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Strategy Analysis and ChoiceStrategy Analysis and Choice
Chapter Six
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A Comprehensive Strategic-Management Model
6-2
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The Strategy-Formulation Analytical Framework
6-3
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Ch 6 -4
Comprehensive Strategy-Formulation Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
Ch 7 -4 Copyright © 2011 Pearson Education
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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)
6-5
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Ch 6 -6
Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
External Factor EvaluationMatrix (EFE)
Competitive Profile Matrix(CPM)
Stage 1:The Input Stage
Ch 7 -6 Copyright © 2011 Pearson Education
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A Comprehensive Strategy-Formulation Framework
• Stage 2 - Matching Stage– focuses on generating feasible alternative
strategies by aligning key external and internal factors
– techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix
6-7
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Ch 6 -8
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 7 -8 Copyright © 2011 Pearson Education
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SWOT Matrix
1. List the firm’s key external opportunities
2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
5. Match internal strengths with external opportunities
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The Matching Stage
• The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix helps managers develop four types of strategies: – SO (strengths-opportunities) Strategies – WO (weaknesses-opportunities) Strategies – ST (strengths-threats) Strategies– WT (weaknesses-threats) Strategies
6-10Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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SO Strategies
Use a firm’sinternal strengthsto take advantage
of external opportunities
SOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 7 -11 Copyright © 2011 Pearson Education
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WO Strategies
Improving internalweaknesses by
taking advantageof external
opportunities
WOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 7 -12 Copyright © 2011 Pearson Education
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ST Strategies
Use a firm’s strengthsto avoid or
reduce the impactof external
threats
STStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 7 -13 Copyright © 2011 Pearson Education
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WT Strategies
Defensive tacticsaimed at reducing
internal weaknesses &
avoidingenvironmental
threats
WTStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 7 -14 Copyright © 2011 Pearson Education
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SWOT Matrix
Ch 7 -15
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A SWOT Matrix for a Retail Computer Store
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A SWOT Matrix for a Retail Computer Store
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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
Ch 7 -18 Copyright © 2011 Pearson Education
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Ch 6 -19
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 7 -19 Copyright © 2011 Pearson Education
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Ch 6 -20
SPACE MatrixStrategic Position & Action Evaluation Matrix
4-quadrants indicate whether the most appropriate strategy is:• Aggressive• Conservative• Defensive• Competitive
Ch 7 -20 Copyright © 2011 Pearson Education
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The SPACE Matrix
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The Strategic Position and Action Evaluation (SPACE) Matrix
• Two internal dimensions (financial position [FP] and competitive position [CP])
• Two external dimensions (stability position [SP] and industry position [IP])
• Most important determinants of an organization’s overall strategic position
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Factors That Make Up the SPACE Matrix Axes
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Factors That Make Up the SPACE Matrix Axes
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Steps to Develop a SPACE Matrix
1. Select a set of variables to define financial position (FP), competitive position (CP), stability position (SP), and industry position (IP)
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Steps to Develop a SPACE Matrix
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions.
Assign a numerical value ranging from –1 (best) to –7 (worst) to each of the variables that make up the SP and CP dimensions
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Steps to Develop a SPACE Matrix
3. Compute an average score for FP, CP, IP, and SP4. Plot the average scores for FP, IP, SP, and CP on the
appropriate axis in the SPACE Matrix5. Add the two scores on the x-axis and plot the
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
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Steps to Develop a SPACE Matrix
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
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Example Strategy Profiles
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Example Strategy Profiles
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Ch 6 -31
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 7 -31 Copyright © 2011 Pearson Education
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The Boston Consulting Group (BCG) Matrix
• BCG Matrix – graphically portrays 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
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The BCG Matrix
• Question marks – Quadrant I– Organization must decide whether to
strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them
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Ch 6 -35
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 7 -35 Copyright © 2011 Pearson Education
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Ch 6 -36
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 7 -36 Copyright © 2011 Pearson Education
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Ch 6 -37
BCG Matrix
Dogs
• Low relative market share, competes in slow or no market growth
- Weak internal & external position
• Liquidation, divestiture, retrenchment
Ch 7 -37 Copyright © 2011 Pearson Education
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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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Ch 6 -39
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 7 -39 Copyright © 2011 Pearson Education
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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 -40 Copyright © 2011 Pearson Education
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The Internal-External (IE) Matrix
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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 -42 Copyright © 2011 Pearson Education
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The IE Matrix
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Ch 7 -44 Copyright © 2011 Pearson Education
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Ch 6 -45
Strategy-Formulation Analytical Framework
SPACE Matrix
BCG Matrix
IE Matrix
Stage 2:The Matching Stage
SWOT Matrix
Grand Strategy Matrix
Ch 7 -45 Copyright © 2011 Pearson Education
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The Grand Strategy Matrix
• Grand Strategy Matrix– based on two evaluative dimensions:
• competitive position and • market (industry) growth
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The Grand Strategy Matrix
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The Grand Strategy Matrix
• Quadrant I – continued concentration on current markets
(market penetration and market development) and products (product development) is an appropriate strategy
• Quadrant II – unable to compete effectively– need to determine why the firm’s current
approach is ineffective and how the company can best change to improve its competitiveness
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The Grand Strategy Matrix
• Quadrant III – must make some drastic changes quickly to avoid
further decline and possible liquidation – Extensive cost and asset reduction
(retrenchment) should be pursued first
• Quadrant IV – have characteristically high cash-flow levels and
limited internal growth needs and often can pursue related or unrelated diversification successfully
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Ch 6 -50
Strategy-Formulation Analytical Framework
Stage 3:The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
Ch 7 -50 Copyright © 2011 Pearson Education
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A Comprehensive Strategy-Formulation Framework
• Stage 3 - Decision Stage– involves the Quantitative Strategic Planning
Matrix (QSPM)– reveals 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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The Quantitative Strategic Planning Matrix (QSPM)
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Steps in a QSPM
1. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM
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
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Steps in a QSPM (cont.)
4. Determine the Attractiveness Scores (AS)5. Compute the Total Attractiveness Scores6. Compute the Sum Total Attractiveness Score
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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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Limitations of the QSPM
• Always requires intuitive judgments and educated assumptions
• Only as good as the prerequisite information and matching analyses upon which it is based
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A QSPM for a Retail Computer Store
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A QSPM for a Retail Computer Store
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The Politics of Strategy Choice
• Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees
• Political biases and personal preferences get unduly embedded in strategy choice decisions
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The Politics of Strategy Choice
• The hierarchy of command in an organization, combined with the career aspirations of different people and the need to allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of themselves first and the organization second, third, or fourth
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Tactics to Aid Strategists
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Governance Issues
• Board of directors – a group of individuals who are elected by the
ownership of a corporation to have oversight and guidance over management and who look out for shareholders’ interests
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Board of Director Duties and Responsibilities
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Principles of Good Governance
1. No more than two directors are current or former company executives
2. The audit, compensation, and nominating committees are made up solely of outside directors
3. Each director owns a large equity stake in the company, excluding stock options
4. Each director attends at least 75 percent of all meetings
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Principles of Good Governance
5. The board meets regularly without management present and evaluates its own performance annually
6. The CEO is not also the chairperson of the board
7. Stock options are considered a corporate expense
8. There are no interlocking directorships (where a director or CEO sits on another director’s board)
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