Chapter 6

Strategy Analysis & Choice

Ch 6 -1
Strategy Analysis & Choice

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives

Ch 6 -2
Comprehensive Strategy-Formulation
Framework

Stage 1:
The Input Stage

Stage 2: Stage 3:
The Matching Stage The Decision Stage

Ch 6 -3
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile Matrix

(CPM)

Ch 6 -4
Strategy-Formulation Analytical
Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6 -5
SWOT Matrix

Four Types of Strategies

Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

Ch 6 -6
SO Strategies

Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT

Ch 6 -7
WO Strategies

Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT

Ch 6 -8
ST Strategies

Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats ST reduce the impact
Strategies of external
threats
SWOT

Ch 6 -9
WT Strategies

Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT

Ch 6 -10
SWOT Matrix
Leave Blank Strengths – S Weaknesses – W

List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses by
List Opportunities advantage of taking advantage of
opportunities opportunities

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and
List Threats threats avoid threats

Ch 6 -11
 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in

Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)

Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form the = by buying competitor's
(weakness)
industry (opportunity) facilities

Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults

Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package

Ch 6 -12
 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business

Ch 6 -13
 SPACE Factors
Internal Strategic Position
Competitive Advantage CA
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers & distributors
External Strategic Position
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity utilization
Ch 6 -14
 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3

-4
-5
Defensive Competitive
-6
ES Ch 6 -15
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
a S yrt s udnI

Low
-20
Ch 6 -16
 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch 6 -17
Strategy-Formulation Analytical
Framework

Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)

Ch 6 -18
 QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems

Ch 6 -19
Corporate Governance Issues

Business Week’s “principles of good governance”

1. No more than 2 directors 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 attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships

Ch 6 -20