Strategy Strategy
Analysis and Analysis and
Choice Choice
Chapter Five
Chapter Objectives
1.
Describe a three-stage framework for choosing among alternative strategies.
2.
Explain how to develop a SWOT Matrix, BCG Matrix, and QSPM.
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Comprehensive Strategy-Formulation Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage Stage 3:
The Decision Stage
A Comprehensive Strategy-Formulation Framework
Stage 1 - Input Stage:
Summarizes the basic input information needed to formulate strategies.
Consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM).
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Copyright 2007 Prentice Hall 6 -5
Competitive Profile Matrix (CPM)
Competitive Profile Matrix (CPM):
Identifies firm’s major competitors and their strengths and weaknesses in relation to a
design firm’s strategic positions .
Strategy-Formulation Analytical Framework
Internal Factor Evaluation Matrix (IFE)
External Factor Evaluation Matrix (EFE)
Stage 1:
The Input Stage
Competitive Profile Matrix (CPM)
Note: EFE and CPM form external and IFE from internal (assessment)
A Comprehensive Strategy-Formulation Framework
Stage 2 - Matching Stage:
Focuses on generating possible alternative strategies by Matching key external and internal factors.
Techniques include :
(SWOT) Matrix .
The Boston Consulting Group (BCG) Matrix.
The Grand Strategy Matrix.
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Stage 2 :The Matching Stage
SWOT Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
Stage 2 :The Matching Stage
1. (SWOT) Matrix: Strengths-Weaknesses- Opportunities-Threats.
helps managers to develop four types of strategies:
SO (strengths-opportunities) Strategies.
WO (weaknesses-opportunities) Strategies.
ST (strengths-threats) Strategies.
WT (weaknesses-threats) Strategies.
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(SWOT) Matrix
“SO” Strategies
use a firm’s
internal strengths to take advantage of external
opportunities.
“WO” Strategies
aim at improving internal
weaknesses by
taking advantage of external
opportunities.
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(SWOT) Matrix
“ST ” Strategies
use a firm’s
strengths to avoid or reduce the
impact of external threats.
“WT” Strategies
defensive tactics directed at
reducing internal weakness and avoiding external threats.
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SWOT Matrix
SWOT
Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies Match and
determine strategy
WO Strategies
Match and determine strategy
Threats – T
List Threats
ST Strategies
Match and
determine strategy
WT Strategies
Match and determine strategy
SWOT Matrix
SWOT Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies
Use strengths to take advantage of
opportunities
WO Strategies
Overcoming weaknesses by taking advantage of
opportunities
Threats – T
List Threats
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize
weaknesses and avoid threats
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Develop a new employee benefits package
Strong union =
activity (threat) Poor employee +
morale (weakness)
Develop new products for older adults
=
Decreasing numbers of young adults
(threat)
Strong R&D +
(strength)
Pursue horizontal integration by buying competitor's facilities
=
Exit of two major foreign competitors from the industry (opportunity)
Insufficient capacity +
(weakness)
Acquire Cellphone, Inc.
=
20% annual growth in the cell phone
industry
(opportunity)
Great working +
capacity (strength)
Key Internal Factor Key External Factor Result Strategy
SWOT Matrix
A SWOT Matrix for a Retail Computer Store
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The Boston Consulting Group (BCG) Matrix
2. BCG Matrix :
Graphically shows differences among
divisions in terms of relative market share position and industry growth rate.
allows a multidivisional organization to manage its portfolio of businesses by
examining the relative market share position and the industry growth rate of each division relative to all other divisions in the
organization.
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The BCG Matrix
The major benefit of the BCG Matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organization’s various divisions.
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BCG Matrix
Dogs IV
Low market share
low-growth industry
Cash Cows III
High market share
low-growth industry
Question Marks I
Stars II
High market share
High growth Industry
Market Share Position
High Low
Industry Growth
High
Low
Low market share
high-growth industry
BCG Matrix
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BCG Matrix
1. Question Marks:
Low relative market share – compete in high-growth industry.
Cash needs are high.
Cash generation is low.
Decision to strengthen (intensive strategies)
or divest.
BCG Matrix
2. Stars:
High relative market share and high growth rate.
Best long-run opportunities for growth &
profitability.
Large investment to maintain or strengthen leading position.
Integration strategies, intensive
strategies, joint ventures.
BCG Matrix
3. Cash Cows:
High relative market share, competes 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.
retrenchment or divestiture.
BCG Matrix
4. Dogs:
Low relative market share compete in slow or no growth industry.
Weak internal and external position.
Liquidation, divestiture, retrenchment.
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
1. Competitive position
2. Market growth
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Quadrant IV
1. Concentric diversification
2. Horizontal diversification
3. Conglomerate diversification
4. Joint ventures
Quadrant III
1. Retrenchment
2. Concentric diversification
3. Horizontal diversification
4. Conglomerate diversification
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
Rapid Market Growth
Slow Market Growth Weak
Competitive Position
Strong Competitive
Position
Grand Strategy Matrix
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Which type of strategy would you suggest?
Quadrant I
Grand Strategy Matrix
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Quadrant II
Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Quadrant III
Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
Quadrant IV
Strategy-Formulation Analytical Framework
Stage 3:
The Decision Stage
Quantitative Strategic Planning Matrix
(QSPM)
A Comprehensive Strategy-Formulation Framework
Stage 3 - Decision Stage:
Involves the Quantitative Strategic Planning Matrix (QSPM).
Discloses the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies.
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The Quantitative Strategic Planning Matrix (QSPM)
Quantitative Strategic Planning Matrix (QSPM):
Objectively indicates which alternative strategies are best .
Uses input from Stage 1 analyses and
matching results from Stage 2 analyses to decide objectively among alternative
strategies.
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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 (A.S) 5. Compare the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Positive Features of the QSPM
Sets of strategies can be examined sequentially or simultaneously.
Requires strategists to integrate pertinent
external and internal factors into the decision process.
Can be adapted for use by small and large for-profit and nonprofit organizations.
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