Strategy Strategy Analysis and Analysis and

ChoiceChoice

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.

Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Stage 1:The Input Stage

Competitive Profile Matrix(CPM)

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. 6-7

Stage 2 :The Matching Stage

SWOT Matrix

BCG Matrix

Grand Strategy Matrix

Stage 2:The Matching Stage

Stage 2 :The Matching Stage

1. (SWOT) Matrix: Strengths-Weaknesses-Opportunities-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 use a firm’s

strengths to avoid or reduce the impact of external threats.

“WT” Strategies defensive tactics

directed at reducing internal weakness and avoiding external threats.

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SWOT Matrix

SWOT

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Match and determine strategy

WO Strategies

Match and determine strategy

Threats – T

List Threats

ST Strategies Match and

determine strategy

WT Strategies Match and determine

strategy

SWOT Matrix

SWOTStrengths – S

List StrengthsWeaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of

opportunities

WO Strategies

Overcoming weaknesses by

taking advantage of opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and

avoid threats

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Develop a new employee benefits package

= Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=

Exit of two major foreign competitors from the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellphone, Inc.=

20% annual growth in the cell phone industry (opportunity)

+Great working capacity (strength)

Key Internal Factor Key External Factor Result Strategy

SWOT Matrix

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

Dogs IV Low market share low-growth industry

Cash Cows III High market share low-growth industry

Question Marks I

Stars II High market share High growth Industry

Market Share PositionHigh Low

Indu

stry

Gro

wth

High

Low

Low market share

high-growth industry

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 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.

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

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Quadrant IV1. Concentric diversification2. Horizontal diversification3. Conglomerate

diversification4. Joint ventures

Quadrant III1. Retrenchment2. Concentric diversification3. Horizontal diversification4. Conglomerate

diversification5. Liquidation

Quadrant I1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration

Quadrant II1. Market development2. Market penetration3. Product development4. Horizontal integration5. Divestiture6. Liquidation

Rapid Market Growth

Slow Market Growth

Weak Competitive

Position

StrongCompetitive

Position

Grand Strategy Matrix

Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Which type of strategy would you suggest?

Quadrant I

Grand Strategy Matrix

Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant II

Grand Strategy Matrix

Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III

Grand Strategy Matrix

Strong competitive position

Slow-growth industry

Diversification to more promising growth areas

Quadrant IV

Strategy-Formulation Analytical Framework

Stage 3:The Decision Stage

Quantitative StrategicPlanning 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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