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Strategy Analysis & Choice
Usman Chaudhry
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Strategy analysis and choice largely involve making
subjective decisions based on objective information
Participation in generating alternative strategies shouldbe as broad as possible.
How many feasible alternatives should be consideredthat could benefit the firm?
Ch 6 -2
Strategy Analysis & Choice
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Vision Mission Objectives External audit Internal audit Past successful strategies
Ch 6 -3
Strategy Analysis & Choice
Alternative Strategies are derive from…
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Ch 6 -4
Comprehensive Strategy-
Formulation Framework
Intuition and
Analysis
Usman Chaudhry. Strategic Management-FSM
Stage 3
The Decision Stage
Stage 2The Matching Stage
Stage 1
The Input Stage
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Ch 6 -5
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
External Factor Evaluation
Matrix (EFE)
Competitive Profile Matrix
(CPM)
Usman Chaudhry. Strategic Management-FSM
Stage 1The Input Stage
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Basic input information for the matching & decision
stage matrices Requires strategists to quantify subjectivity early in
the process
Good intuitive judgment always needed
Usman Chaudhry. Strategic Management-FSM Ch 6 -6
Stage 1: The Input Stage
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -7
Stage 2: The Matching Stage
A match between
internal and external
resources
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Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Usman Chaudhry. Strategic Management-FSM Ch 6 -8
Stage 2: The Matching Stage
SWOT Matrix
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SWOT Matrix
Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies
Use strength s to take
advantage ofopportuni t ies
WO Strategies
Overcomin g weaknesses
by taking advantage ofopportuni t ies
Threats – T
List Threats
ST Strategies
Use strengths to avoid
threats
WT Strategies
Minimize weaknesses and
avoid th reats
Ch 6 -9Usman Chaudhry. Strategic Management-FSM
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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 formulatingstrategies
Ch 6 -10
Limitations with SWOT Matrix
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -11
Stage 2: The Matching Stage
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Indicates which of the following strategy is
most appropriate for a given organization
Aggressive
Conservative
Defensive
Competitive
Usman Chaudhry. Strategic Management-FSM Ch 6 -12
SPACE MatrixStrategic Position & Evaluation Matrix
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Two Internal Dimensions
Financial Position (FP)
Competitive Position (CP)
Two External Dimensions Stability / Environment Position (SP)
Industry Position (IP)
Usman Chaudhry. Strategic Management-FSM Ch 6 -13
SPACE Matrix
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Ch 6 -14
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entryCompetitive pressure
Price elasticity of demandEase of exit from marketRisk involved in business
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
External Strategic PositionInternal Strategic Position
Usman Chaudhry. Strategic Management-FSM
SPACE Factors
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SPACE Factors
Ch 6 -15
Industry Position (IP)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilizationEase of entry into market
Productivity, capacity utilization
Competitive Position (CP)
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization Technological know-how
Control over suppliers & distributors
External Strategic PositionInternal Strategic Position
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1. Select a set of variables to define FP, CP, SP, & IP
2. Assign a numerical value:
a. From +1 to +6 to each FP & IP dimension
b. From -1 to -6 to each SP & CP dimension
3. Compute an average score for each FP, CP, SP, & IP
Ch 6 -16
Steps to Developing a SPACE Matrix
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1. Plot the average score on the appropriate axis
2. Add the two scores on the x-axis and plot the point.Add the two scores on the y-axis and plot the point.Plot the intersection of the new xy point
3. Draw a directional vector from the origin throughthe new intersection point.
Ch 6 -17
Steps to Developing a SPACE Matrix
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SPACE Matrix
Ch 6 -18
FP+6
+1
+5
+4
+3
+2
-6
-5-4-3
-2
-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
SP
CP IP
Conservative Aggressive
Defensive Competitive
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -19
Stage 2: The Matching Stage
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Boston Consulting Group Matrix
Enhances multi-divisional firm to manage its portfolioof businesses by examining the relative market shareposition
Divisions may compete in different industries
Focus on market-share position & industry growthrate
Usman Chaudhry. Strategic Management-FSM Ch 6 -20
BCG Matrix
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Relative Market Share Position
Ratio of a division’s own market share in an industryto the market share held by the largest rival firm inthat industry
Usman Chaudhry. Strategic Management-FSM Ch 6 -21
BCG Matrix
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BCG Matrix
Ch 6 -22
Dogs
IV
Cash Cows
III
Question Marks
I
Stars
II
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
I n d u s t r y S a l e s
G r o w t h R a t e
High
+20
Low
-20
Medium0
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Low relative market share – compete in high-growthindustry
Cash needs are high
Cash generation is low
e.g., IT/Mobile Applications, Sales of Cd’s falling Decision to strengthen (intensive strategies) or divest
Usman Chaudhry. Strategic Management-FSM Ch 6 -23
BCG Matrix
Question Marks
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High relative market share and high growth rate
Best long-run opportunities for growth & profitabilitye.g., IPhone, IPods
Substantial investment to maintain or strengthendominant position
Integration strategies, intensive strategies, jointventures
Usman Chaudhry. Strategic Management-FSM Ch 6 -24
BCG Matrix
Stars
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High relative market share, competes in low-growth
industry/mature market Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
weakens—retrenchment or divestituree.g., Kellogg’s Corn Flakes, Coca Cola
Usman Chaudhry. Strategic Management-FSM Ch 6 -25
BCG Matrix
Cash Cows
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Dogs
Low relative market share & compete in slow or nomarket growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Usman Chaudhry. Strategic Management-FSM Ch 6 -26
BCG Matrix
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -27
Stage 2: The Matching Stage
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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 6 -28
The Internal-External Matrix
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IE Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -29
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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 6 -30
IE Matrix
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IE Matrix
Usman Chaudhry. Strategic Management-FSM Ch 6 -31
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -32
Stage 2: The Matching Stage
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Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -33
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Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -34
Quadrant IV
1. Concentric diversification
2. Horizontal diversification
3. Conglomerate diversification
4. Joint ventures
Quadr ant III
1. Retrenchment
2. Concentric diversification3. Horizontal diversification
4. Conglomerate
diversification
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Concentric diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
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Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -35
Quadrant I
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Evaluate present approach How to improve competitiveness
Rapid market growth requires intensive strategy
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -36
Quadrant II
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Compete in slow-growth industries Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -37
Quadrant III
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Strong competitive position Slow-growth industry
Diversification to more promising growth areas
Grand Strategy Matrix
Usman Chaudhry. Strategic Management-FSMCh 6 -38
Quadrant IV
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Strategy-Formulation AnalyticalFramework
Usman Chaudhry. Strategic Management-FSMCh 6 -39
Stage 3:The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
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Quantitative Strategic Planning Matrix
Technique designed to determine the relative
attractiveness of feasible alternative actions
QSPM
Usman Chaudhry. Strategic Management-FSMCh 6 -40
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QSPM
Ch 6 -41
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Strategy 3Strategy 2Strategy 1Weight
Key External FactorsEconomy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
Strategic Alternatives
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1. Make a list of the firm’s key external opportunities/threats
and internal strengths/weaknesses in the left column2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identifyalternative strategies that the organization should considerimplementing
4. Determine the Attractiveness Scores
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
Ch 6 -42
Steps to Develop a QSPM
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Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
QSPM
Usman Chaudhry. Strategic Management-FSMCh 6 -43
Limitations
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Sets of strategies considered simultaneously or
sequentially Integration of relevant external & internal
factors in the decision making process
QSPM
Usman Chaudhry. Strategic Management-FSMCh 6 -44
Advantages
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Successful strategies depend on the degree ofconsistency with the firm’s culture
Cultural Aspects of Strategy Choice
Usman Chaudhry. Strategic Management-FSM Ch 6 -45
Organization Culture