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Ch 6 -1
Chapter 6
Strategy Analysis & Choice


Strategic Management:
Concepts & Cases
13
th
Edition
Fred David



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Ch 6 -2
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Ch 6 -3
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
Strategy Analysis & Choice
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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
Comprehensive Strategy-
Formulation Framework
Stage 1 - Input Stage
EFE Matrix
IFE matrix
CPM
Stage 2 - Matching Stage
SWOT
SPACE matrix
BCG matrix
IE Matrix
Grand strategy matrix
Stage 3 - Decision Stage
QSPM

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Ch 6 -6
Comprehensive Strategy-
Formulation 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 -7
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 -8
Strategy-Formulation Framework
External Factor Evaluation
Matrix (EFE)
Internal Factor Evaluation
Matrix (IFE)
Competitive Profile Matrix
(CPM)
Stage 1:
The Input Stage
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Ch 6 -9
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 -10
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Ch 6 -11
Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
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Ch 6 -12
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
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Ch 6 -13
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 -14
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Ch 6 -15
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 -16
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 -17
SPACE Matrix
Internal dimensions
Financial position (FP)
Competitive position (CP)

External dimensions
Environmental position (EP)
Industry position (IP)
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Ch 6 -18
Steps to Developing a SPACE Matrix
1. Select a set of variables to define FS, CA,
ES, and IS.
2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS,
CA, ES, and IS.

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Ch 6 -19
Steps to Developing a SPACE Matrix
4. Plot the average score on the appropriate
axis.
5. 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.
6. 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 -20
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Ch 6 -21
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Ch 6 -22
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 -23
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 -24
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 -25
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Ch 6 -26
BCG Matrix

Question Marks low relative market share
in a high-growth industry
Stars high relative market share in a high-
growth 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 -27
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Ch 6 -28
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 -29
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Ch 6 -30
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 -31
Strategy-Formulation Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Ch 6 -32
Grand Strategy Matrix
Tool for formulating alternative
strategies
Based on two dimensions
Competitive position
Market growth
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Ch 6 -33
Quadrant IV
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Quadrant III
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation

Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
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Ch 6 -34
Strategy-Formulation Analytical
Framework
Stage 3:
The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)
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Ch 6 -35
QSPM
Technique designed to determine
the relative attractiveness of feasible
alternative actions
Quantitative Strategic Planning Matrix
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Ch 6 -36
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 -37
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 -38
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives
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Ch 6 -39
Steps to Develop a QSPM
1. Make a list of the firms key external
opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor
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Ch 6 -40
Steps to Develop a QSPM
3. Examine the Stage 2 (matching) matrices,
and identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness
Score