Chapter 6

Strategy Analysis & Choice

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Ch 6 -1

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Ch 6 -2

Strategy Analysis & Choice

Subjective decisions based on objective

information
Generating alternative strategies
Selecting strategies to pursue
Best alternative course of action to achieve
mission & objectives
Derived from vision, mission, objectives,
external audit, and internal audit
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Ch 6 -3

Strategy Analysis & Choice

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

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Ch 6 -4

Comprehensive StrategyFormulation Framework

Stage 1 - Input Stage

Stage 2 - Matching Stage

EFE Matrix
IFE matrix
CPM
SWOT
SPACE matrix
BCG matrix
IE Matrix
Grand strategy matrix

Stage 3 - Decision Stage

QSPM
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Ch 6 -5

Comprehensive StrategyFormulation Framework

As shown in the previous PowerPoint,

strategy formulation techniques can be
integrated into a three-stage decision-making
framework. The tools presented in this
framework are applicable to all sizes and
types of organizations and can help
strategists identify, evaluate, and select
strategies
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Ch 6 -6

The Strategy-Formulation Analytical

Framework

Stage 1 (Input Stage) summarizes the basic

input information needed to formulate
strategies.
Stage 2 (Matching Stage) focuses on
generating feasible alternative strategies by
aligning key external and internal factors.
Stage 3 (Decision Stage) uses the QSPM to
objectively evaluate feasible alternative
strategies identified in Stage 2.
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Ch 6 -7

Strategy-Formulation Framework
External Factor Evaluation
Matrix (EFE)

Stage 1:
The Input Stage

Internal Factor Evaluation

Matrix (IFE)

Competitive Profile Matrix

(CPM)

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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

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2:
The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Ch 6 -10

Stage 2: The Matching Stage

SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats

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Ch 6 -11

SWOT Matrix
Four Types of Strategies
Strengths-Opportunities

(SO)

Weaknesses-Opportunities
Strengths-Threats

(WO)

(ST)

Weaknesses-Threats

(WT)

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Ch 6 -12

SWOT Matrix

SO strategies use a firms internal strengths

to take advantage of external opportunities
WO strategies improve internal weaknesses
by taking advantage of external opportunities
ST strategies use a firms strengths to avoid
or reduce the impact of external threats
WT strategies defensive tactics aimed at
reducing internal weakness and avoiding
external threats
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Ch 6 -13

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2:
The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Ch 6 -14

Strategic Position and Action

Evaluation (SPACE) Matrix

The SPACE matrixs four-quadrant

framework indicates whether aggressive,
conservative, defensive, or competitive
strategies are most appropriate for a given
organization. Its axes represent two internal
dimensions (financial strength [FS] and
competitive advantage [CA]) and two external
dimensions (environmental stability [ES] and
industry strength [IS]).
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Ch 6 -15

SPACE Matrix

Depending upon the type of organization,

numerous variables could make up each of
the dimensions represented on the axes of
the SPACE matrix. Variables that were
included in the firms EFE and IFE matrices
should be considered in developing a SPACE
matrix.

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Ch 6 -16

SPACE Matrix

Internal dimensions

Financial position (FP)

Competitive position (CP)

External dimensions

Environmental position (EP)

Industry position (IP)
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Ch 6 -17

Steps to Developing a SPACE Matrix

Select a set of variables to define FS, CA,
ES, and IS.
Assign a numerical value:

1.

2.
1.
2.

3.

From +1 to +6 to each FS & IS dimension

From -1 to -6 to each ES & CA dimension

Compute an average score for each FS,

CA, ES, and IS.

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Ch 6 -18

Steps to Developing a SPACE Matrix

4.

5.

6.

Plot the average score on the appropriate

axis.
Add the two scores on the x-axis and plot
the point. Add the two scores on the y-axis
and plot the point. Plot the intersection of the
new xy point.
Draw a directional vector from the origin
through the new intersection point. This
vector reveals the type of strategies
recommended for the organization.
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Ch 6 -19

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Ch 6 -20

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2:
The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Ch 6 -21

BCG Matrix

The BCG matrix helps multi-divisional firms

formulate strategies. It graphically portrays
differences among divisions in terms of
relative market share position and industry
growth rate. Relative market share position is
defined as the ratio of a divisions own market
share (or revenues) in a particular industry to
the market share (or revenues) held by the
largest rival firm in that industry.
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Ch 6 -22

BCG Matrix

Relative market share position is given on the

x-axis. The mid-point on the x-axis usually is
set at .50, corresponding to a division that
has half the market share of the leading firm
in the industry. The y-axis represents the
industry growth rate in sales, measured in
percentage terms. The growth rate
percentages on the y-axis could range from
-20 to +20%, with 0.0 being the mid-point.
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Ch 6 -23

BCG Matrix

An example of a BCG matrix appears in the next

Power Point. Each circle represents a separate
division. The size of the circle corresponds to the
proportion of corporate revenue generated by that
business unit, and the pie slice indicates the
proportion of corporate profits generated by that
division. Divisions located in Quadrant I are called
Question Marks; Quadrant II, Stars; Quadrant III,
Cash Cows; and Quadrant IV, Dogs.

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Ch 6 -24

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Ch 6 -25

BCG Matrix

Question Marks low relative market share

in a high-growth industry
Stars high relative market share in a highgrowth industry
Cash Cows high relative market share in a
low-growth industry
Dogs Low relative market share in a slow or
no growth industry
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Ch 6 -26

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2:
The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Ch 6 -27

The Internal-External Matrix

Positions an organizations 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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Ch 6 -28

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Ch 6 -29

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

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Ch 6 -30

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2:
The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Ch 6 -31

Grand Strategy Matrix

Tool for formulating alternative

strategies

Based on two dimensions

Competitive position

Market growth
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Ch 6 -32

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
Related diversification
Unrelated diversification
Divestiture
Liquidation

1.
2.
3.

Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Related diversification
Quadrant IV
Related diversification
Unrelated diversification
Joint ventures

STRONG
COMPETITIVE
POSITION

SLOW MARKET GROWTH

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Ch 6 -33

Strategy-Formulation Analytical
Framework

Stage 3:
The Decision Stage

Quantitative Strategic
Planning Matrix
(QSPM)

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Ch 6 -34

QSPM
Quantitative Strategic Planning Matrix

Technique

designed to determine
the relative attractiveness of feasible
alternative actions

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Ch 6 -35

Quantitative Strategic Planning

Matrix (QSPM)

The QSPM is an analytical technique designed to determine the

relative attractiveness of feasible alternative strategies.
Information from each of the matrices in Stages 1 and 2 is used
to construct the QSPM.
The left column of a QSPM consists of key external and internal
factors (from Stage 1), and the top row consists of feasible
alternative strategies (from Stage 2). Specifically, the left column
consists of information obtained directly from the EFE matrix and
the IFE matrix. In the column to the right of the key factors, the
respective weights received by each factor in the EFE matrix and
IFE matrix are recorded.

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Ch 6 -36

Quantitative Strategic Planning Matrix

(QSPM)

The top row of a QSPM consists of alternative

strategies derived from each matrix in Stage 2.
These matching techniques usually generate
similar feasible alternatives. However, not every
strategy suggested by the matching techniques
has to be evaluated in a QSPM. Strategists
should use good intuitive judgment in selecting
strategies to include in a QSPM.
The basic format of the QSPM is illustrated in
the following Power Point.
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Ch 6 -37

Strategic Alternatives

QSPM
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive

Weight

Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
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Ch 6 -38

Steps to Develop a QSPM

1.

2.

Make a list of the firms key external

opportunities/threats and internal
strengths/weaknesses in the left column
Assign weights to each key external and
internal factor

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Ch 6 -39

Steps to Develop a QSPM

3.

4.
5.
6.

Examine the Stage 2 (matching) matrices,

and identify alternative strategies that the
organization should consider implementing
Determine the Attractiveness Scores
Compute the Total Attractiveness Scores
Compute the Sum Total Attractiveness
Score

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Ch 6 -40