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Chapter 6Strategy Analysis and Choice

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Why Are Clear Objectives Needed?Why Are Clear Objectives Needed?

To Provide Direction To Provide Purpose

To Allow Synergy To Aid in Evaluations

To Establish Priorities To Reduce Uncertainty

To Minimize Conflicts To Stimulate Exertion

To Allocate Resources To Design Jobs

To Motivate Managers & Employees

©1999 Prentice Hall

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Strategy-formulation Framework• Stage 1: The input stage

– External factor evaluation matrix (EFE)– Competitive profile matrix (CPM)– Internal factor evaluation matrix (IFE)

• Stage 2: The matching stage– Strengths, weaknesses, opportunities and threats matrix (SWOT)– Strategic position and action evaluation matrix (SPACE)– Boston consulting group matrix (BCG)– Internal-external matrix (IE)– Grand strategy matrix (GS)

• Stage 3: The decision stage– Quantitative strategic planning matrix (QSPM)

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The TOWS Matrix (Figure 6-3)

List strengths List weaknesses

STRENGTHS - S WEAKNESSES - W

OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES

THREATS - T ST STRATEGIES WT STRATEGIES

List opportunitiesUse strengths to take

advantage of opportunities

Overcome weaknesses by taking advantage

of opportunities

List threats Use strengths to avoid threats

Minimize weaknesses and avoid threats

©1999 Prentice Hall

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Boston Consulting Group Matrix

• 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.– Relative market share position - ratio of a

division’s own market share to the market share held by the largest rival.

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The BCG MatrixThe BCG Matrix

Relative Market Share Position in the Industry

Industry Sales Growth Rate (Percent)

High +20

Medium 0

Low -20

High Medium Low

1.0 .50 0.0

Question Marks (I)

Dogs (IV)

Stars (II)

Cash Cows (III)

?

©1999 Prentice Hall

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The BCG Matrix and Strategic Direction

• Question marks - strengthen them via market penetration, market development or product development, or sell them.

• Stars - forward, backward and horizontal integration; market penetration; market development; product development; or joint venture.

• Cash cows - for strong ones product development or concentric diversification; for weak ones, retrenchment or divestiture.

• Dogs - liquidate, divest or retrench.

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The Internal-external Matrix

and Strategic Direction • Positions an organization’s various divisions in a nine-

cell display based on SWOT analysis weighted scores (from EFE and IFE matrices).

• Grow and build (divisions in cells 1, 2 or 4): market penetration, market development, product development or backward, forward and horizontal integration.

• Hold and maintain (divisions in cells 3, 5, 7): market penetration or product development.

• Harvest or divest (divisions in cells 6, 8, 9): divest, liquidate, or retrench.

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The Grand Strategy Matrix

• Organizations or divisions are positioned into one of four quadrants based on market growth and competitive position.

• Each quadrant suggests alternative strategies.

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The Decision Stage:The Quantitative Strategic Planning Matrix

• Use input from stages 1 and 2.• Not all strategies generated in stage 2 need to be included.• Must assign an “attractiveness score” for each strategy by

examining external and internal (SWOT) critical success factors and asking “Does this factor affect the choice of strategies being made?” If yes, then the strategies should be compared relative to that key factor and assign a score of 1 (not attractive) to 4 (highly attractive) to each factor.

• Calculate “total attractiveness scores” by multiplying weights by “attractiveness scores”.