Strategy
Generation and
Selection
Chapter Eight
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Learning Objectives
1. Describe the strategy analysis and choice process.
2. Diagram and explain the three-stage strategy-
formulation analytical framework.
3. Diagram and explain the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix.
4. Diagram and explain the Strategic Position and
Action Evaluation (SPACE) Matrix.
5. Diagram and explain the Boston Consulting Group
(BCG) Matrix.
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Learning Objectives (cont.)
6. Diagram and explain the Internal-External (IE) Matrix.
7. Diagram and explain the Grand Matrix.
8. Diagram and explain the Quantitative Strategic
Planning Matrix (QSPM).
9. Discuss the role of organizational culture in strategic
analysis and choice.
10. Identify and discuss important political
considerations in strategy analysis and choice.
11. Discuss the role of a board of directors (governance)
in strategic planning.
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A Comprehensive Strategic-
Management Model
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The Process of Generating and
Selecting Strategies
❖A manageable set of the most attractive
alternative strategies must be developed.
❖The advantages, disadvantages, trade-
offs, costs, and benefits of these strategies
should be determined.
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The Process of Generating and
Selecting Strategies
❖Identifying and evaluating alternative
strategies should involve many of the
managers and employees who earlier
assembled the organizational vision and
mission statements, performed the
external audit, and conducted the internal
audit.
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The Process of Generating and
Selecting Strategies
❖Alternative strategies proposed by
participants should be considered and
discussed in a series of meetings.
❖Proposed strategies should be listed in
writing.
❖When all feasible strategies identified by
participants are given and understood, the
strategies should be ranked in order of
attractiveness.
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The Strategy-Formulation Analytical
Framework
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A Comprehensive Strategy-Formulation
Framework
❖Stage 1 - Input Stage
❖summarizes the basic input information
needed to formulate strategies
❖consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM)
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A Comprehensive Strategy-Formulation
Framework
❖Stage 2 - Matching Stage
❖focuses on generating feasible alternative
strategies by aligning key external and internal
factors
❖techniques include the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix, the
Strategic Position and Action Evaluation
(SPACE) Matrix, the Boston Consulting Group
(BCG) Matrix, the Internal-External (IE) Matrix,
and the Grand Strategy Matrix
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A Comprehensive Strategy-Formulation
Framework
❖Stage 3 - Decision Stage
❖involves the Quantitative Strategic Planning
Matrix (QSPM)
❖reveals the relative attractiveness of
alternative strategies and thus provides
objective basis for selecting specific strategies
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Matching Key External and Internal Factors
to Formulate Alternative Strategies
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The Matching Stage
❖The Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix
helps managers develop four types of
strategies:
❖SO (strengths-opportunities) Strategies
❖WO (weaknesses-opportunities) Strategies
❖ST (strengths-threats) Strategies
❖WT (weaknesses-threats) Strategies
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The Matching Stage
❖ SO Strategies ❖ WO Strategies
❖ use a firm's internal ❖ aim at improving
strengths to take internal weaknesses
advantage of external by taking advantage of
opportunities external opportunities
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The Matching Stage
❖ ST Strategies ❖ WT Strategies
❖ use a firm's strengths ❖ defensive tactics
to avoid or reduce the directed at reducing
impact of external internal weakness and
threats avoiding external
threats
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The SPACE Matrix
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The SPACE Matrix
❖Strategic Position and Action
Evaluation (SPACE) Matrix
❖four-quadrant framework indicates whether
aggressive, conservative, defensive, or
competitive strategies are most appropriate
for a given organization
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The SPACE Matrix
❖Two internal dimensions (financial position
[FP] and competitive position [CP])
❖Two external dimensions (stability position
[SP] and industry position [IP])
❖Most important determinants of an
organization's overall strategic position
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SPACE Matrix Axes
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Steps to Develop a SPACE Matrix
1. Select a set of variables to define
financial position (FP), competitive position
(CP), stability position (SP), and industry
position (IP).
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Steps to Develop a SPACE Matrix
2. Assign a numerical value ranging from +1
(worst) to +7 (best) to each of the
variables that make up the FP and IP
dimensions.
Assign a numerical value ranging from –1
(best) to –7 (worst) to each of the
variables that make up the SP and CP
dimensions.
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Steps to Develop a SPACE Matrix
3. Compute an average score for FP, CP, IP,
and SP.
4. Plot the average scores for FP, IP, SP, and
CP on the appropriate axis.
5. Add the two scores on the x-axis and plot
the resultant point on X. Add the two scores
on the y-axis and plot the resultant point on
Y. Plot the intersection of the new xy point.
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Steps to Develop a SPACE Matrix
6. Draw a directional vector from the origin
of the SPACE Matrix through the new
intersection point.
► This vector reveals the type of strategies
recommended for the organization:
aggressive, competitive, defensive, or
conservative
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Critical Success Factors Critical Success Factors
Reliance on Disposable
Return on Total Assets (ROA) 7 3
Income
Earnings per Share 2 Financial Stability 6
Customer Loyalty -2 Brand Recognition -1
Barriers to Entry into Market -2 Net Worth 7
Threat of Movie Piracy -3 Market Share -3
Product Quality -2 Technological Changes -3
Rising Fuel Prices -5 Ease of Entry into Market 6
Return on Equity (ROE) 6 Current Ratio 6
Growth Potential Threat of Substitute
5 Products 2
Technological know-how -2 Competitive Pressure -7
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Example Strategy Profiles
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Example Strategy Profiles
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The Boston Consulting Group (BCG)
Matrix
❖BCG Matrix
❖graphically portrays differences among
divisions in terms of relative market share
position and industry growth rate
❖allows a multidivisional organization to
manage its portfolio of businesses by
examining the relative market share position
and the industry growth rate of each division
relative to all other divisions in the
organization
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The BCG Matrix
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Division Sales (%) Profit (%) Relative Market Industry
Share Growth
Rate
(1) 37% 39% 0.8 15%
(2) 24% 20% 0.4 10%
(3) 24% 8% 0.10 1%
(4) 12% 31% 0.60 -20 %
(5) 3% 2% o.05 -10 %
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The BCG Matrix
❖Question Marks – Quadrant I
❖Organization must decide whether to
strengthen them by pursuing an intensive
strategy (market penetration, market
development, or product development) or to
sell them
❖Stars – Quadrant II
❖represent the organization’s best long-run
opportunities for growth and profitability
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The BCG Matrix
❖Cash Cows – Quadrant III
❖generate cash in excess of their needs
❖should be managed to maintain their strong
position for as long as possible
❖Dogs – Quadrant IV
❖compete in a slow- or no-market-growth
industry
❖businesses are often liquidated, divested, or
trimmed down through retrenchment
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The BCG Matrix
❖The major benefit of the BCG Matrix is
that it draws attention to the cash flow,
investment characteristics, and needs of
an organization's various divisions.
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