STRATEGY

SELECTION

Matrices

A comprehensive strategic
management model
Perform
externa
l Audit

Develop
vision &
mission
Statement
s

Generate,
evaluate
and select
strategies

Establish
long term
objectives

Implemen
t
strategies
managem
ent issues

Implement
strategies
F, Acc,
R&D, MIS
issues

Measure
and
evaluate
performanc
e

Perform
internal
Audit

Strategy Formulation
2

Strategy
implementation

Strategy
Evaluation

A comprehensive strategic formulation

framework
STAGES

Three stage
framework
NAMED AS

TOOLS/ TECHNIQUES

THE INPUT
STAGE

(i) External Factor Evaluation (EFE)

matrix
(ii) Competitive Profile Matrix(CPM)
(iii) Internal Factor Evaluation (IFE) matrix

THE MATCHING
STAGE

(i) Strength- Weaknesses

Opportunities Threats (SWOT)
MATRIX
(ii) Strategic Position and Action
Evaluation (SPACE) Matrix
(iii) Boston Consulting Group (BCG)matrix
(iv) Internal-External (IE) Matrix
(v) Grand Strategy Matrix

THE DECISION
STAGE

(i) Quantitative Strategic planning

Matrix (QSPM)

1. The input stage

The information derived from EFE matrix,
and IFE matrix and CPM matrices(already
discussed in the previous chapters) provides
basic input information for the next two
stages.
Making small decisions in the input matrices
regarding the relative importance of external
and internal factors allows strategists to
more effectively generate and evaluate
alternative strategies.
Good intuitive judgment is always needed in
determining appropriate weights and ratings.
4

2. The matching stage

Strategy is defined as the match an organisation makes
between its internal resources and skills and the
opportunities and risks created by its external factors.
This stage consists of five techniques (SWOT, SPACE,
BCG, IE and Grand strategy matrix) for generating
alternatives
Matches external opportunities and threats with
internal strengths and weaknesses
Organisation of any type must develop and execute
good strategies to win
Offense strategies uses strength to capitalize on
opportunities
Defensive strategies designed to improve upon
weakness while avoiding threats
5

matching key external and internal factors to

formulate alternative strategies

2.1. strengths weaknessesopportunities threats (SWOT) matrix

Matching key external and
internal factors is the most
difficult part of developing a
SWOT matrix.

Eight steps in construction of SWOT

matrix
1. List the firms key external opportunities
2. List the firms key external threats
3. List the firms key external strengths
4. List the firms key external weaknesses
5. Match internal strengths with external opportunities
and record the resultant SO strategies in the
appropriate cell
6. Match internal weaknesses with external
opportunities, and record the resultant WO strategies
7. Match internal strengths with external threats, and
record the resultant ST strategies
8. Match internal weaknesses with external threats, and
record the resultant WT strategies
8

Important points to be noted in

developing SWOT matrix
All the internal, external ,SO/ST/WO/WT
strategies to be stated in quantitative
terms to the extent possible.
Always be specific to the extent
possible
in
stating
factors
and
strategies. Ex: Add two new repair/
service persons instead Add new
repair/ service persons.
Include notation after each strategy to
reveal the rationale for each alternate
strategy. Ex: (W2, O2) for WO1 strategy.
10

limitations
It does not show how to achieve a competitive
advantage, so it must not be an end in itself. It
could be a starting point for cost benefit
consideration that lead to competitive advantage.
It is a static assessment in time. The
circumstances, capabilities, threats, strategies
change, the dynamics of a competitive
environment can be revealed.
It may lead the firm to over emphasize on a
single internal and external factors in formulating
strategies. The interrelationship that exists
among key internal and external factors are not
revealed
11

2. 2 strategic position and action

evaluation (SPACE) matrix
It helps the organisation to select the most
appropriate strategy among the following four
-aggressive,
conservative,
defensive
or
competitive strategies.
The axes of the SPACE matrix represent two
internal dimensions financial strengths[FS] &
competitive advantage [CA] and two external
dimensions environmental stability[ES] & industry
strength [IS]
Few variables that are included are listed next
slide
This matrix should be tailored to a particular
organisation and based on factual information as
much as possible.
12

Example factors that make up the

space matrix

13

Space matrix

14

Steps to develop space

matrix
1. Select a set of variables to define financial strength(FS),
competitive advantage(CA), environmental stability
(ES) and industry strength (IS).
2. Assign a numerical value ranging from +1(worst) to +6
(best) to each of the variables that make up the FS and
Is dimensions. Assign a numerical value ranging from -1
(best) to -6 (worst) to each of the variables that make
up the ES and CA dimensions. On the FS and CA axes,
make comparison to competitors. On t he IS and ES
axes, make comparison to other industries.
3. Compute an average score for FS, IS, ES and CA by
summing the values given to the variables of each
dimensions and then by dividing by the number of
variables included in the respective dimensions.
15

Steps to
( Contd)

develop

space

matrix

Plot the average scores for FS, Is, Es and CA

on the appropriate axis in the SPACE matrix
Add the two scores on the x-axis and plot
the resultant point on X. Add two scores on
the y-axis and plot the resultant point on Y.
plot the intersection of the new xy point.
Draw a directional vector from the origin of
the SPACE matrix through the new
intersection point. This vector reveals the
type of strategies recommended for the
organisation:
aggressive,
competitive,
defensive or conservative
16

Quadrant
Aggressive/
Upper right

Strategies
Excellent position to use its
internal strengths to take
advantage of external
opportunities, overcome
internal weakness, avoid
external threats

Market penetration
Market development
Backward integration
Forward integration
Horizontal integration
A combination strategy

Conservative / Staying close to the firms

Upper left
basic competencies and not
taking excessive risks

Market penetration
Market development
Product development
Related diversification

Defensive /
Lower left

Focus on rectifying internal

weakness and avoiding
external threats

Retrenchment
Divestiture
Liquidation
diversification

Competitive/
Lower right

Indicate competitive
strategies

Market penetration
Market development
Backward integration
Forward integration
Horizontal integration
Product development

17

18

A space matrix for a bank

Financial Strength(4 variables)

9.0

Industry strength (3 variables)

10.0

Environmental Stability (3 variables)

-13.0

Competitive Advantage (3 variables)

-9.0

Conclusion
ES Average -13.0 / 3 = -4.33
IS Average 10.0/3 = +3.33
CA Average -9.0/3 = - 3.00
FS Average 9.0 /4 = +2.25
Directional Vector Coordinates : x axis : -3.00+ 0.33 = 0.33
y axis : -4.33 + 2.25 = 2.08
The bank should pursue competitive strategies
19

2.3. Boston Consulting Group (bcg)

matrix
The
BCG
Matrix
graphically
portrays
differences among divisions (of a firm) in terms
of relative market share position and industry
growth rate.
The BCG Matrix: Divisions in the respective
circles in the BCG Matrix are called question
marks, stars, cash cows, and dogs.
Relative market share position is defined as the
ratio of a divisions own share( or revenues) in
a particular industry to the market share (or
revenues0 held by the largest rival firm in that
industry.

20

Strategic Management

Bcg matrx

21

Strategic Management

The four quadrants represent the following:

Question MarksDivisions in Quadrant I have a low relative
market share position, yet compete in a high-growth industry.
Generally these firms cash needs are high and their cash
generation is low.
StarsQuadrant II businesses represent the organizations
best long-run opportunities for growth and profitability. These
businesses have a high relative market share and compete in
high growth rate industries.
Cash CowsDivisions positioned in Quadrant III have a high
relative market position, but compete in a low-growth
industry. Called cash cows because they generate cash in
excess of their needs.
DogsQuadrant IV divisions of the organization have a low
relative market share position and compete in a slowed or nogrowth industry; they are Dogs in a firms portfolio.
22

Strategic Management

23

Strategic Management

24

Strategic Management

Limitations
It is in a oversimplified form, many
business fall right in the middle of the BCG
matrix and thus are not easily classified.
It does not reflect whether or not various
divisions or their industries are growing
over time; the matrix, has no temporal
qualities, but rather it is a snap shot of the
organisation.
Other variables such as size of the market,
competitive advantages, important for
strategic decisions, are not included in the
matrix
25

Strategic Management

2.4. Internal External matrix

The IE Matrix positions an organizations various
divisions in a nine-cell display.
The IE Matrix is similar to the BCG Matrix in that both
tools involve plotting organization divisions in a
schematic diagram; this is why they are called
portfolio matrices.
Differences between the IE Matrix and the BCG Matrix
Axes are different
IE Matrix requires more information about divisions than
BCG
Strategic implications of each matrix are different

For these reasons, strategies in multidivisional firms

often develop both the BCG and IE matrix in
formulating alternative strategies.
26

Strategic Management

27

Strategic Management

28

Strategic Management

29

Strategic Management

2.5. grand strategy matrix

In addition to the TOWS Matrix, SPACE Matrix,
BCG Matrix, and IE Matrix, the Grand Strategy
Matrix has become a popular tool for formulating
alternative strategies. All organizations can be
positioned in one of the Grand Strategy Matrixs
four strategy quadrants.
The Grand Strategy Matrix is pictured in the
other planning documents.
It is based on two evaluative dimensions:
competitive position and market growth.
30

31

3. The decision stage

As discussed earlier the matching
techniques
reveals
feasible
alternative
strategies.
Participants could rate these
strategies on a 1 to 4 scale so
that a prioritized list of the best
strategies could be achieved.

32

3.1Quantitative strategic planning matrix (QSPM)

Other than ranking strategies to achieve the
prioritized list, there is only one analytical
technique in the literature designed to
determine the relative attractiveness of feasible
alternative actions.
This technique is the QSPM, which comprises
Stage 3 of the strategy-formulation analytical
framework. This technique objectively indicates
which alternative strategies are best.
EFE matrix, IFE matrix and competitive profile
that make up stage 1 coupled with the SWOT,
SPACE, BCG, IE and grand strategy matrix that
make up stage 2, provide the needed
33
information for setting
up QSPM(Stage 3)

Quantitative Strategic planning

matrix -QSPM
Strategic Alternatives
Key Factors

Key External Factors

Economy
Political/Legal/ Governmental
Social/ Cultural/ Demographic/
Environmental
Technology
Competitive
Key InternalFactors
Management
Marketing
Finance/ Accounting
Production/ operations
Research and development
Management information
systems
34

Weight

Strategy 1

Strategy
2

Strategy
3

Steps to develop QSPM

Make a list of the firms key external
opportunities/threats and internal
strengths/weaknesses in the left column of
the QSPM.
Assign weights to each key external and
internal factor.
Examine the Stage 2 matrices and identify
alternative strategies that the organization
should consider implementing.
Determine the Attractiveness Scores (AS).
Compute the total AS.
Compute the sum Total AS.
35

Positive features and

limitations
A positive feature of the QSPM is that sets of
strategies can be examined sequentially or
simultaneously. Another positive feature of the
QSPM is that it requires strategists to integrate
pertinent external and internal factors into the
decision process. Developing a QSPM makes it
less likely that key factors will be overlooked or
weighted inappropriately.
The QSPM is not without some limitations. First, it
always requires intuitive judgment. Second, it can
only be as good as the prerequisite information
and matching analyses upon which it is based.
36

Cultural aspects of strategy

choice
Culture includes the set of shared values, beliefs,
attitudes, customs, norms, personalities, heroes, and
heroines that describe a firm.
All Organizations Have a Culture
It is beneficial to view strategic management from a
cultural perspective because success often rests on the
degree of support that strategies receive from a firms
culture.
If a firms strategies are supported by cultural products
such as values, beliefs, rites, rituals, ceremonies, stories,
symbols, language, heroes, and heroines then managers
often can implement changes swiftly and easily.
Strategies that require fewer cultural changes may be
more attractive because extensive changes can take
considerable time and effort.
37

The politics of strategy

choice
In the absence of objective analyses, strategy
decisions too often are based on the politics of the
moment. With development of improved strategyformulation tools, political factors become less
important in making strategic decisions.
Tactics to aid in strategy:

Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues
38

Governance issues
The act of oversight and direction is referred as
governance.
The National Association of Corporate Director defines the
characteristic of ensuring that long-term strategic
objective and plans are established and that the proper
management structure is in place to achieve those
objectives, while at the same time making sure that the
structure functions to maintain the corporations integrity,
reputation and responsibility to its various constituencies.
The roles and responsibilities of the BOD can be divided
into four broad categories;

Control and oversight over management

Adherence to legal prescriptions
Consideration of stakeholders interests
Advancement of stockholders rights
39

The role of board of directors

A director is one of a group of persons entrusted with the
overall direction of a corporate enterprise. A board of
directors is a group of persons elected by the ownership of a
corporation to have oversight and guidance over
management and to look out for the shareholders interests.
Business Weeks annual board of directors evaluation
posited that good boards of directors actively perform the
following responsibilities:

Evaluate the CEO annually.

Link the CEOs pay to specific goals.
Evaluate long-range strategy.
Evaluate board performance.
Compensate board member only in company stock.
Require each director to own a large amount of company stock.
Ensure no more that two board members are insiders.
Require directors to retire at age seventy.
Place the entire board up for election every year.
Limit the number of 40
other boards a member can serve on.
Ban directors who draw consulting fees or other monies from the

Conclusion
The essence of strategy formulation is an assessment
of whether an organisation is doing the right things
and how it can be more effective in what it does.
Regular reappraisal of strategy helps the organisation
avoid complacency.
Every organisation needs to consciously establish and
communicate clear objectives and strategies.
The different techniques discussed can significantly
enhance the quality of strategic decisions.
Political, cultural, Behavioral aspects of strategy
generation and selection are always important to
consider and manage
BOD are assuming a more active role in strategy
analysis and choice.
41