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- strategic position

and action evaluation

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
TOWS Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses

List Opportunities advantage of by 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
 TOWS Matrix
Strengths – S Weaknesses – W
1.FINANCIALCAPABILITY 1.WEAK SALES TEAM
2.PRODUCTION CAPACITY 2.OLD INFRASTRUCTURE

3.STRONG R&d 3.OLD MACHINARY

Leave Blank 4.GOOD IMAGE 4.LOCATION

5.MARKETING CAPABILITY

Opportunities – O SO Strategies WO Strategies

1.INCREASE IN MARKET DEMAND
2.CHANGE IN TASTE

3.A BIG COMPETITOR IS LEAVING

4.GOVT RULES AND REGULATIONS ARE IN

FAVOR

Threats – T ST Strategies WT \Strategies

1. Two new competitors are joining
2. New product is being launched by one of our
competitor
3. Economy downfall due to coronoavirus

Ch 6 -13
 TOWS Matrix- Female Bike
Strengths – S Weaknesses – W
1.Financial Stability 1.New Business

2.Production capability 2.Less trained workers

Leave Blank 3.R&D 3.Outdated Technology

4.Strong Marketing
Team

Opportunities – O SO Strategies WO Strategies

1.Govt Support

2.Rising Demand

3.Changing Trend

4.Installment Plan

Threats – T ST Strategies WT \Strategies

1.Less purchasing power

of customers
2.Moral issues

3.Competitors are coming Ch 6 -14

in the field
Ch 6 -15
 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 -16
 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization

Ch 6 -17
 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 -18
 Conservative Aggressive
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Concentric diversification 4. Forward integration
5. Backward integration
6. Horizontal integration
7. Diversification strategies

Defensive Competitive
1. Retrenchment 1. Backward, forward and
2. divestiture horizontal integration
3. Liquidation 2. Market penetration
4. Concentric diversification 3. Product and market
development
4. Joint ventures

Ch 6 -19
Ch 6 -20
Ch 6 -21
Practice

-2 5
-1 6
-3 2
-1 3

4 -3
4 -4
3 -2
4 -3

Ch 6 -22
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Industry Sales Growth Rate

Stars Question Marks

II I
Medium
0

Cash Cows Dogs

III IV
Low
-20
Ch 6 -23
 RAPID MARKET GROWTH

1. Question Marks: market penetration,

market and product development and/or
to sell the business
2. Stars: forward integration, horizontal
integration , market penetration, product
and market development and/or joint
venture
3. Cash Cows: product development,
concentric diversification
4. Dogs: liquidate, divested, retrenchment
The Internal-External (IE) Matrix
Grow and Build: market penetration, market and product
development and backward, forward and horizontal integration

Hold and Maintain: Market penetration, and product

development

Harvest or divest: defensive strategies

Ch 6 -25
Ch 6 -26
 Grand Strategy Matrix
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 -27
Strategy-Formulation Analytical
Framework

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

Ch 6 -28
QSPM

 is a high-level strategic management

approach for evaluating possible strategies.
 it provides an analytical method for
comparing feasible alternative actions.
 The QSPM method fall in stage 3 in
analytical framework.

Ch 6 -29
 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 -30
Ch 6 -31
Ch 6 -32