Basic input information for the matching and

CHAPTER 6 - Strategy Analysis and Choice decision stage matrices is provided by the
True/False information derived from SPACE, TOWS and
BCG matrices.
The Nature of Strategy Analysis and Choice Ans: F Page: 198

An organization’s present strategies, objectives Strategists themselves, not analytical tools, are
and mission provide a basis for generating and always responsible and accountable for strategic
evaluating feasible alternative strategies, decisions.
coupled with the external and internal audit Ans: T Page: 199
information.
Ans: T Page: 196-197 The divisions of an organization should utilize
strategy-formulation analytical tools to develop
Strategic analysis and choice largely involves their own strategies and objectives.
making objective decisions based on subjective Ans: T Page: 199
information.
Ans: F Page: 197 Good intuitive judgment is always needed to
determine appropriate weights and ratings in the
Identifying and evaluating alternative strategies input stage matrices.
shouldn’t involve the managers and employees Ans: T Page: 199
who earlier assembled the organizational vision
and mission statements, performed the external The Matching Stage
audit and conducted the internal audits.
Ans: F Page: 198 The number of internal factors and external
factors in the matching stage is reduced to
A Comprehensive Strategy-Formulation generate feasible strategies.
Framework Ans: F Page: 199

The first stage of the strategy-formulation The purpose of matching key factors is to
framework is the input stage, followed by the generate feasible alternative strategies.
matching stage. Ans: T Page: 199
Ans: T Page: 198
To effectively formulate competitive strategies, an
Stage 2 in the strategy-formulation framework organization should match its external
involves a single technique, the Quantitative opportunities and threats.
Strategic Planning Matrix. Ans: F Page: 199
Ans: F Page: 198
SO strategies are based on using a firm’s internal
The Internal Factor Evaluation Matrix and the strengths to take advantage of external
External Factor Evaluation Matrix are part of the opportunities and threats.
final stage of the strategy formulation framework. Ans: F Page: 200
Ans: F Page: 198
Matching strengths with weaknesses is how SW
The Threats-Opportunities-Weaknesses- strategies are created.
Strengths (TOWS) Matrix, the Strategic Position Ans: F Page: 200
and Action Evaluation (SPACE) Matrix, the Boston
Consulting Group (BCG) Business Portfolio A TOWS Matrix is composed of four cells for four
Matrix, the Internal-External (IE) Business types of strategies it creates.
Portfolio Matrix and the Grand Strategy Matrix are Ans: F Page: 200
included in stage two of the strategy-formulation
framework. The purpose of each stage 2 matching tool is to
Ans: T Page: 198 generate feasible alternative strategies, not
to select or determine which strategies are best.
The Input Stage Ans: T Page: 200
Only to get into a situation where they can work Relative market share position is given on the x-
from strengths to take advantage of opportunities, axis of the BCG Matrix.
organizations generally will pursue the other three Ans: T Page: 206
types of strategies (WO, ST, or WT).
Ans: T Page: 200-202 The midpoint on the x-axis of a BCG Matrix, which
corresponds to a division that has half the market
From matching an internal weakness with an share of the leading firm in the industry, is typically
external threat, a WT strategy in the TOWS Matrix set at 0.05.
could result. Ans: F Page: 206
Ans: F Page: 201
In performing SPACE analysis, barriers to entry
WT strategies are defensive tactics. into market are best categorized as a competitive
Ans: T Page: 201 advantage (CA) variable.
Ans: F Page: 206
Matching techniques include both the SPACE
Matrix and the TOWS Matrix. In the SPACE Matrix, growth potential, profit
Ans: T Page: 203 potential and financial stability could all fall under
the category of industry strength.
The ES and CA dimension variables in a SPACE Ans: T Page: 206
Matrix are assigned a numerical value ranging
from –1 (best) to –6 (worst). By examining the relative market share and
Ans: T Page: 204 industry growth rate of each division relative to all
other divisions with the BCG matrix, a
The most important determinants of an multidivisional organization is allowed to manage
organization’s overall strategic position are its portfolio of businesses.
considered to be the two internal dimensions, Ans: T Page: 206
financial strength (FS) and competitive advantage
(CA), and the two external dimensions, industry Product quality is an important consideration in the
strength (IS) and environmental stability (ES). BCG Matrix.
Ans: F Page: 206
Ans: T Page: 204
The SPACE Matrix axes are labeled aggressive, Technical know-how, market share and product
conservative, defensive and competitive. life cycle are some examples of areas to consider
Ans: F Page: 204 when evaluating a company’s competitive
advantage.
The four strategies of the SPACE Matrix are Ans: T Page: 206
aggressive, conservative, offensive and defensive.
Ans: F Page: 204 The Boston Consulting Group Matrix is good for
firms with many “profit centers.”
The appropriate strategies are intensive, Ans: T Page: 206
integration, defensive and diversification when a
firm’s directional vector is located in the The company’s total sales and number of
aggressive quadrant of the SPACE Matrix. employees are key considerations in the Boston
Ans: F Page: 205 Consulting Group Matrix.
Ans: F Page: 206
Conservative strategies in a SPACE Matrix most
often include intensive strategies The firm should pursue conservative strategies if
and concentric diversification. the coordinates of a SPACE directional vector are
Ans: T Page: 205 (1,4).
Ans: F Page: 207
Integration and diversification strategies are most
often included in competitive strategies in a A firm should pursue defensive strategies if
SPACE Matrix. the coordinates of a SPACE directional vector are
Ans: F Page: 205 (2,3).
Ans: F Page: 207
The firm should pursue aggressive strategies if The BCG Matrix does not reflect whether or not
the coordinates of a SPACE directional vector are various divisions or their industries are growing
(5,4). over time.
Ans: T Page: 207 Ans: T Page: 211

A firm should pursue competitive strategies if Having no temporal qualities, the BCG Matrix is a
the coordinates of a SPACE directional vector are snapshot of an organization at a given point in
(4,6). time.
Ans: T Page: 211
Ans: F Page: 207
Both IE and BCG Matrices are called portfolio
Star, question mark, cash cow and dogs are the matrices.
four quadrants exhibited by the SPACE Matrix. Ans: T Page: 211
Ans: F Page: 208
On the x-axis of the IE Matrix, an internal factor
The size of the circle in a BCG Matrix corresponds evaluation score of 2.5 represents a weak internal
to the proportion of corporate revenue generated position.
by that business unit. The pie slice indicates the Ans: F Page: 212
proportion of corporate profits generated by that
division. BCG Matrix requires more information about the
Ans: T Page: 208 divisions than the IE Matrix.
Ans: F Page: 212
Divisions with a low relative market share position
and a high industry growth are called question The IE Matrix can be divided into three major
marks in the BCG Matrix. regions that have different strategy implications:
Ans: T Page: 208 grow and build, hold and maintain and harvest or
divest.
Cash cows represent the organization’s best long- Ans: T Page: 212-213
run opportunities for growth and profitability.
Ans: F Page: 209 The Grand Strategy Matrix is based on two
evaluative dimensions, market share and market
Divisions in Quadrant IV are called dogs because growth.
the organization must decide whether to Ans: F Page: 213
strengthen them by pursuing intensive strategies
or engaging in joint venture. Positioned in or around cell IX in the IE Matrix,
Ans: F Page: 210 successful organizations are able to achieve a
portfolio of businesses.
The major overall benefit of the BCG Matrix is that Ans: F Page: 213
it draws attention to the cash flow, investment
characteristics and needs of an organization’s According to the Grand Strategy Matrix, when a
various divisions. Quadrant I firm is too heavily committed to a
Ans: T Page: 210 single product, then concentric diversification
may reduce the risks associated with a narrow
Dogs on the BCG Matrix usually become stars product line.
after market penetration. Ans: T Page: 214
Ans: F Page: 210
Quadrant III organizations compete in rapid-
Generally, the BCG Matrix and the IE Matrix are growth industries and have weak competitive
used only in formulating strategies in positions, according to the Grand Strategy
multidivisional firms. Matrix.
Ans: T Page: 211 Ans: F Page: 214
Viewing businesses as star, cash cow, dog, or The Decision Stage
question mark is an oversimplification.
Ans: T Page: 211 The Quantitative Strategic Planning Matrix is an
excellent decision stage analytical tool.
Ans: T Page: 215
Small companies could skip Stages 1 and 2 of the
strategy-formulation framework and develop a
QSPM.
Ans: F Page: 216
To objectively evaluate feasible alternative
strategies identified in Stage 2, the QSPM uses
input information derived from Stage 1.
Ans: T Page: 216
The left column of a QSPM consists of information
taken directly from the Internal Factor Evaluation
Matrix and the External Factor Evaluation Matrix.
Ans: T Page: 216
Alternative strategies derived from the TOWS
Matrix, SPACE Matrix, BCG Matrix, IE Matrix and
Competitive Profile Matrix are included in the
QSPM’s top row.
Ans: F Page: 216
Any number of sets of alternative strategies can
be included in the QSPM, and any number of
strategies can comprise a given set.
Ans: T Page: 216
Step 1 of a QSPM assigns weights to each key
external and internal factors
Ans: F Page: 217
The Sum Total Attractiveness Scores are
defined by the product of multiplying the weights
(step 2) by the attractiveness scores (step 4) in
each row of the QSPM.
Ans: F Page: 218
Total attractiveness scores are defined as the
sum of the attractiveness scores in a given
column of the QSPM.
Ans: F Page: 218
The relative desirability of one strategy over
another is indicated by the magnitude of the
difference between the total attractiveness
scores in a given set of strategic alternatives.
Ans: F Page: 218
Two limitations of the Quantitative Strategic
Planning Matrix are weights and ratings.
Ans: F Page: 219
A positive feature of OSPM is that sets of
strategies can be examined sequentially or
simultaneously.
Ans: T Page: 219
One positive feature of OSPM is that it does not
require intuitive judgments and educated
assumptions.
Ans: F Page: 219
Cultural Aspects of Strategy Choice
Culture includes the set of shared values,
beliefs, attitudes, customs, norms, personalities,
heroes and heroines that describe a firm.
Ans: T Page: 219
Generally, small organizations have a business
plan whereas large organizations have culture.
Ans: F Page: 219
Culture is the unique way an organization does
business.
Ans: T Page: 219
Whenever two firms merge, it becomes
especially important to evaluate and consider
culture-strategies linkages.
Ans: T Page: 220
The Politics of Strategy Choice
Successful strategists establish additional
hurdles or tests for strongly supported ideas that
are considered unacceptable, but which are best
not opposed openly.
Ans: T Page: 220-221
Successful top managers keep a low political
profile on acceptable proposals.
Ans: F Page: 221
By continuously chatting and informally
questioning, successful CEOs stay abreast of
how things are progressing and know when to
step in to intervene.
Ans: T Page: 221
Successful strategists minimize their own
political exposure on issues that are highly
controversial and in circumstances where
opposition from major power centers was likely.
Ans: T Page: 221
Equifinality means it is often possible to achieve
similar results using different means or paths.
Ans: T Page: 221
Satisficing means it is often possible to achieve
similar results using different means or paths.
Ans: F Page: 221
Shifting focus from specific issues to more
general ones may increase strategists’ options
for gaining organizational commitment.
Ans: T Page: 221
Rather than just react to management initiatives,
board directors must assume a more activist
stance in management development.
Ans: T Page: 225
Multiple Choice
The Nature of Strategy Analysis and Choice

The Role of a Board of Directors 95. Strategy analysis and choice largely
involves making __________ decisions based
Now averaging 18 members rather than 12 as on __________ information.
they did a few years ago, the trend in America is a. long-term; short-term
toward larger boards. b. subjective; objective
Ans: F Page: 222 c. short-term; long-term
d. subjective; short-term
Boards of directors are composed mostly of e. objective; subjective
outsiders who are becoming more involved in an Ans: b Page: 196
organization’s strategic management.
Ans: T Page: 222 A Comprehensive Strategy-
Formulation Framework
Business Week recommends board
members retire at age 65. Stage 1 consists of IFE, EFE and CPM. What
Ans: F Page: 223 stage is this in the
strategy formulation framework?
Business Week recommends the entire board of a. Output
directors be up for election annually. b. Decision
Ans: T Page: 223 c. Input
d. Matching
The board of directors of Trans Union e. Functional
Corporation, according to a ruling by the Ans: c Page: 198
Supreme Court of Delaware in 1985, violated the
interests of shareholders when they hastily Which stage in the strategy-
accepted a takeover bid from the Marmon formulation framework focuses on generating
Group. feasible alternative strategies?
Ans: T Page: 224 a. Input
b. Output
The impact of increasing legal pressures c. Decision
on board members is that directors are d. Stage 3
demanding access to more financial e. Matching
performance information on a regular basis. Ans: e Page: 198
Ans: T Page: 224
The ________ stage involves a single
Boards of directors today are composed mostly technique, QSPM.
of outsiders who are becoming more involved in a. Stage 2
the company’s strategic-management activities. b. Decision
Ans: T Page: 224 c. Input
d. Matching
There are on average five times more outsiders e. Stage 1
on the board than insiders at American firms. Ans: b Page: 198
Ans: F Page: 224
A(n) __________ reveals the
Conclusion relative attractiveness of alternative strategies
and thus provides an objective basis for
selecting specific strategies.
a. TOWS
b. SPACE Ans: e Page: 199
c. QSPM
d. IFE __________ is not a TOWS strategy.
e. CPM a. SO
Ans: c Page: 198 b. WO
c. SW
Each of the nine techniques included in the d. ST
strategy formulation framework rely on the use e. WT
of Ans: c Page: 200
a. strictly factual data.
b. luck. Poor product quality, coupled with reliable
c. financial formulas and statistics. suppliers, would suggest
d. intuition and analysis. a. WT strategies.
e. synergy. b. WO strategies.
Ans: d Page: 198 c. ST strategies.
d. SO strategies.
The Input Stage Ans: b Page: 200

The __________ stage includes an Internal Matching internal strengths with external
Factor Evaluation Matrix and a Competitive opportunities is part of which section of the
Profile Matrix. TOWS Matrix?
a. input a. The WT cell
b. matching b. The WO cell
c. decision c. The ST cell
d. penetration d. The SO cell
e. research e. The center four cells
Ans: a Page: 198 Ans: d Page: 200

__________ is not an input stage matrix. The most ideal situation for a company to be in
a. IFE on the TOWS Matrix would be if they had all
b. IE a. SO strategies.
c. CPM b. WO strategies.
d. EFE c. ST strategies.
Ans: b Page: 198 d. WT strategies.
Ans: a Page: 200
The Matching Stage
Which strategies aim at improving internal
__________ is not a Stage 2 matching weaknesses by taking advantage of external
technique. opportunities?
a. The SPACE Matrix a. SO
b. The Grand Strategy Matrix b. WO
c. The Competitive Profile Matrix c. SW
d. The Business Portfolio Matrix d. ST
e. The TOWS Matrix e. WT
Ans: c Page: 198 Ans: b Page: 200

The __________ of the The purpose of each Stage 2 matching tool is to

strategy formulation framework contains the a. identify the strengths, weaknesses,
TOWS Matrix, the SPACE Matrix, the Grand opportunities and threats of the firm.
Strategy Matrix and the Competitive Profile b. generate the feasible alternative strategies
Matrix. for the firm.
a. input stage c. pick the best strategy for the firm to carry out.
b. matching stage d. decide who the company’s major competitors
c. decision stage are.
d. output stage Ans: b Page: 200
e. None of the above
If an organization were to match high employee __________ reveals whether aggressive,
turnover with increased local competition, what conservative, defensive, or competitive
type of strategies would be appropriate? strategies are most appropriate.
a. SO strategies a. Grand Strategy Matrix
b. WO strategies b. SPACE Matrix
c. ST strategies c. Competitive Profile Matrix
d. WT strategies d. TOWS Matrix
Ans: d Page: 201 e. QSPM
Ans: b Page: 204
Which strategies use a firm’s strengths to avoid
or reduce the impact of external threats? The two positive-rated dimensions on SPACE
a. SW Matrix are
b. WO a. FS and CA.
c. SW b. CA and ES.
d. ST c. FS and IS.
e. WT d. IS and ES.
Ans: d Page: 201 e. FS and ES.
Ans: c Page: 204
__________ strategies are defensive tactics
directed at reducing internal weaknesses and A firm located in the aggressive quadrant of the
avoiding environmental threats. SPACE Matrix should use its internal strengths
a. SO to
b. WO a. take advantage of external opportunities.
c. SW b. overcome internal weaknesses.
d. ST c. avoid external threats.
e. WT d. do all of the above.
Ans: e Page: 201 Ans: d Page: 205

A TOWS Matrix is composed of __________ Financial strengths are measured on the SPACE
cells. Matrix by variables such as investment,
a. four leverage, liquidity, working capital and
b. six a. ease of entry into the market.
c. nine b. product quality.
d. eight c. operations and facilities.
e. two d. working capital.
Ans: c Page: 201
Ans: d Page: 206
Which of the following is not a step of a TOWS
Matrix?
a. List the firm’s key external threats
b. Match strengths with external opportunities
and record the resultant SO strategies in the
appropriate cell
c. Match internal weaknesses with external
threats and record the resultant WT strategies
d. List the firm’s external weaknesses
e. List the firm’s external threats
Ans: d Page: 202

Which of these is not a SPACE Matrix quadrant

a. Aggressive
b. Defensive
c. Competitive
d. Offensive
e. Conservative
Ans: d Page: 204