Chapter 6

Generating
Alternative Strategies
Using Strategic
Management
Models
 INTRODUCTION
• Various strategic decisions need to be generated
with satisfactory rationalization behind the
decisions in order to get the staff’s full
commitment and dedication in implementing
them.
• Today’s management staff are highly educated,
well exposed, knowledgeable and require much
more rationality and even would like to
participate and contribute towards any strategic
decisions.
 INTRODUCTION (cont.)
• The senior managers and the major shareholders
will still make the final decision on which strategy
to adopt. However, its derivation had better be
clear and systematic, rationally derived and
acceptable by the majority if it is to be
implemented successfully.
• There are several models that are being used
today to make a rational strategic decision and
the most commonly used is the Albert
Humphrey’s SWOT model.
 SWOT Model

• This model matches the opportunities and

threats generated from the result of the
external environmental analysis with that of
strengths and weaknesses of the company
itself.
• What needs to be done is to match the
external and internal factors in a matrix form
and derive strategies from them.
 SPACE Model

• The acronym SPACE stands for Strategic

Positioning Action Evaluation.
• This model looks at the external and internal
environmental factors and brings them together
in a four-dimensional figure.
• SPACE allocates two dimensions each for the
external and internal group of factors.
– For external factors, SPACE grouped them to industrial
attractiveness (IA) and environmental stability (ES).
 SPACE Model

– Internal factors were classified into financial

strengths (FS) and competitive advantages (CA)
dimensions.
• SPACE proposed a full extension of the X and Y
axis together with the positive and negative
scale range.
 SPACE Model

Figure 6.1 The SPACE Model

 SPACE Model
• For each dimension there should be at least 6 to 7
factors with a 1– 6 score for each where 1 denotes
weak or worst and 6 denotes strong or best.
• Finally for each dimension, the average score will be
calculated and demarcated at the corresponding axis.
• At the end of the analysis, all the four dimensions
will have their own respective average scores.
• By joining the respective average score of each axis, a
space will be created and the quadrant with the
largest space will be the dominant strategy.
 SPACE Model

Figure 6.2 The four strategies of space in their respective quadrants

 SPACE Model

• The SPACE model labelled the four quadrants

as:
– Aggressive
– Defensive
– Competitive
– Conservative
 1. The Aggressive Quadrant
• It lies between the financial strength and industrial
attractiveness dimensions.
• High scores of both CA and IA will push the average
towards the top of the x-axis.
• High scores in both FS and ES will push the average of
the y-axis towards the right.
• Thus, the company is in a comfortable position and an
aggressive strategy is appropriate.
– It covers growth and expansion as of high priority
– Requires the drive to get more market share and new markets
 2. The Competitive Quadrant

 It is at the south east quadrant.

 FS and ES are weak: average scores pulled down
 But CA and IA are strong: average score pushed to right
 Strategic Choice: Competitive
– Strong IA and CA
– Rational choice: further development in the same industry
– Product development strategy (high CA)
– Consolidation of the resources (weak FS)
– Concentric diversification will also be wise
– But because of the weak FS, a search for a (financially strong)
partner will also be wise
 3. The Conservative Quadrant

 Located at the north west quadrant

 CA is weak but not its FS
 ES is healthy but IA is not stable
Strategic Choice: Conservative
– Exit the industry as IA is weak
– Adopt a conglomerate diversification strategy as
CA and IA is weak
– Continue business as ES is supportive
– New product development in a different industry
– Since FS is strong, a joint venture or an acquisition of a
company outside the present industry would be highly rational
 4. The Defensive Quadrant
• When the analysis places a company in South
West quadrant, a drastic and bold decision is
required.
• Hopefully, there are some parts of the
operations that can be depended upon to
continue the business (divestiture).
• Thus, the defensive strategy quadrant portrays
a company that is generally weak in all the
four dimensions.
 4. The Defensive Quadrant
• Strategic choice: Defensive
– Retrenchment or cost cutting actions.
– Divestiture if there are potential sections.
– Liquidation strategy where realization of assets
can be done and a new business is planned.
 SPACE Model: Proposed Strategies

Figure 6.3 The proposed strategies for the four quadrants

 Boston Consulting Group
Model

• Developed by Bruce Henderson from BCG &

Company in the 1970s
• Also known as BCG Growth–Share matrix because
of the two dimensions selected to be used in its
analysis
• Selects the most important external and internal
factor
– External: industry attractiveness; growth rate of the
said industry
– Internal: competitive advantage; relative market share
was preferred
 Boston Consulting Group Model

• The x-axis accommodates the relative market

share matrix and is divided into two sections:
high and low.
• The y-axis represents the industry growth
rate: high at the top half and low at the
bottom half.
• The resulting figure is a 2 × 2 matrix and four
quadrants.
Boston Consulting Group Model

Figure 6.4 The BCG Growth–Share matrix

 Boston Consulting Group Model

• In this matrix, the mid-point of both x and y

axes are critical indicators.
• The mid-point of the y-axis: to differentiate
those that are experiencing a high or low
growth rate and need to be rationally derived.
• This mid-point would be regarded as the
riskless rate potential investors to consider
whether to put in money into the project for a
reasonable return.
 Boston Consulting Group Model

• The mid point of the x-axis shows the relative

market share dimension.
• The relative market share must be computed
from the company’s market share compared to
that of the largest competitor of the same
industry.
• A 1.0 mid-point score is relatively good but not
many will have this luxury.
• Because of this, modifications were done in the
mid-point value of the x-axis by using absolute
percentage market, and a value of 1.0 and less
has been designated as the mid-point value.
 Boston Consulting Group Model
(cont.)

• The characteristics of the four quadrants:

1. The Question Mark: low relative market share
but high growth rate
2. The Star: high relative market share and a high
growth rate
3. The Cash Cow: a high relative market share but
low growth rate
4. The Dog: low in both relative market share and
growth rate
 Boston Consulting Group Model
• Strategies for the four quadrants:
1. Question Mark: Need to increase the market share and
therefore do aggressive marketing, sales effort,
promotion, expansion, and even product development, so
as to move the portfolio towards the left of the chart
2. Star: Maintain the high market share by expansion,
product development, add value to the products, and
continue marketing efforts to meet the high growth rate
3. Cash Cow: Sustain the market share, product
development, concentric diversification, integration to cut
costs, promotion for loyalty purposes
4. Dog: Conglomerate diversification to get out of the
industry, divest, selective liquidation and sell-off and
liquidation