Chapter 10

Strategic Analysis and Choice

Introduction
• There is need to analyse and choose the best possible strategies
• This chapter introduces the blue ocean and red ocean strategies as alternatives
• Due to ongoing changes in circumstances and strategy tends to evolve over time, thus
there is a need to consider matrixes such as EFE and IFE in order to proceed with
strategy analysis and choice.
• This chapter an attempt is made to develop and choose more specific strategies to
implement during the next phase.
• This is achieved by quantifying the options and drawing up matrixes to assist through
the process
• The matrixes discussed herein are more appropriate for single-product/service firms
other matrixes such BCG and IE matrix can be used for multidivisional and diversified
orgs
Introduction cont….
• Before discussing the analysis frameworks, there is need to consider the market
spaces in which businesses operate.
• There are 2 distinctive spaces in the business world, namely, red and blue oceans
• Red ocean- an existing and known market with bounderies and rules for
competition amongst rival firms all industries existing today fall into this
category. Firms try to outperform competitors through grabbing a larger share of
existing demand, thus the industry is limited in terms of growth prospects.
• Blue ocean- all industries not in existing today, unknown market space that’s
untainted by competition. The industry not yet shaped up, no rivals, wide-open
long term growth and profit potential, opp for profitable and rapid growth.
Achieved by creating entirely new industries or altering existing ones.
Strategy analysis framework
• Most firms face an decision of deciding on which strategy to pursue in
order optimise value creation for customers and gain CA
• Information from IFE matrix and EFE matrix is used to develop further
matrixes in order reduce the possible strategies to more specific ones
• The matrixes used in the final stage of strategy analysis to make
choice between specific statregies are: SWOT Matrix, Space Matrix
and Grand Strategy Matrix
• The Quantitative Strategic Planning Matrix (QSPM) is a calculated an
quantifiable method that can be optionally used in choosing a specific
strategy
The three strategic analysis matrixes
• The vision, mission statement, external and internal analyses of the
organisation’s environment and long-term goals provide the basis for
various matrixes.
• There is need for a support infrastructure i.e people, processes and
technology
• People responsible for the processes should be involved in strategy
analysis and choice and must have all the relevant information from the
previous stages especially EFE and IFE. This creates buy-in and value.
• Key resources needed to deliver customer value is part of the analysis
and the resources must be integrated with the processes in a unique way.
The SWOT Matrix
• Due to its simplicity and effectiveness it is the most popular method for analytic
modelling in strategic analysis
• Role players need all identified threats, opportunities, strengths and weaknesses
analysed in earlier stages
• TOWS is an alternative matrix that is fundamentally and directly connected to SWOT.
• The steps to construct SWOT and the TOWS are as follows:
 STEP 1: involves understanding the basic SWOT Matrix comprised of four cells as per
the four factors
STEP 2: The two top cells represent the strengths (S) and the weaknesses (W).
Strengths represent the distinctive advantages over its competitors; Weaknesses
represent any constraints that may be faced by the organisation. IFE is the source of
this information.
The SWOT Matrix cont….
STEP 3: The two bottom cells represent opportunities (O) and threats (T),
respectively according to the information derived from the EFE. An
opportunity is a favourable condition in the external environment that an
organisation can take advantage of. A threat is an unfavourable condition
that create a risk for the organisation.
STEP 4: Match the internal strengths with the external opportunities and
record the outcomes (possible strategies) in the appropriate cell, namely
SO strategies.
STEP 5: Match the internal weaknesses with the external opportunities
and record the outcomes (possible strategies) in the appropriate cell,
namely WO strategies.
The SWOT Matrix cont….
• STEP 6 Match the internal strengths with the external threats and
record the outcomes (possible strategies) in the appropriate cell,
namely ST strategies.
• STEP 7: Match the internal weaknesses with the external threats and
record the outcomes (possible strategies) in the appropriate cell,
namely WT strategies.
• After completing this matrix the four sets of strategies established
are: SO, WO, ST and WT strategies.
The SWOT Matrix cont….
• SO strategies use strengths to exploit opportunities
• WO strategies improve weaknesses to exploit opportunities
• ST use strengths to avoid possible threats
• WT reduce weaknesses and avoid threats
• SWOT/TOWS Matrix can be viewed through minimisation and maximisation
lens: Thus WT (mini-mini), WO (mini-maxi), ST (maxi-mini), SO (maxi-maxi).
• SO strategies are commonly for developmental and growth strategie while
WT are defensive.
• WO and ST can vary btwn defensive and offensive as per the factors
SPACE Matrix
• SPACE is an acronym for Strategic Position and Action Evaluation and
considers external and internal factors like SWOT/TOWS
• Financial strengths (FS) and competitive advantage (CA) as internal factors
while environmental stability (ES) and industry strength (IS) as external factors
• Each factor in the SPACE matrix has its own specific measures See Fig 10.4
• SPACE matrix has 4 quadrants namely, aggressive, conservative, defensive and
competitive each depicting the strategies that must be pursued by the
organisation
• Information on factors from IFE and EFE matrixes is used in SPACE matrix
• Not all information from SWOT will be used, thus, factors from SWOT analysis
should fit within the four dimensions of SPACE matrix (FS, CA, ES, IS).
SPACE matrix steps
• STEP 1: Select all the variables that fit under the 4 dimensions (FS, CA, ES, IS)
• STEP 2: Apportion a value from 1 (worst) to 6 (best) to the variables under FS and CA
and values from -1 (best) to -6(worst) to variables under ES and IS.
• STEP 3: Calculate an average score for each of the dimensions
• STEP 4: Plot the average score for each dimension (FS, CA, ES and IS) on their specific
axes on the SPACE Matrix.
• STEP 5: Now add the scores on the x-axis and plot the point on the x-axis. Do the same
with the y-axis. Then plot the intersection of the 2 points (xy) on the SPACE matrix.
• STEP 6: Now draw a straight line from the 0 point of the matrix to the new intersection
(xy point). This vector on the SPACE matrix shows the type of strategy advisable for
the organisation btwn (aggressive, competitive, defensive and conservative).
SPACE matrix cont…
• The 4 quadrants only gives an idea of the broader type of strategy to follow, the org
should evaluate the 14 different grand strategies and make a choice.
• If SPACE matrix suggests the:
• aggressive quadrant the firm can use: concentrated growth, market
penetration/development, product development, vertical integration, horizontal
integration, concentric diversification, conglomerate diversification
• Conservative quadrant the firm can use market penetration/development, product
development, concentric diversification.
• Defensive quadrant the firm can use concentric diversification, divestiture, turnaround,
liquidation
• Competitive quadrant the firm should use vertical integration, horizontal integration,
market penetration/development, product development
The Grand Strategy Matrix
• The Grand Strategy Matrix offers the same results as the previous two
matrixes and is the final one in this strategy analysis trio
• The Grand Strategy Matrix is simple and easy to do and most popular
• Based on only 2 dimensions: competitive position and market growth
• It is advantageous in that more than one division or unit can also be plotted in
the matrix, thus it distinguishes between different units in the same
organisation
• The Grand Strategy Matrix has four quadrants: I, II, III, and IV with 2 axis,
namely, x-axis competitive position thus weak and strong competitive
position based on internal analysis; y-axis market growth thus rapid and slow
growth based on external analysis.
The Grand Strategy Matrix cont..

• Each quadrant consists of specific grand strategies which are options in that
quadrant
• The org simply as to measure whether it is in a rapid or slow market growth and
plot that and then determine whether it is in a strong or weak competitive
position and plot that. Thus, the firm will end up in 1 quadrant explained as
follows:
• Quadrant I is an excellent position and firms can use concetric diversification,
vertical integration, horizontal integration, market penetration/development,
product development
• Quadrant II orgs are in a strongly growing market but do not have a particularly
strong position compared to its competitors use horizontal integration, market
penetration/development, product development
The Grand Strategy Matrix cont..
• Quadrant III entails firms competing in a slow-growth industry and
having a weak competitive position. Use Horizontal integration,
divestiture and liquidation
• Quadrant IV entails a strong competitive position but in a slow-
growing market. Use diversification or corporate combinations e.g
joint venture.
• Figure 10.6 shows The Grand Strategy Matrix with different strategies
The QSPM (Quantitative Strategic
Planning Matrix
• The QSPM is the only real analytical and objective technique designed to evaluate and
determine the best strategy for the org.
• The QSPM can be used as a tool to reveal the relative attractiveness of alternative
strategies
• All the information compiled through EFE, IFE, and the three matrixes should be used
to develop the QSPM
• the QSPM does not replace good intuitive judgement by managers
• Only strategies of the same group (growth, defensive, corporate combination should
be compared with one another
• For example if the organisation ended up being in the aggressive quadrant of the
SPACE matrix only grand strategies, vertical integration, horizontal integration or
concentric diversification would be evaluated in the QSPM
The QSPM steps
• STEP 1: SWOT ANALYSIS from the information EFE and IFE
• STEP 2: WEIGHTS ASSIGNED (W) each environment is weighted separately, thus, the
total for external factors should be 1.0 and the same for internal factors (based on IFE
and EFE matrixes.
• STEP 3: ALTERNATIVE STRATEGIES- from previous stage’s matrixes (SWOT, SPACE and
Grand strategy) the most feasible are placed on the top row of the QSPM. There could
be 2-4 strategies from same strategic group (growth, decline or corporate combination)
• STEP 4: ATTRACTIVENESS SCORES (AS) each strategy is now individually evaluated
against each individual factor based on whether it affects the choice of strategy. 4 highly
attractive, 3 reasonably attractive, 2 somewhat attractive and 1 not attractive.
• No strategy can score the same for the same factor as it will not affect the strategy
choice.
The QSPM steps cont…
• STEP 5: TOTAL ATTRACTIVENESS SCORE (TAS) multiply weight (W) and
attractiveness score (AS) with each factor in each strategy having a
TAS. The higher the TAS, the more attractive the proposed strategy
regarding that specific factor.
• STEP 6: SUM TOTAL ATTRACTIVENESS SCORE (STAS) add up all TAS for
each strategy. The highest STAS shows that the strategy is the best to
pursue.
• Management intuition is still important in deciding the weights and
scores