Chapter 6:

Strategy Analysis
and Choice
Reference [chapter 8 of the text
book]
learning Objectives
After studying this chapter, you should be able to do the following:
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-Weaknesses-
Opportunities-Threats (SWOT)
Matrix.
4. Diagram and explain the Boston Consulting Group (BCG)
Matrix.
5. Diagram and explain the Grand Strategy Matrix.
Strategy Analysis & Choice

Nature of Strategy Analysis &

Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission &
objectives
SWOT Matrix

Four Types of
Strategies
 Strengths-Opportunities (SO)
 Weaknesses-Opportunities (WO)
 Strengths-Threats (ST)
 Weaknesses-Threats (WT)

Ch 6 -
4
SO Strategies

Strengths
Weaknesse Use a firm’s
internal
s strengths to
Opportunit SO take
ies Threats Strategi advantage of
external
es opportunities
SWOT
WO Strategies

Strengths
Weaknesse Improving
internal
s weaknesses by
Opportunit WO taking
ies Threats Strategi advantage of
external
es opportunities
SWOT
ST Strategies

Strengths Use a
Weaknesse firm’s
s strengths
Opportunit to avoid
ST or
ies Threats Strategi reduce the
es impact of
SWOT external
threats
WT Strategies

Defensive
Strengths tactics aimed
Weaknesse at reducing
s internal
Opportunit weaknesses &
WT avoiding
ies Threats Strategi environmental
es threats
SWOT
SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses
List Opportunities advantage of by taking advantage of
opportunities opportunities

Threats – T ST Strategies WT Strategies

Use strengths to avoid Minimize weaknesses and
List Threats threats avoid threats

Ch 6 -
9
 Matching Key Factors to Formulate Alternative
Strategies
Key Internal Factor Key External Factor Resultant
Strategy
20% annual growth
Excess working
+ in the cell phone = Acquire Cellfone, Inc.
capacity (strength)
industry
(opportunity)

Exit of two major

Pursue horizontal
Insufficient foreign
+ = integration by
capacity competitors form
buying
(weakness) the industry
competitor's
(opportunity)
facilities

Decreasing Develop new products

Strong R&D (strength) + =
numbers of young for older adults
adults (threat)

Develop a new
Poor employee Strong union
+ = employee
morale (weakness) activity benefits
(threat) package
Ch 6 -
10
 Boston Consulting Group Matrix
(BCG)

▶ Enhances multidivisional firms’ efforts to

formulate
strategies
▶ Autonomous divisions (or profit centers)
constitute the business portfolio
▶ Firm’s divisions may compete in different
industries
requiring separate strategy

Ch. 6-
11
Boston Consulting Group Matrix (BCG)
▶ Graphically portrays differences among
divisions
▶ Focuses on market share position and
industry growth rate
▶ Manage business portfolio through
relative market share position and
industry growth rate

Ch. 6-
12
 Boston Consulting Group Matrix (BCG)

▶ Relative market share position defined: Ratio

of a division’s own market share in a particular
industry to the market share held by the largest rival
firm in that industry.

▶ Industry growth rate (IGR) in sales, measured

in percentage terms—that is, the average annual
increase in revenue for all firms in an industry.

Ch. 6-
13
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

Hig
h
Star Question
Industry Sales Growth
+2
0
s II Marks
Mediu
I
m
0
Cash Dog
Rate

Cows s IV
Lo III
w
-
20
 BCG
▶ Matrix
Question Marks
 Low relative market share position yet
compete in high-growth industry.
 Cash needs are high
 Case generation is low
 Decision to strengthen (intensive
strategies) or divest
 BCG
▶ Stars Matrix
 High relative market share and high
industry
growth rate.
 Best long-run opportunities for growth and profitability

Substantial investment to maintain or
strengthen
dominant position
 Integration strategies, intensive strategies,
joint ventures
 BCG
▶ Cash CowsMatrix
 High relative market share position, but
compete in low-growth industry
 Generate cash in excess of their needs
 Milked for other purposes
 Maintain strong position as long as
possible
 Product development, concentric diversification
 If becomes weak—retrenchment or
divestiture
 BCG
Matrix
▶ Dogs
 Low relative market share position and
compete in slow or no market growth
 Weak internal and external position
 Decision to liquidate, divest, retrenchment
Grand Strategy Matrix

▶ Popular tool for formulating

alternative strategies
▶ Based on two evaluative
dimensions
 Competitive position
 Market growth
Grand Strategy Matrix
All organizations can be positioned in
oneof the Grand
Strategy Matrix’s four strategy quadrants.
The Grand Strategy Matrix is based on two
evaluative dimensions:
(1) competitive position on the x-axis and
(2) market (industry) growth on the y-axis.
Appropriate strategies for an organization to
consider are listed in sequential order of
attractiveness in each quadrant of the Grand Strategy
Matrix.
 RAPID MARKET
GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITI COMPETITI
VE Quadrant IV
VE
POSITI 1. Concentric diversification POSITION
ON
2. Horizontal diversification
Quadrant
III 3. Conglomerate
diversification
1. R
e 4. Joint ventures
5. tLiquidation
r SLOW MARKET
GROWTH
e
n
Grand Strategy Matrix

Quadrant I
 Concentration on current markets (market
Penetration and develpemt) and products
(Product development) is an appropriate
strategy
 Take risks aggressively when necessary
Firms located inQuadrant I of
the Grand Strategy Matrix are in an excellent
Grand Strategy Matrix
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

 Firms positioned in Quadrant II need to evaluate their

present approach to the marketplace seriously

Grand Strategy Matrix

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 III organizations compete in slow-growth

industries and have weak competitive positions

Grand Strategy Matrix
▶ Quadrant IV
 Strong competitive position
 Slow-growth industry
 have characteristically high cash-flow levels
and limited internal growth needs and often
can pursue (in more promising areas )related
or unrelated diversification successfully