Strategic Analysis and Choice

Strategic Analysis and Choice

Strategic analysis and choice largely involves

making subjective decisions based on objective
information.
 Strategic Analysis and Choice
The Nature of Strategy Analysis and Choice
 Establishing long-term objectives
 Generating alternative strategies
 Selecting strategies to pursue
 Best alternative to achieve mission and
objectives
 Strategic Analysis and Choice
Alternative strategies derive from
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
 STRATEGY FORMULATION
FRAMEWORK
• Input Stage
• Matching Stage
• Decision Stage
 STRATEGY FORMULATION
FRAMEWORK
INPUT STAGE
 IFE
 EFE
MATCHING STAGE
 SPACE MATRIX
 SWOT MATRIX
 BCG MATRIX
 GE NINE CELL MATRIX
 IE MATRIX
 GRAND STRATEGY MATRIX
DECISION STAGE
 QSPM MATRIX
 Stage 1: INPUT STAGE
• Provides basic input information for the
matching and decision stage matrices
• Requires strategists to quantify subjectivity
early in the process
• Good intuitive judgment always needed
 External Factor Evaluation (EFE )
Matrix
Five-step process:
• List key external factors (10-20)
– Opportunities & threats
• Assign weight to each (0 to 1.0)
– Sum of all weights = 1.0
• Assign 1-4 rating to each factor
– Firm’s current strategies response to the factor
• Multiply each factor’s weight by its rating
– Produces a weighted score
• Sum the weighted scores for each
– Determines the total weighted score for the organization.
Note|: Highest possible weighted score for the organization is 4.0; the
lowest is 1.0. Average is 2.5
 EFE
• Total weighted score of 4.0
= Organization response is outstanding to
threats & opportunities
• Total weighted score of 1.0
= Firm’s strategies not capitalizing on
opportunities or avoiding threats
Internal Factor Evaluation (IFE ) Matrix

It is similar to EFE Matrix, only difference is it

uses internal factors( strengths and weaknesses)
rather than external factors (opportunities and
threats)
 Stage 2: The Matching Stage

Match between organization’s internal resources

& skills and the opportunities & risks created by
its external factors
 Stage 2: The Matching Stage
MATCHING STAGE
 SWOT MATRIX
 SPACE MATRIX
 BCG MATRIX
 GE NINE CELL MATRIX
 IE MATRIX
 GRAND STRATEGY MATRIX
 SWOT MATRIX
Four Types of Strategies
• Strengths - Opportunities (SO)
• Weaknesses-Opportunities (WO)
• Strengths-Threats (ST)
• Weaknesses-Threats (WT )
 SWOT MATRIX
• SO strategies use a firm’s internal strengths to
take advantage of external opportunities
• WO strategies improve internal weaknesses by
taking advantage of external opportunities
• ST strategies use a firm’s strengths to avoid or
reduce the impact of external threats
• WT strategies defensive tactics aimed at
reducing internal weakness and avoiding
external threats
 SWOT Matrix
Numerous Environmental
opportunities

Cell 3: Cell 1:
Supports a Supports an
turnaround
aggressive
oriented
strategy
strategy
Critical Internal Substantial Internal
weaknesses Strengths
Cell 4: Cell 2:
Supports Supports a
defensive diversificati
strategy on strategy

Major Environmental
Threats
 SWOT Matrix
Strengths- S Weaknesses- W

Opportunities- O SO Strategies WO Strategies

Use strengths to take Strategies Overcome
advantage of opportunities weaknesses by taking
advantage of opportunities

Threats- T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and
threats avoid Threats
 Limitation Of SWOT Matrix
• Does not show how to achieve a competitive
advantage
• Provides a static assessment in time
• May lead the firm to overemphasize a single
internal or external factor in formulating
strategies
Strategic Positioning and Action Evaluation
(SPACE) Matrix
• Four quadrant framework
• Determines appropriate strategies
– Aggressive
– Conservative
– Defensive
– Competitive
 SPACE Matrix
• Two internal Dimensions
– Financial Strength [FS]
– Competitive Advantage [CA]
• Two External Dimensions
– Environmental Stability [ES]
– Industry Strength [IS]
 SPACE Matrix
Overall strategic position determined by:
• Financial Strength [FS]
• Competitive Advantage [CA]
• Environmental Stability [ES]
• Industry Strength [IS]
 SPACE Matrix
Developing the SPACE Matrix:
 EFE Matrix
 IFE Matrix
 Financial Strength
 Competitive Advantage
 Environmental Stability
 Industry Strength
 SPACE Matrix
• Select variables to define FS, CA, ES, & IS
• Assign numerical ranking from +1 (worst) to
+6 (best) for FS and IS; Assign numerical
ranking from –1 (best) to –6 (worst) for ES
and CA.
• Compute average score for FS, CA, ES, & IS
 SPACE Matrix
• Plot the average scores on the Matrix
• Add the two scores on the x-axis and plot
point on X. Add the scores on the y-axis and
plot Y. Plot the intersection of the new xy
point.
• Draw a directional vector from origin through
the new intersection point.
 SPACE Factors
Internal Strategic Position External Strategic Position

FS ES
Return on investment Technological changes
Leverage Rate of inflation
Liquidity Demand variability

Working capital Price range of competing products

Cash flow Barriers to entry

Ease of exit from market Competitive pressure

Risk involved in business Price elasticity of demand

 SPACE Factors
Internal Strategic Position External Strategic Position
CA IS
Market share Growth potential
Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how

Competition’s capacity utilization Resource utilization

Technological know-how Capital intensify Ease of entry into market
Productivity, capacity utilization

Control over suppliers & distributors Ease of entry into market

Productivity, capacity utilization

SPACE Matrix
SPACE Matrix
 SPACE Matrix
• Aggressive Quadrant – Use of internal strengths to take advantage of
external opportunities, overcome internal weaknesses or avoid external threats
Intensive Strategies, Integration Strategies, Diversification Strategies or
combination may be used
Conservative Quadrant – Staying close to the firm’s basic competencies and
not taking excessive risks
Market penetration, market development, product development and concentric
diversification
Defensive Quadrant – Focus on rectifying internal weaknesses and avoiding
external threats
Retrenchment, divesture, liquidation and concentric diversification.
Competitive Quadrant – application of competitive strategies Integration
strategies, intensive strategies and joint ventures
BOSTON Consulting Group (BCG) Matrix

• Assists multidivisional firm in formulating

strategies
• Analyze autonomous divisions (business
portfolio). However, divisions may compete in
different industries
• It focuses on relative market-share position &
Market/ industry growth rate
BCG Matrix
 BCG Matrix
• Question Marks – low relative market share
in a high- growth industry
• Stars – high relative market share in a high-
growth industry
• Cash Cows – high relative market share in a
low- growth industry
• Dogs – Low relative market share in a slow or
no growth industry
The GE Nine-cell Planning Grid (GEC’S Matrix)
• General Electric’s nine cell matrix attempts to
overcome some of the limitations of BCG matrix.
• First, GE grid uses multiple factors to assess
industry attractiveness and business strength, rather
than the single measures (market share and market
growth).
• Second, GE expanded the matrix from four cells to
nine- replacing the high/low axes with
high/medium/low axes to make finer distinction
between business portfolio positions
BCG The GE Nine-cell Planning Grid
(GEC’S Matrix) Matrix
Advantages of the Industry Attractiveness-Business Strength Matrix Over
the BCG Matrix

• Terminology is less offensive and more

understandable
• Multiple measures associated with each
dimension tap many factors relevant to
business strength and market attractiveness
• Allows for broader assessment during both
strategy formulation and implementation for a
multi business company
 The Internal-External Matrix
• Positions an organization’s various divisions in
a nine- cell display
• Similar to BCG Matrix except the IE Matrix:
– Requires more information about the divisions
– Strategic implications of each matrix are different
 The Internal-External Matrix
• Based on two key dimensions
• The IFE total weighted scores on the x-axis
• The EFE total weighted scores on the y-axis
• Divided into three major regions
– Grow and build – Cells I, II, or IV
– Hold and maintain – Cells III, V, or VII
– Harvest or divest – Cells VI, VIII, or IX
 Grand Strategy Matrix
• Tool for formulating alternative strategies
• Based on two dimensions
– Competitive position
– Market growth
Grand Strategy Matrix
 Grand Strategy Matrix
• Quadrant I
– Excellent strategic position
– Concentration on current markets/products
– Take risks aggressively when necessary
• Quadrant II
– Evaluate present approach
– How to improve competitiveness
– Rapid market growth requires intensive strategy
 Grand Strategy Matrix
• Quadrant III
– Compete in slow-growth industries
– Weak competitive position
– Drastic changes quickly
– Cost & asset reduction (retrenchment)
• Quadrant IV
– Strong competitive position
– Slow-growth industry
– Diversification to more promising growth areas
 Stage 3: The Decision Stage Quantitative
Strategic Planning Matrix (QSPM)
• QSPM
• Technique designed to determine the relative
attractiveness of feasible alternative actions
 Steps to Develop a QSPM
• 1. Make a list of the firm’s key external
opportunities/threats and internal strengths/weaknesses in
the left column
• 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
• 4. Determine the Attractiveness Scores
• 5. Compute the Total Attractiveness Scores
• 6. Compute the Sum Total Attractiveness Score
 QSPM
Advantages
• Sets of strategies considered simultaneously or
sequentially
• Integration of pertinent external & internal
factors in the decision- making process
 QSPM
Limitations
• Requires intuitive judgments & educated
assumptions
• Better to use only when all the prerequisite
information are available