STRATEGIC MANAGEMENT

TUTORIAL 6

STRATEGY GENERATION
AND SELECTION
Strategic-Management Process
Description of Subject
Vision and Mission;
External Assessment;
Industry Analysis
Competition Mapping
Internal Assessment;
Resource overview,
Value chain analysis,
Functional analysis;
Strategy Formulation and Decision;
Refinement of the Strategies;
Corporate Strategy
Business Strategy
Functional Strategy
Strategy Implementation and Evaluation;
Organizational change
The role of leaders
Monitoring and control
A. The Nature of Strategy Analysis
and Choice
A.1. The Process of Generating and Selecting
Strategies
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Alternative Strategies Derive From
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Generating Alternatives --
Participation in generating alternative strategies should be as
broad as possible
B. A Comprehensive Strategy-
formulation
Analytical Framework
Internal Factor Evaluation
Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile Matrix

(CPM)
C. The Input Stage
Basic input information for the matching & decision stage
matrices
Requires strategists to quantify subjectivity early in the
process
Good intuitive judgment always needed
 D. The Matching Stage

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Match between organizations

internal resources & skills and Grand Strategy Matrix
the opportunities & risks created
by its external factors
D.1. The SWOT Matrix
Developing the SWOT
List firms key internal Strengths
List firms key internal Weaknesses
List firms key external Opportunities
List firms key external Threats

Four Types of Strategies

Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
 SO Strategies

Strengths
Weaknesses Use a firms
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT

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 WO Strategies

Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT

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 ST Strategies

Strengths Use a firms

Weaknesses strengths
Opportunities to avoid or
Threats reduce the impact
ST of external
Strategies threats
SWOT

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Ch 6 -11
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 WT Strategies

Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats avoiding
WT environmental
Strategies threats
SWOT

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Ch 6 -12
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 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

Copyright 2007 Prentice Hall Ch 6 -13

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

Exit of two major

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

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

Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package

Copyright 2007 Prentice Hall Ch 6 -14

D.1. The SWOT Matrix
Limitations with 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
D.2. The Strategic Position and
Action Evaluation (SPACE) Matrix

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

D.2. The Strategic Position and
Action Evaluation (SPACE) Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive

Two Internal Dimensions

Financial Strength (FS)
Competitive Advantage (CA)

Two External Dimensions

Environmental Stability (ES)
Industry Strength (IS)
 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength Environmental Stability

(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
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Copyright 2007 Prentice Hall Ch 6 -18
 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage Industry Strength (IS)

CA
Growth potential
Market share Profit potential
Product quality Financial stability
Product life cycle Technological know-how
Customer loyalty Resource utilization
Competitions capacity utilization Ease of entry into market
Technological know-how Productivity, capacity
Control over suppliers & utilization
distributors

Copyright 2007 Prentice Hall Ch 6 -19

D.2. The Strategic Position and
Action Evaluation (SPACE) Matrix
Steps to Developing a SPACE Matrix
1. Select a set of variables to define FS, CA, ES, & IS
2. Assign a numerical value:
From +1 to +6 to each FS & IS dimension
From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, & IS
4. Plot the average score on the appropriate axis
5. Add the two scores on the x-axis and plot the point.
Add the two scores on the y-axis and plot the point.
Plot the intersection of the new xy point
6. Draw a directional vector from the origin through
the new intersection point.
 SPACE Matrix
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 Competitive
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D.3. the Boston Consulting Group
(BCG) Matrix

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

D.3. the Boston Consulting Group
(BCG) Matrix
Enhances multi-divisional firm in formulating strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry growth rate

Relative Market Share Position

Ratio of a divisions own market share in an industry to the
market share held by the largest rival firm in that industry
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
Industry Sales Growth Rate

+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
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D.3. the Boston Consulting Group
(BCG) Matrix
Question Marks
Low relative market share compete in high-growth
industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or divest

Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or strengthen dominant
position
Integration strategies, intensive strategies, joint
ventures
D.3. the Boston Consulting Group
(BCG) Matrix
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
If weakensretrenchment or divestiture

Dogs
Low relative market share & compete in slow or no market
growth
Weak internal & external position
Liquidation, divestiture, retrenchment
D.4. The Internal-external (IE)
Matrix
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

D.4. The Internal-external (IE)
Matrix
Positions an organizations 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

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
D.4. The Internal-external (IE)
Matrix
D.4. The Internal-external (IE)
Matrix
D.5. The Grand Strategy Matrix

SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

D.5. The Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth
 D.5. 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
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
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D.5. The 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
D.5. The 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
 E. The Decision Stage

Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
E.1. The Quantitative Strategic
Planning Matrix (QSPM)
Technique designed to determine the relative
attractiveness of feasible alternative actions

Steps to Develop a QSPM

1. Make a list of the firms 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. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
 QSPM Strategic Alternatives

Key External Factors Weight Strategy Strategy Strategy 3

Economy 1 2
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
E.1. The Quantitative Strategic
Planning Matrix (QSPM)
Positive Features and Limitations of the QSPM

Advantages
Sets of strategies considered simultaneously or
sequentially
Integration of pertinent external & internal factors in the
decision making process

Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
F. Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of consistency
with the firms culture
G. The Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources

Political Tactics for Strategists

Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
H. Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
 THANK YOU