Chapter 6

Strategy Analysis & Choice

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Ch 6 -1

Strategy Analysis & Choice

Whether its broke or not, fix it make it
better. Not just products, but the whole
company if necessary.
Bill Saporito
Life is full of lousy options.
General P.X. Kelley

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Ch 6 -2

Strategy Analysis & Choice

Alternative Strategies Derive From

Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies

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Ch 6 -3

Natural Environment Perspective

What Is a Sustainability Report?

Sustainability (corporate social-responsibility) reports

disclose policies to shareholders
Global Reporting Initiative has issued a set of detailed
reporting guidelines
Wal-Mart and Kohls installing
solar panels
Home Depot doubled
offerings of environmentally
friendly products

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Ch 6 -4

Strategy Analysis & Choice

Generating Alternatives
Participation in generating alternative
strategies should be as broad as
possible

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Ch 6 -5

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

Stage 1:
The Input Stage

External Factor Evaluation

Matrix (EFE)

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Ch 6 -6

Stage 1: The Input Stage

Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed

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Ch 6 -7

Strategy-Formulation Analytical
Framework

Stage 2:
The Matching Stage

SWOT Matrix

BCG Matrix

Grand Strategy Matrix

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Ch 6 -8

Stage 2: The Matching Stage

Match between organizations internal

resources & skills and the opportunities & risks
created by its external factors

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Ch 6 -9

Stage 2: The Matching Stage

SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats

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Ch 6 -10

SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)

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Ch 6 -11

SO Strategies

Strengths
Weaknesses
Opportunities
Threats
SWOT

SO
Strategies

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Use a firms
internal strengths
to take advantage
of external
opportunities

Ch 6 -12

WO Strategies

Strengths
Weaknesses
Opportunities
Threats
SWOT

WO
Strategies

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Improving internal
weaknesses by
taking advantage
of external
opportunities

Ch 6 -13

ST Strategies

Strengths
Weaknesses
Opportunities
Threats
SWOT

ST
Strategies

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Use a firms
strengths
to avoid or
reduce the impact
of external
threats

Ch 6 -14

WT Strategies

Strengths
Weaknesses
Opportunities
Threats
SWOT

WT
Strategies

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Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
environmental
threats

Ch 6 -15

SWOT Matrix
Developing the SWOT
List firms key internal

Strengths

List firms key internal

Weaknesses

List firms key external

Opportunities

List firms key external

Threats

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Ch 6 -16

SWOT Matrix
Strengths S

Weaknesses W

List Strengths

List Weaknesses

Opportunities O

SO Strategies

WO Strategies

List Opportunities

Use strengths to take

advantage of
opportunities

Overcoming weaknesses
by taking advantage of
opportunities

Threats T

ST Strategies

WT Strategies

List Threats

Use strengths to avoid

threats

Minimize weaknesses and

avoid threats

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Ch 6 -17

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

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Ch 6 -18

BCG Matrix
Boston Consulting Group Matrix
Enhances multidivisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate

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Ch 6 -19

BCG Matrix
Relative Market Share Position
Ratio of a divisions own market share in an
industry to the market share held by the largest
rival firm in that industry

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Ch 6 -20

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Ch 6 -21

BCG Matrix
Question Marks
Low relative market share, competes in highgrowth industry
Cash needs are high

Cash generation is low

Decision to strengthen (intensive strategies) or

divest

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Ch 6 -22

BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability

Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures

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Ch 6 -23

BCG Matrix
Cash Cows
High relative market share, competes in lowgrowth industry
Generate cash in excess of their needs

Milked for other purposes

Maintain strong position as long as possible

Product development, concentric diversification

If weakens retrenchment or divestiture

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Ch 6 -24

BCG Matrix
Dogs
Low relative market share, competes in slow or
no market growth
Weak internal & external position

Liquidation, divestiture, retrenchment

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Ch 6 -25

Grand Strategy Matrix

Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth

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Ch 6 -26

RAPID MARKET GROWTH

1.
2.

3.
4.
5.
6.

WEAK
COMPETITIVE
POSITION
1.
2.
3.
4.
5.

Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation

1.
2.

3.
4.
5.
6.
7.

Quadrant III
Retrenchment
1.
Concentric diversification
2.
Horizontal diversification
3.
Conglomerate
diversification
4.
Liquidation
SLOW MARKET

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Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
Quadrant IV
Concentric diversification
Horizontal diversification
Conglomerate
diversification
Joint ventures

STRONG
COMPETITIVE
POSITION

GROWTH
Ch 6 -27

Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary

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Ch 6 -28

Grand Strategy Matrix

Quadrant II

Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive
strategy

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Ch 6 -29

Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)

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Ch 6 -30

Grand Strategy Matrix

Quadrant IV

Strong competitive position

Slow-growth industry
Diversification to more promising growth areas

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Ch 6 -31