strategic management concepts &cases 11th edition by fred r. david chap 6

1

Strategy Analysis and Choice

2

Comprehensive Strategic Management Model

Vision &

MissionStatements

Chapter 2

ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Strategies In

Action

Chapter 5

Strategy Analysis

&Choice

Chapter 6

ImplementStrategies:

Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &Evaluate

Performance

Chapter 9

3

Strategy Analysis & Choice

“Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. But quantification alone is not planning. Some of the most important issues in strategic management cannot be quantified at all.”

—Peter Drucker—

4


Strategic Analysis and Choice:

• Generate feasible alternatives• Evaluate alternatives• Select specific course of action

5


Generating & Selecting Strategies

Develop set of most attractive alternative strategiesDetermine for the set• Advantages• Disadvantages• Trade-offs• Costs• Benefits

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Involve a broad mix of personnelRepresentation from each department/functionProvides opportunity to gain understanding of firm’s directionProvides vehicle to develop commitment to attainment of organizational objectives

7



Evaluate each alternativeInternal and external audit informationFirm’s mission statementListed in writingRanked in order of attractiveness

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Strategy-Formulation Analytical Framework

Stage 1: The Input StageStage 1: The Input Stage

Stage 2: The Matching StageStage 2: The Matching Stage

Stage 3: The Decision StageStage 3: The Decision Stage

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Stage 1: The Input StageStage 1: The Input Stage

ExternalFactor

EvaluationMatrix (EFE)

CompetitiveProfileMatrix

InternalFactor

EvaluationMatrix (IFE)

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Stage 2: The Matching StageStage 2: The Matching Stage

ThreatsOpportunitiesWeaknessesStrengths(TOWS)

StrategicPosition &

Action Evaluation(SPACE)

BostonConsulting

Group Matrix(BCG)

Internal-ExternalMatrix(IE)

GrandStrategyMatrix

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Stage 3: The Decision StageStage 3: The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)

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Stage 1: The Input Stage

Provides Basic Input for Stages 2 and 3External Factor Evaluation Matrix (EFE)Internal Factor Evaluation Matrix (IFE)Competitive Profile Matrix

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Stage 2: The Matching Stage

Strategy is characterized by the organizational match between

• Internal resources and skills• Opportunities & risks created by external

factors

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The TOWS Matrix

List the firm’s key external opportunitiesList the firm’s key external threatsList the firm’s key internal strengthsList the firm’s key internal weaknesses

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The TOWS Matrix

Match internal strengths with external opportunities and record the resultant SO StrategiesMatch internal weaknesses with external opportunities and record the resultant WO StrategiesMatch internal strengths with external threats and record the resultant ST StrategiesMatch internal weaknesses with external threats and record the resultant WT Strategies

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TOWS Matrix

WT Strategies

Minimize weaknesses and avoid threats

ST Strategies

Use strengths to avoid threats

Threats-T

List Threats

WO Strategies

Overcome weaknesses by taking advantage of

opportunities

SO Strategies

Use strengths to take advantage of opportunities

Opportunities-O

List Opportunities

Weaknesses-W

List Weaknesses

Strengths-S

List Strengths

Leave Blank

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Boston Consulting Group Matrix(BCG)

Enhances multidivisional firms’ efforts to formulate strategies Autonomous divisions (or profit centers) constitute the business portfolioFirm’s divisions may compete in different industries requiring separate strategy

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Graphically portrays differences among divisions Focuses on market share position and industry growth rateManage business portfolio through relative market share position and industry growth rate

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Relative market share position defined:

Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.

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BCG Matrix

DogsDogsIVIV

Cash CowsCash CowsIIIIII

Question MarksQuestion MarksII

StarsStarsIIII

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Indu

stry

Sal

es G

row

th R

ate

High+20

Low-20

Medium0

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BCG Matrix

Question Marks StarsCash CowsDogs

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BCG Matrix

Question Marks Low relative market share position yet compete in high-growth industry.

Cash needs are highCase generation is low

Decision to strengthen (intensive strategies) or divest

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BCG MatrixStars

High relative market share and high industry growth rate.

Best long-run opportunities for growth and profitability

Substantial investment to maintain or strengthen dominant position

Integration strategies, intensive strategies, joint ventures

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BCG MatrixCash Cows

High relative market share position, but compete in low-growth industry

Generate cash in excess of their needsMilked for other purposes

Maintain strong position as long as possible

Product development, concentric diversificationIf becomes weak—retrenchment or divestiture

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BCG Matrix

DogsLow relative market share position and compete in slow or no market growth situation.

Weak internal and external position

Decision to liquidate, divest, retrenchment

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Strategy Analysis & ChoiceGrand Strategy Matrix

Popular tool for formulating alternative strategiesBased on two evaluative dimensions

Competitive positionMarket growth

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Grand Strategy Matrix

Quadrant IV• Concentric diversification• Horizontal diversification• Conglomerate

diversification• Joint ventures

Quadrant III• Retrenchment• Concentric diversification• Horizontal diversification• Conglomerate

diversification• Liquidation

Quadrant I• Market development• Market penetration• Product development• Forward integration• Backward integration• Horizontal integration• Concentric diversification

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

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION

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Quadrant IExcellent strategic positionConcentration on current markets and productsTake risks aggressively when necessary

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Quadrant IIEvaluate present approach seriouslyHow to change to improve competitivenessRapid market growth requires intensive strategy

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Quadrant IIICompete in slow-growth industriesWeak competitive positionDrastic changes quicklyCost and asset reduction indicated (retrenchment)

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Quadrant IVStrong competitive positionSlow-growth industryDiversification indicated to more promising growth areas

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Quantitative Strategic Planning Matrix (QSPM)

Comprises Stage 3 of the analytical frameworkAnalytical technique designed to determine the relative attractiveness of feasible alternative actions.Uses input from Stage 1 and Stage 2

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Quantitative Strategic Planning Matrix (QSPM)

Tool for objective evaluation of alternative strategiesBased on identified external and internal crucial success factorsRequires good intuitive judgment

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QSPM Strategic Alternatives

Key Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information Systems

Strategy 3Strategy 2Strategy 1WeightKey External FactorsEconomyPolitical/Legal/GovernmentalSocial/Cultural/Demographic/EnvironmentalTechnologicalCompetitive

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QSPM

List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknessesAssign weights to each external and internal critical success factor

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QSPM

Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementingDetermine the Attractiveness Scores (AS)

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QSPM

Compute the total Attractiveness ScoresCompute the Sum Total Attractiveness Score

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QSPMPositives:

Sets of strategies examined simultaneously or sequentiallyRequires the integration of pertinent external and internal factors in the decision-making process

39


QSPMLimitations:

Requires intuitive judgments and educated assumptionsOnly as good as the prerequisite inputs

strategic management concepts &cases 11th edition by fred r. david chap 6

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