1. Copyright © 2011 Pearson Education
Ch 7 -1
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2. Strategic Management: Concepts and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali
Chapter 7:
Strategy Analysis and
Choice
Ch 7 -2
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3. Copyright © 2011 Pearson Education
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive Strategy-Formulation Framework
The Input Stage
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
The Politics of Strategy Choice
Governance Issues
Ch 7 -3
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Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
This process seek to determine alternative courses of action that could best enable the firm to best achieve its mission and long run objectives
Ch 7 -4
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Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22,
no. 3 (June 1988) 40.
Ch 7 -5
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Strategy Analysis & Choice
Alternative Strategies Derive From:
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Ch 7 -6
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Strategy Analysis & Choice
Generating Alternatives
Participation in generating alternative strategies should be as broad as possible
Alternative strategies proposed by participants should be considered, discussed, and ranked in order of attractiveness
Ch 7 -7
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8. Stage 2: The Matching Stage Stage 3: The Decision Stage
Comprehensive Strategy-Formulation Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
Ch 7 -8
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Ch 7 -9
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10. Strategy-Formulation Analytical Framework
Internal Factor Evaluation Matrix (IFE)
Stage 1: The Input Stage
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix (CPM)
Ch 7 -10
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Stage 1: The Input Stage
Basic input information for the matching & decision stage matrices
Good intuitive judgment always needed
Ch 7 -11
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12. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 7 -12
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Stage 2: The Matching Stage
Finding the match between organization’s internal resources & skills and the opportunities & risks created by its external factors
Ch 7 -13
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Stage 2: The Matching Stage
SWOT Matrix
A SWOT matrix :it is an important matching tool that help managers develop four types of strategies WO SO WT ST
Ch 7 -14
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15. internal external SO WO Threats – T ST WT
SWOT Matrix
internal
external
Strengths – S List Strengths
Weaknesses – 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 defensive strategy aim at Minimize weaknesses and avoid threats
Ch 7 -15
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16. SWOT Example Resultant strategy Key external factor
Key internal factor
Acquire Cell phone ,Inc.
(SO)
20% annual growth in the cell phone industry (opportunity )
Excess working capacity (strength )
Pursue horizontal integration by buying competitors ‘s facilities (WO)
Exit of two major foreign competitors (opportunity )
Insufficient capacity (weakness)
Develop new products for older adults
(ST)
Decreasing number of younger adults (threat )
Strong R&D expertise (strength )
Develop a new employees benefits package
(WT)
Strong union activity (threat)
Poor employees morale (weakness)

17. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 7 -17
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SPACE Matrix
Strategic Position & Action Evaluation Matrix
4-quadrants indicate whether the most appropriate strategy is:
Aggressive
Conservative
Defensive
Competitive
Ch 7 -18
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SPACE Matrix
Two Internal Dimensions:
Financial Strength (FS)
Competitive Advantage (CA)
Ch 7 -19
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SPACE Matrix
Two External Dimensions:
Environmental Stability (ES)
Industry Strength (IS)
Ch 7 -20
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21. External Strategic Position Internal Strategic Position
SPACE Factors
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Ease of exit from market Risk involved in business
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Inventory turnover
Earnings per share
Price earnings ratio
External Strategic Position
Internal Strategic Position
Ch 7 -21
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22. External Strategic Position Internal Strategic Position
SPACE Factors
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity utilization
Competitive Advantage (CA)
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Control over suppliers & distributors
External Strategic Position
Internal Strategic Position
Ch 7 -22
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23. Steps to Developing a SPACE Matrix
Select a set of variables to define FS, CA, ES, and IS.
Assign a numerical value:
From +1 to +6 to each FS & IS dimension
From -1 to -6 to each ES & CA dimension
Compute an average score for each FS, CA, ES, and IS.
Plot the average score on the appropriate axis.
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.
Draw a directional vector from the origin through the new intersection point.
Ch 7 -23
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Ch 7 -24
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25. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 7 -25
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BCG Matrix
Boston Consulting Group Matrix
Enhances multidivisional firm in formulating strategies
Divisions may compete in different industries
Focus on market-share position & industry growth rate
Ch 7 -26
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BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry
Ch 7 -27
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Ch 7 -28
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BCG Matrix
Question Marks
Low relative market share, competes in high-growth industry
Cash needs are high
Cash generation is low
Decision to strengthen (intensive strategies) or divest
Ch 7 -29
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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 -30
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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 -31
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BCG Matrix
Dogs
Low relative market share, competes in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 7 -32
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33. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 7 -33
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34. 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 -34
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Ch 7 -35
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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 -36
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Ch 7 -37
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38. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Ch 7 -38
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39. Strategy-Formulation Analytical Framework
Quantitative Strategic Planning Matrix (QSPM)
Stage 3: The Decision Stage
Ch 7 -39
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QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative attractiveness of feasible alternative actions
Ch 7 -40
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Ch 7 -41
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Steps to Develop a QSPM
Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column.
Assign weights to each key external and internal factor.
Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing.
Determine the Attractiveness Scores.
Compare the Total Attractiveness Scores.
Compute the Sum Total Attractiveness Score.
Ch 7 -42
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QSPM
Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision-making process
Ch 7 -43
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QSPM
Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Ch 7 -44
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Cultural Aspects of Strategy Choice
Organizational Culture
Successful strategies depend on the degree of consistency with the firm’s culture
Ch 7 -45
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