing demographics
(population getting older)
Strategy: Develop new products for older
adults (related to long term objectives
financial or strategic)

Stage 2: The Matching Stage: SWOT Matrix

Four Types of Strategies
Strengths-Opportunities (SO):
Use a firms internal strengths to take advantage of external
opportunities
Weaknesses-Opportunities (WO):
Improving internal weaknesses by taking advantage
of external opportunities
Strengths-Threats (ST):
Use a firms strengths to avoid or reduce the impact of external
threats.
Weaknesses-Threats (WT):
Defensive tactics aimed at reducing internal weaknesses and
avoiding external threats

SWOT Matrix
Strengths S
Leave Blank

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

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

Pursue horizontal integration
+ competitors from the
= by buying competitor's
industry (opportunity)
facilities

Decreasing numbers of
young adults (threat)

Strong union
activity (threat)

Develop new products for

older adults
Develop a new
employee benefits
package

Which types of strategies, e.g. intensive diversification, are referred to above

12

Strengths:

1.
2.
3.
4.
5.
6.
7.

R and D almost complete

Basis for strong management team
Key first major customer acquired
Initial product can evolve into range
of offerings
Located near a major centre of
excellence
Very focused management/staff
Well-rounded and managed
business

Weaknesses:
1.
2.
3.
4.
5.
6.
7.

Threats:
1.
2.
3.
4.
5.
6.

Major player may enter targeted

market segment
New technology may make products
obsolescent
Economic slowdown could reduce
demand
Euro/Yen may move against $
Market may become price sensitive
Market segment's growth could
attract major competition

Over dependent on borrowings Insufficient cash resources

Board of Directors is too narrow
Lack of awareness amongst
prospective customers
Need to relocate to larger premises
Absence of strong sales/marketing
expertise
Overdependence on few key staff
Emerging new technologies may
move market in new directions
Opportunities:

1.
2.
3.
4.

Market segment is poised for rapid

growth
Export markets offer great potential
Distribution channels seeking new
products
Scope to diversify into related
market segments

Key Strategies
1.
2.
3.
4.
5.
6.
7.
8.

Accelerate product launches by strengthening R and D

team
Extend links with key technology centres
Raise additional venture capital
Expand senior management team in sales/marketing
Recruit non-executive directors
Strengthen human resources function and introduce
share options for staff
Appoint advisers for intellectual property and finance
Seek new market segments/applications for products

SWOT Matrix
Leave Blank

Opportunities O
List Opportunities

Threats T
List Threats

Strengths S

Weaknesses W

List Strengths

List Weaknesses

SO Strategies
Match and determine
strategy

WO Strategies

ST Strategies
Match and determine
strategy

Match and determine

strategy

WT Strategies
Match and determine
strategy

Inset key strategies into correct box element of the Matrix

Limitations with SWOT Matrix

Does not show how to achieve a
competitive advantage
Provides a static assessment in time
May lead the firm to overemphasize a
single internal or external factor in
formulating strategies

BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate

BCG Matrix
Relative Market Share Position
Ratio of a divisions own market share in an
industry to the market share held by the largest
rival firm in that industry

BCG Matrix

Relative Market Share Position

Industry Sales Growth Rate

High
1.0
High
+20

Medium
.50

Low
0.0

Stars
II

Question Marks
I

Cash Cows
III

Dogs
IV

Medium

Low
-20
19

BCG Matrix
Question Marks
Low relative market share compete in highgrowth industry
Cash needs are high
Case generation is low

Decision to strengthen (intensive strategies)

or divest

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

BCG Matrix
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
If weakensretrenchment or divestiture

BCG Matrix
Dogs
Low relative market share & compete in slow or
no market growth
Weak internal & external position

Liquidation, divestiture, retrenchment

Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth

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

Quadrant III
Quadrant IV
Retrenchment
1.
Concentric diversification
Concentric diversification
2.
Horizontal diversification
Horizontal diversification
3.
Conglomerate
diversification
Conglomerate
diversification
4.
Joint ventures
Liquidation
SLOW MARKET GROWTH

STRONG
COMPETITIVE
POSITION

25

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)

Technique designed to determine the relative

attractiveness of feasible alternative actions

Steps to Develop a QSPM

1. Make a list of the firms 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

QSPM : information from IFE and

EFE
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive

Weight

Strategic Alternatives
Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Sum total A.S.
AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS

32

QSPM
Limitations
Requires intuitive judgments & educated
assumptions
Only as good as the prerequisite inputs

Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal
factors in the decision making process
Example of a QSPM for Dell

Questions
Discuss 3 techniques that can be used by
organisations to choose alternative paths
to achieve their long term objectives.
Discuss how to choose the best of a set of
alternative strategies.