1. Copyright 2005 Prentice Hall
Bus 411
Day 10
Copyright 2005 Prentice Hall

2. Copyright 2005 Prentice Hall
Agenda
Question?
Assignment 3Due
Don’t wait till last minute
I’m generally unavailable on weekends
Assignment 4 posted
Due March 12:30 PM
SWOT, Space, BCG and QSPM matrixes for McDonald’s
Finish Discussion on Strategy Analysis and Choice
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3. Chapter 6 Strategy Analysis & Choice
Strategic Management: Concepts & Cases
13th Edition
Fred David
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5. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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Publishing as Prentice Hall

6. SWOT Matrix 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 Minimize weaknesses and avoid threats

7. SWOT Matrix 7-Apr-08 ® 2008, Tony Gauvin, UMFK Strengths – S
A high-quality asset base
Broad geographic diversity and multiple retail formats
An extensive collection of consumer data
A successful track record of competing head-to-head against supercenters.
Outstanding private-label products
Financial strength and resources
Reputation for charitable giving and community involvement.
Weaknesses – W
Operates under two dozen banners.
Only owns 35% of store property.
Workforce is 71% unionized.
Jewelry stores are 11% of stores, but account for less than 1% of revenue.
Has not issued dividends since 1988.
Negative net income in 2004.
Opportunities – O
1. Supermarket sales of drugs up
2. Low-paid Wal-Mart workforce
3. Organic food sales growth
4. High level of Hispanic spending
5. Hispanic population growth rate
6. High Margins for private-labels
7. High demand for private labels
SO Strategies
1. More pharmacies in stores (S1,O1)
2. Organic private-label (S9,O3-6-7)
3. Hispanic private-label (S9, O4-5)
4. Hispanic format (S4-5, O4-5)
5. Take Wal-Mart’s best employees (S10, O2)
6. New stores in Hispanic hot spots (S4, O5)
WO Strategies
1. Hybridize banners & push Kroger brands (W1, O6-7)
2. Replace some jewelry stores with organic markets (W4, O3)
Threats – T
1. Drugstore service/merchandise focus
2. Growth of mail-order pharmacies
3. Larger prescription rules for MOP’s
4. Illegal drug importation
5. Supercenters dominate grocery sales
6. Wal-Mart logistics technology
7. Labor >50% of operating expenses
8. Price pressure caused labor strikes
ST Strategies
1. Match drugstore offerings of service & merchandise. (S1-5, T1)
2. Grow online pharmacy business (S6-10, T2)
3. New stores in non union areas (S4, T7)
4. VP of unions (S10, T7-8)
5. Stress customer service in all operations (S6-7, T1-5-7)
WT Strategies
1. More hybrid banner supercenter-type stores (W1, T5)
2. Buy store property and save money (W2, T7-8)
3. Divert jewelry store funds into online pharmacy (W4, T2)
7-Apr-08
® 2008, Tony Gauvin, UMFK

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

9. Space Matrix
7-Apr-08
® 2008, Tony Gauvin, UMFK

10. Space Matrix y-axis = FS + ES = 1.4 + (-5.0) = -3.6
x-axis = CA + IS = (+5.0) = 3.6
7-Apr-08
® 2008, Tony Gauvin, UMFK

11. Copyright 2007 Prentice Hall
SPACE Matrix FS
Conservative
Aggressive +6 +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 -1 -2 -3 -4
Defensive -5
Competitive -6 ES
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12. Stage 2: The Matching Stage
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
Stage 2: The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall

13. BCG has 4 inputs Divisions Industry growth rate Market position <1
Revenues %
Profits %
Div 1 5%
0.6
50%
20%
Div 2 6%
0.3
15%
30%
Div 3 1
35%
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall

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

16. 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
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17. Copyright 2007 Prentice Hall
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 2007 Prentice Hall

18. Steps to Create an IE matrix
Use Excel’s Chart Wizard
To make Pies
For each division in the organization
Construct an IFE matrix and record score
Construct an EFE matrix and record score
Creates an circular “Pie” for each division
Same technique as BCG
Percentage of Corporate Revenues generated by division
Size of circle
Percentage of Corporate Profits generated by division
Size of pie slice
Place each divisional “pie” in IE matrix based on
EFE score – y axis
IFE score – x axis
Use Green & Gold Pies from
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20. Copyright 2007 Prentice Hall
IE Matrix
Grow and Build
Hold and Maintain
Harvest or Divest
IFE Scores
Strong Average Weak I II
III IV V VI
VII
VIII IX
High
3-4
Medium
2-2.99
Low
1-1.99 2
Scores
EFE 3 1
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22. IE Matrix Based on two key dimensions Divided into three major regions
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

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

24. Tool for formulating alternative strategies Based on two dimensions
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
Competitive position (from CPM)
Market growth ( from Industry analysis)
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall

25. 5% RAPID MARKET GROWTH Quadrant II Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Related diversification
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION 5%
Quadrant III
Retrenchment
Related diversification
Unrelated diversification
Divestiture
Liquidation
Quadrant IV
Related diversification
Unrelated diversification
Joint ventures
SLOW MARKET GROWTH
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26. Excellent strategic position Concentration on current markets/products
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
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27. Evaluate present approach How to improve competitiveness
Grand Strategy Matrix
Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
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Publishing as Prentice Hall

28. Compete in slow-growth industries Weak competitive position
Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
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29. Strong competitive position Slow-growth industry
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
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Publishing as Prentice Hall

30. Matrix Analysis (not in text)
Alternative Strategies
BCG IE
SPACE
GRAND
COUNT
Forward Integration X 2
Backward Integration
Horizontal Integration
Market Penetration 3
Market Development
Product Development 4
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Joint Venture 1
Retrenchment
Divestiture
Liquidation
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31. Strategy-Formulation Analytical Framework
Quantitative Strategic Planning Matrix (QSPM)
Stage 3: The Decision Stage
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32. Copyright 2007 Prentice Hall
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative attractiveness of feasible alternative actions
Copyright 2007 Prentice Hall

33. Strategic Alternatives
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Strategy 3
Strategy 2
Strategy 1
Weight
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
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34. Copyright 2007 Prentice Hall
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 (should be the same you used from IFE and EFE matrices)
Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing
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35. Copyright 2007 Prentice Hall
Steps to Develop a QSPM
Determine the Attractiveness Scores
Compare the Total Attractiveness Scores
Compute the Sum Total Attractiveness Score
Copyright 2007 Prentice Hall

36. Six steps to developing a QSPM:
Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM.
From SWOT, IFE and EFE
Assign weights to each key external and internal factor.
Weights for each category should add up to one.
Same as IFE and EFE
Examine the Stage 2 matrices and identify alternative strategies that the organization should consider implementing.
Determine the Attractiveness Scores (AS). (1-4)
1=not attractive
4=highly attractive
Compute the total AS.
Weight * AS
Compute the sum Total AS.
Range should be from 2-8
QSPM_Matrix.xlt
Copyright 2007 Prentice Hall

37. QSPM 7-Apr-08 ® 2008, Tony Gauvin, UMFK Opportunities Threats
Strategic Alternatives
A - Diversification of Private Label Natural and Ethnic Products
B - Replace Convenience & Jewelry Stores with Fuel Centers A B
Key Factors
Weight AS
TAS
Supermarket sales of drugs growth
0.07
---
Large, low-paid Wal-Mart workforce
0.05
Organic food sales are up 4
0.20 1
Hispanics spend more than average
0.10
0.40
High Hispanic pop. growth rate
0.08
0.32 2
0.16
High margins for private-label
Popularity of private-label products
1.32
0.41
Drugstore focus on service and merchandise
Mail-order pharmacy (MOP) growth 3
0.24
MOP’s dispense larger prescriptions
Illegal drug importation
Supercenters dominate grocery sales
0.30
Wal-Mart logistics technology
Labor >50% of operating expenses
Labor strikes
1.04
1.38
Opportunities
Threats
7-Apr-08
® 2008, Tony Gauvin, UMFK

38. QSPM 7-Apr-08 ® 2008, Tony Gauvin, UMFK 2.30 1.65 0.25 0.60
Quality asset base
0.05
---
Leading market shares
0.10 4
0.40 3
0.30
In large and growing markets
Geographic diversity
0.20
0.15
Multiple retail formats 2
Consumer database
Dunnhumby partnership
Competitive with supercenters
Outstanding private-label products 1
Financial strength
2.30
1.65
Too many banners
0.1
Too much leased property
Unionized workforce
Many low-revenue jewelry stores
No dividends in nearly 20 years
0.25
0.60
Sum Total Attractiveness Score
4.91
4.04
Strenghts
Weaknesses
7-Apr-08
® 2008, Tony Gauvin, UMFK

39. Copyright 2007 Prentice Hall
QSPM
Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
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40. Copyright 2007 Prentice Hall
QSPM
Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision making process
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41. Copyright 2007 Prentice Hall
Cultural Aspects of Strategy Choice
Organization Culture
Successful strategies depend on the degree of consistency with the firm’s culture
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42. Copyright 2007 Prentice Hall
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
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43. Successful Strategists :
Were found to let weakly supported ideas and proposals die through inaction and to establish additional hurdles or tests for strongly supported ideas considered unacceptable but not openly opposed.
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44. Copyright 2007 Prentice Hall
Politics of Strategy Choice
Political tactics for strategists
Equifinality
Same outcomes by different means
Satisfying
Good results with acceptable strategy is better than excellent results with an unpopular strategy
Generalization
Less detail
Higher-order issues
Take care of the big stuff first
Political access on important issues for Middle Managers
Agency and political avenues for redress
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45. Copyright 2007 Prentice Hall
Governance Issues
Board of Directors (advisors) Roles & Responsibilities
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
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46. Corporate Governance Issues
Business Week’s “Principles of Good Governance”
No more than 2 directors are current or former company
executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up of outside directors
4. Each director owns a large equity stake in the company
5. At least one outside director with extensive experience
6. Fully employed directors sit on no more than 4 boards –
Retirees on no more than 7
7. Each director attends at lest 75% of all meetings
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47. Corporate Governance Issues
Business Week’s “principles of good governance”
8. Board meets regularly without management present
9. Audit committee meets at least four times a year
10. Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises
11. CEO is not also the Chairperson of the Board
12. Shareholders have considerable power and information to choose & replace directors
13. Stock options are considered a corporate expense
14. No interlocking directorships
Copyright 2007 Prentice Hall

48. Corporate Governance Issues
Business Week’s “principles of good governance”
8. Board meets regularly without management present
9. Audit committee meets at least four times a year
10. Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises
11. CEO is not also the Chairperson of the Board
12. Shareholders have considerable power and information to choose & replace directors
13. Stock options are considered a corporate expense
14. No interlocking directorships
Copyright 2007 Prentice Hall

49. 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.
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall