Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -1 Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 13 th Edition Fred David

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -2

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -3 “Whether it’s broke or not, fix it – make it better. Not just products, but the whole company if necessary.” – Bill Saporito Strategy Analysis & Choice “Life is full of lousy options.” – General P.X. Kelley

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -4 Subjective decisions based on objective information Generating alternative strategies Selecting strategies to pursue Best alternative course of action to achieve mission & objectives Derived from vision, mission, objectives, external audit, and internal audit Strategy Analysis & Choice

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -5 Strategy Analysis & Choice Generating Alternatives – Participation in generating alternative strategies should be as broad as possible

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -6 Comprehensive Strategy- Formulation Framework Stage 1 - Input Stage  EFE Matrix  IFE matrix  CPM Stage 2 - Matching Stage  SWOT  SPACE matrix  BCG matrix  IE Matrix  Grand strategy matrix Stage 3 - Decision Stage  QSPM

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -7 Strategy-Formulation Framework External Factor Evaluation Matrix (EFE) Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix (CPM) Stage 1: The Input Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -8 Stage 2: The Matching Stage Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -9 Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Stage 2: The Matching Stage Strengths Weaknesses Opportunities Threats SWOT Matrix

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch SWOT Matrix Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT) Four Types of Strategies

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch SWOT Matrix SO strategies use a firm’s internal strengths to take advantage of external opportunities WO strategies improve internal weaknesses by taking advantage of external opportunities ST strategies use a firm’s strengths to avoid or reduce the impact of external threats WT strategies defensive tactics aimed at reducing internal weakness and avoiding external threats

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch SPACE Matrix Strategic Position & Action Evaluation Matrix Aggressive Conservative Defensive Competitive

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch SPACE Matrix Internal dimensions  Financial position (FP)  Competitive position (CP) External dimensions  Environmental position (EP)  Industry position (IP)

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -17

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch BCG Matrix Boston Consulting Group Matrix Assists multidivisional firm in formulating strategies Autonomous divisions = business portfolio Divisions may compete in different industries Focus on relative market-share position & industry growth rate

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch BCG Matrix Question Marks – low relative market share in a high-growth industry Stars – high relative market share in a high- growth industry Cash Cows – high relative market share in a low-growth industry Dogs – Low relative market share in a slow or no growth industry

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -21

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 6 -24

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Grand Strategy Matrix Tool for formulating alternative strategies Based on two dimensions  Competitive position  Market growth

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Quadrant IV 1. Related diversification 2. Unrelated diversification 3. Joint ventures Quadrant III 1. Retrenchment 2. Related diversification 3. Unrelated diversification 4. Divestiture 5. Liquidation Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Related 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Grand Strategy Matrix Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary Quadrant I

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Grand Strategy Matrix Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy Quadrant II

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Grand Strategy Matrix Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment) Quadrant III

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Grand Strategy Matrix Strong competitive position Slow-growth industry Diversification to more promising growth areas Quadrant IV

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM)

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch QSPM Technique designed to determine the relative attractiveness of feasible alternative actions Quantitative Strategic Planning Matrix

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch QSPM Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Management Information Systems Strategy 3Strategy 2Strategy 1WeightKey External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Strategic Alternatives

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Steps to Develop a QSPM 3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing 4. Determine the Attractiveness Scores 5. Compute the Total Attractiveness Scores 6. Compute the Sum Total Attractiveness Score

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch QSPM Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision- making process Advantages

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch QSPM Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs Limitations

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Cultural Aspects of Strategy Choice A set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm Successful strategies depend on support of the firm’s culture Organization Culture

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Politics of Strategy Choice Hierarchy of command Career aspirations Allocation of scarce resources Politics in Organizations

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Politics of Strategy Choice Equifinality Satisfying Generalization Higher-order issues Political access on important issues Political Tactics for Strategists

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Governance Issues Control & oversight over management Adherence to legal prescriptions Consideration of stakeholders’ interests Advancement of stockholders’ rights Board of Directors Roles & Responsibilities

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.