ch8 SM16

Strategy
Generation
and Selection
Chapter Eight
Chapter Objectives
1. Describe the strategy analysis and choice

process.
2. Diagram and explain the three-stage
strategy-formulation analytical framework.
3. Diagram and explain the Strengths-
Weakness-Oppotunities-Threats (SWOT)
Matrix.
4. Diagram and explain Strategic Position and
Action Evaluation (SPACE) Matrix.
8-2
Copyright ©2017 Pearson Education,Inc
Chapter Objectives
5. Diagram and explain the Boston

Consulting Group (BCG) Matrix.
6. Diagram and explain the Internal-External
(IE) Matrix.
7. Diagram and explain the Grand Strategy
Matrix
8. Diagram and explain the Quantitive
Strategy Planning Matrix (QSPM).
8-3
Chapter Objectives
9. Discuss the role of organization culture in

strategic analysis and choice.
10.Identify and discuss important political
consideration in strategy analysis and
choice.
11.Discuss the role of a board of directors
(governance) in strategic planning.
8-4
A Comprehensive Strategic-
Management Model
8-5
The Process of Generating and
Selecting Strategies
 A manageable set of the most attractive
alternative strategies must be developed,
examined, prioritized, and selected.
 The advantages, disadvantages, trade-
offs, costs, and benefits of these
strategies should be determined
8-6
 Identifying and evaluating alternative strategies
should involve many of the managers and
employees who earlier assembled the
organizational vision and mission statements,
performed the external audit, and conducted
the internal audit.
 All participants in the strategy analysis and
choice activity should have the firm’s external
and internal audit information avalaible.
8-7
 Alternative strategies proposed by
participants should be considered and
discussed in a series of meetings
 Proposed strategies should be listed in
writing
 When all feasible strategies identified by
participants are given and understood,
the strategies should be ranked in order
of attractiveness
8-8
The Strategy-Formulation
Analytical Framework
8-9
A Comprehensive Strategy-
Formulation Framework
 Stage 1 - Input Stage
Summarizes the basic input information
needed to formulate strategies
Consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM)
8-10
 Stage 2 - Matching Stage
• Focuses on generating feasible alternative
strategis by aligning key external and internal
factors
• Techniques include the Strengths-
Weaknesses-Opportunities-Treats (SWOT)
Matrix, the Strategic Position and Action
Evaluation (SPACE) Matrix, the Boston
Consulting Group (BCG) Matrix, the Internal-
External (IE) Matrix, and the Grand Strategy
Matrix
8-11
 Stage 3 - Decision Stage
• Involves the Quantitative Strategic Planning
Matrix (QSPM)
• Reveals the relative attractiveness of alternative
strategies and thus provides objectives basis for
selecting specific strategies
8-12
Matching Key External and Internal Factors
to Formulate Alternative Strategies
8-13
The Matching Stage
 The Strengths-Weaknesses-Opportunities-Threats
(SWOT) Matrix helps managers develop four types of
strategies:
SO (strengths-opportunities) Strategies
WO (weaknesses-opportunities) Strategies
ST (strengths-threats) Strategies
WT (weaknesses-threats) Strategies
8-14
The Matching Stage
 SO Strategies  WO Strategies
use a firm’s aim at improving
internal internal
strengths to take weaknesses by
advantage of taking advantage
external of external
opportunities opportunities
8-15
The Matching Stage
 ST Strategies  WT Strategies
use a firm’s defensive tactics
strengths to avoid directed at
or reduce the reducing internal
impact of external weakness and
threats avoiding external
threats
8-16
The Process of Constructing a
SWOT Matrix
1. List the firm’s key external opportunities
2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
5. Match internal strengths with external
opportunities, and record the resultant SO
Strategies in appropiate cell
8-17
The Process of Constructing a
SWOT Matrix (cont.)
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
threates, and record the resultant WT
Strategies
8-18
A SWOT Matrix for a Retail
Computer Store
8-19
A SWOT Matrix for a Retail
Computer Store
8-20
The SPACE Matrix
8-21
The Strategic Position and Action
Evaluation (SPACE) Matrix
 Strategic Position and Action
Four-quadrant framework indicates whether
aggressive, conservative, defensive, or
competitive strategies are most appropriate
for a given organization
8-22
The Strategic Position and Action
 Two internal dimensions (financial
position [FP] and competitive position
[CP])
 Two external dimensions (stability
position [SP] and industry position [IP])
 Most important determinants of an
organization’s overall strategic position
8-23
Factors That Make Up the
SPACE Matrix Axes
8-24
Steps to Develop a SPACE Matrix
1. Select a set of variables to define

financial position (FP), competitive
position (CP), stability position (SP), and
industry position (IP)
8-25
2. Assign a numerical value ranging from +1

(worst) to +7 (best) to each of the
variables that make up the FP and IP
dimensions. Assign a numerical value
ranging from –1 (best) to –7 (worst) to
each of the variables that make up the SP
and CP dimensions
8-26
3. Compute an average score for FP, CP, IP, and

SP
4. Plot the average scores for FP, IP, SP, and CP
on the appropriate axis in the SPACE Matrix
5. Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on the
y-axis and plot the resultant point on Y. Plot the
intersection of the new (x,y) coordinate.
8-27
6. Draw a directional vector from the origin

of the SPACE Matrix (0,0) through the
new ((x,y) coordinate
This vector being located in a particular
quadrant, reveals particular strategies the
organization should consider.
8-28
Example Strategy Profiles
Copyright ©2017 Pearson Education,Inc 8-29

Example Strategy Profiles

SPACE Matrix’s Limitations
1. It is a snapshot in time.
2. There are more than four dimensions that firms
could/should be rated on.
3. The directional vector could fall directly on an axis, or
could even go nowhere if the coordinate is (0,0).
4. Implications of the exact angle of the vector within a
quadrant are unclear.
5. The relative attractiveness of alternative strategies
generated is unclear.
6. Key underlying internal and external factors are not
explicitly considered.
8-31
The Boston Consulting Group
(BCG) Matrix
 BCG Matrix
graphically portrays differences among
divisions in terms of relative market on the x-
axis share position and industry growth rate on
the y-axis
allows a multidivisional organization to manage
its portfolio of businesses by examining the
relative market share position and the industry
growth rate for each division relative to other
divisions in the organization.
8-32
The BCG Matrix
8-33
The BCG Matrix
 Question marks – Quadrant I
Organization must decide whether to
strengthen them by pursuing an intensive
strategy (market penetration, market
development, or product development) or to
sell them
 Stars – Quadrant II
represent the organization’s best long-run
opportunities for growth and profitability

The BCG Matrix
 Cash Cows – Quadrant III
generate cash in excess of their needs
should be managed to maintain their strong
position for as long as possible
 Dogs – Quadrant IV
compete in a slow- or no-market-growth
industry
businesses are often liquidated, divested, or
trimmed down through retrenchment
8-35
The BCG Matrix
 The major benefit of the BCG Matrix is

that it draws attention to the cash flow,
investment characteristics, and needs of
an organization’s various divisions
8-36
The Internal-External (IE) Matrix

The Internal-External (IE) Matrix
 The IE Matrix is based on two key

dimensions: the IFE total weighted scores
on the x-axis and the EFE total weighted
scores on the y-axis
 Three major regions
Grow and build
Hold and maintain
Harvest or divest
8-38
The IE Matrix
Four-division IEMatrix
8-39
The IE Matrix
Five-divisions IEMatrix
8-40
The Grand Strategy Matrix
 Grand Strategy Matrix
based on two evaluative dimensions:
- competitive position
- market (industry) growth
8-41
8-42
 Quadrant I
continued concentration on current markets
(market penetration and market development)
and products (product development) is an
appropriate strategy
 Quadrant II
unable to compete effectively
need to determine why the firm’s current
approach is ineffective and how the company
can best change to improve its competitiveness
8-43
 Quadrant III
must make some drastic changes quickly to
avoid further decline and possible liquidation
Extensive cost and asset reduction
(retrenchment) should be pursued first
 Quadrant IV
have characteristically high cash-flow levels and
limited internal growth needs and often can
pursue related or unrelated diversification
successfully
8-44
The Quantitative Strategic
Planning Matrix (QSPM)
 Quantitative Strategic Planning Matrix
(QSPM)
objectively indicates which alternative
strategies are best
uses input from Stage 1 analyses and
matching results from Stage 2 analyses to
decide objectively among alternative
strategies
8-45
The Quantitative Strategic
Planning Matrix (QSPM)
8-46
Steps in a QSPM
1. Make a list of the firm’s key external

opportunities/threats and internal
strengths/weaknesses in the left column of the
QSPM
2. Assign weights to each key external and
internal factor
3. Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the
organization should consider implementing
8-47
Steps in a QSPM (cont.)
4. Determine the Attractiveness Scores (AS)

5. Compute the Total Attractiveness Scores
6. Compute the Sum TotalAttractiveness
Score
8-48
Positive Features of the QSPM
 Sets of strategies can be examined

sequentially or simultaneously
 Requires strategists to integrate pertinent
external and internal factors into the
decision process
 Can be adapted for use by small and
large for-profit and nonprofit organizations
8-49
Limitations of the QSPM
 Always requires intuitive judgments and

educated assumptions
 Only as good as the prerequisite
information and matching analyses upon
which it is based
8-50
A QSPM for a Retail
Computer Store
8-51
A QSPM for a Retail
Computer Store
8-52
Cultural Aspects of Strategy
Analysis and Choice
 Culture is the unique way an organization
does business.
 it is beneficial to view strategy analysis
and choice from a cultural perspective,
because success often rests on the
degree of support that strategies receive
from a firm’s culture.
8-53
The Politics of Strategy Analysis
and Choice
 Political maneuvering consumes valuable
time, subverts organizational objectives,
diverts human energy, and results in the
loss of some valuable employees
 Political biases and personal preferences
get unduly embedded in strategy choice
decisions
8-54
The Politics of Strategy Choice
 The hierarchy of command in an

organization, combined with the career
aspirations of different people and the
need to allocate scarce resources,
guarantees the formation of coalitions of
individuals who strive to take care of
themselves first and the organization
second, third, or fourth
8-55
Tactics to Aid Strategists
Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on ImportantIssues

8-56
Governance Issues
 Board of directors
a group of individuals who are elected by the
ownership of a corporation to have oversight
and guidance over management and who
look out for shareholders’ interests
8-57
Board of Director Duties and
Responsibilities
8-58
Principles of Good Governance
1. Never have more than two of the firm’s

executives (current or past) on the board
2. Never allow a firm’s executives to serve
on the board’s audit, compensation, or
nominating committee
3. Require all board members to own a
large amount of the firm’s equity
4. Require all board members to attend at
least 75 percent of all meetings
8-59
Principles of Good Governance
5. Require the board to meet annually to evaluate

its own performance, without the CEO, COO, or
top management in attendance
6. Never allow the CEO to be chairperson of the
board
7. Never allow interlocking directorships (where a
director or CEO sits on another director’s
board)
8-60

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Strategy

1. Describe the strategy analysis and choice

5. Diagram and explain the Boston

9. Discuss the role of organization culture in

1. Select a set of variables to define

2. Assign a numerical value ranging from +1

3. Compute an average score for FP, CP, IP, and

6. Draw a directional vector from the origin

Copyright ©2017 Pearson Education,Inc 8-29

Copyright ©2017 Pearson Education,Inc 8-30

Copyright ©2017 Pearson Education,Inc 8-34

 The major benefit of the BCG Matrix is

Copyright ©2017 Pearson Education,Inc 8-37

 The IE Matrix is based on two key

1. Make a list of the firm’s key external

4. Determine the Attractiveness Scores (AS)

 Sets of strategies can be examined

 Always requires intuitive judgments and

 The hierarchy of command in an

Focus on Higher-Order Issues

Provide Political Access on ImportantIssues

1. Never have more than two of the firm’s

5. Require the board to meet annually to evaluate

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