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Chapt 6
er
Stat Anal s
r egy
ysi
And Choi
ce

Stat Anal s & Choi
r egy
ysi
ce

Strategic analysis and choice largely
involves making subjective
decisions based on objective
information
...




C
h
6
1

M at ng Key Fact s t For ul e Al nat Stat es
chi
or o m at t
er i
ve r egi

Key Internal Factor

Key External Factor

Excess working capacity
(strength)

+

20% annual growth in
the cell phone industry
(opportunity)

Insufficient capacity
(weakness)

Resultant Strategy

=

Acquire Cellfone, Inc
...




Ch 6-17

W T Stat es
r egi

Threats
Opportunities
Weaknesses
Strengths
(TOWS)

WT
Strategies

Defensive
tactics aimed at
reducing internal
weaknesses
and avoiding
environmental
threats
...

2
...

4
...

6
...

8
...

Compute average score for FS, CA, ES, &
IS

SPACE M ati
rx





Plot the average scores on the Matrix
Add the two scores on the x-axis and plot
point on X
...
Plot the intersection of the new
xy point
...


SPACE Fact s
or
Internal Strategic Position

External Strategic Position

Financial Strength (FS)

Environmental Stability (ES)

Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business

Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand

SPACE Fact s
or
Internal Strategic Position

External Strategic Position

Competitive Advantage CA

Industry Strength (IS)

Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers & distributors

Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensify
Ease of entry into market
Productivity, capacity utilization

SPACE M ati
rx
FS

Conservative

Aggressive

+6
+5
+4
+3
+2
+1

CA

IS
-6

-5

-4

-3

-2

-1

+1

-1

+2 +3

+4

+5

+6

-2
-3
-4
-5

Defensive

-6

ES

Competitive

For ul i Fr ewor
m aton am
k

TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix


Ch 632

BCG M ati
rx
Boston Consulting Group Matrix




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


C
h
6
3

BCG M ati
rx
Boston Consulting Group Matrix




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



C
h
6
3

BCG M ati
rx
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
...
0

Medium

...
0

High
+20

Stars
II

Question Marks
I

Cash Cows
III

Dogs
IV

Medium
0

Low
-20

BCG M ati
rx






Question Marks
Stars
Cash Cows
Dogs



C
h
6
3

BCG M ati
rx
Question Marks
 Low

relative market share position yet
compete in high-growth industry
...



Best long-run opportunities for growth and
profitability

 Substantial

investment to maintain or
strengthen dominant position


Integration strategies, intensive strategies, joint
ventures



C
h
6
3

BCG M ati
rx
Cash Cows
 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


C
h
6
4

BCG M ati
rx
Dogs
 Low

relative market share position and
compete in slow or no market growth


Weak internal and external position

 Decision

to liquidate, divest, retrenchment



C
h
6
4

For ul i Fr ewor
m aton am
k

TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage

BCG Matrix
IE Matrix
Grand Strategy Matrix



C
h
6
4

Gr
and Stat M ati
r egy
rx


Popular tool for formulating alternative
strategies



All organizations (or divisions) can be
positioned in one of four quadrants



Based on two evaluative dimensions:
Competitive position
 Market growth




C
h
6
4

RAPID MARKET GROWTH
1
...

3
...

5
...


WEAK
COMPETITIVE
POSITION
1
...

3
...

5
...

2
...

4
...

6
...


Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification

Quadrant III
Quadrant IV
Retrenchment
1
...

Horizontal diversification
Horizontal diversification
3
...

Joint ventures
Liquidation
SLOW MARKET GROWTH

STRONG
COMPETITIVE
POSITION

Gr
and Stat M ati
r egy
rx
Quadrant I
 Excellent

strategic position
 Concentration on current markets and
products
 Take risks aggressively when necessary



C
h
6
4

Gr
and Stat M ati
r egy
rx
Quadrant II
Evaluate present approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive

strategy



C
h
6
4

Gr
and Stat M ati
r egy
rx
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost and asset reduction indicated

(retrenchment)


C
h
6
4

Gr
and Stat M ati
r egy
rx
Quadrant IV
 Strong

competitive position
 Slow-growth industry
 Diversification indicated to more promising
growth areas


C
h
6
4

For ul i Fr ewor
m aton am
k

Stage 3:
The Decision Stage

Quantitative Strategic
Planning Matrix
(QSPM)



C
h
6
4

Q SPM
Quantitative Strategic Planning Matrix
 Only

technique designed to determine the
relative attractiveness of feasible alternative
actions



C
h
6
5

Q SPM
Quantitative Strategic Planning Matrix




Tool for objective evaluation of alternative
strategies
Based on identified external and internal
crucial success factors
Requires good intuitive judgment


C
h
6
5

Q SPM
Quantitative Strategic Planning Matrix


List the firm’s key external opportunities &
threats; list the firm’s key internal strengths
and weaknesses



Assign weights to each external and internal
critical success factor


C
h
6
5

Q SPM
Quantitative Strategic Planning Matrix


Examine the Stage 2 (matching) matrices
and identify alternative strategies that the
organization should consider implementing



Determine the Attractiveness Scores (AS)


C
h
6
5

Q SPM
Quantitative Strategic Planning Matrix


Compute the total Attractiveness Scores



Compute the Sum Total Attractiveness
Score


C
h
6
5

Q SPM
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems

Strategic Alternatives
Weight

Strategy 1

Strategy 2

Strategy 3

Q SPM
Limitations:


Requires intuitive judgments and educated
assumptions



Only as good as the prerequisite inputs

Q SPM
Positives:


Sets of strategies examined simultaneously
or sequentially



Requires the integration of pertinent external
and internal factors in the decision-making
process


C
h
6
5

Cont ofPr ect
ent
oj
 Executive Summary
 Introduction of Company
 Analysis of vision, Mission and Core Values
 External environment Analysis
 Internal Environment Analysis
 Competitive Analysis
 Industry Structure (Using Porter’s Five Force

Model)

 BCG Analysis
 Conclusion
 References



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