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DAY 9
Copyright 2005 Prentice Hall 1

Agenda
 Assignment #3 due
 Assignment #4 will be assigned next class
 Templates available in WebCT
 Discussion on Mid-term
 Before or after Spring Break?
 Finish Discussion about Strategies
 Start Discussion on Strategy Analysis and
choice
Ch 6 -2
Copyright 2005 Prentice Hall
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Ch 6 -3
Generic Strategies
Cost Leadership
In conjunction with differentiation
Economies or diseconomies of
scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Ch 6 -4
Generic Strategies
Low Cost Producer Advantage
Many price-sensitive buyers

Few ways of achieving differentiation
Buyers not sensitive to brand
differences
Large # of buyers w/bargaining power
Ch 6 -5
Generic Strategies
Differentiation
Greater product flexibility

Greater compatibility
Improved service
Greater convenience
More features
Ch 6 -6
Generic Strategies
Focus
Industry segment of sufficient size

Good growth potential
Not crucial to success of major competitors
Ch 6 -7
Means for Achieving Strategies
Joint Venture/Partnering -
 Two or more companies form a temporary

partnership or consortium for purpose of
capitalizing on some opportunity.
Ch 6 -8
Cooperative Arrangements -
 R&D partnerships
 Cross-distribution agreements
 Cross-licensing agreements
 Cross-manufacturing agreements
 Joint-bidding consortia
Ch 6 -9
Why Joint Ventures Fail -
 Managers who must collaborate daily; not

involved in developing the venture
 Benefits the company not the customers
 Not supported equally by both partners
 May begin to compete with one of the
partners
Ch 6 -10
Joint Ventures
Guidelines --
Synergies between private and publicly held
Domestic with foreign firm, local management can
reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable
(e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Ch 6 -11
Mergers & Acquisitions
 Provide improved capacity utilization
 Better use of existing sales force
 Reduce managerial staff
 Gain economies of scale
 Smooth out seasonal trends in sales
 Gain new technology
 Access to new suppliers, distributors, customers,
products, creditors
Ch 6 -12
Recent Mergers
Acquiring Firm Acquired Firm

IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Doughnuts Montana Mills
Oracle People Soft
Palm Handspring
Nike Converse
Ch 6 -13
First Mover Advantages
 Benefits a firm may achieve by entering a

new market or developing a new product or
service prior to rival firms.
Ch 6 -14
First Mover Advantages
Potential Advantages
 Securing access to rare resources

 Gaining new knowledge of key factors &
issues
 Carving out market share
 Easy to defend position & costly for rival
firms to overtake
Ch 6 -15
Outsourcing
Business-process outsourcing
(BPO)
 Companies taking over the functional

operations of other firms
Ch 6 -16
Outsourcing
Benefits
 Less expensive
 Allows firm to focus on core business
 Enables firm to provide better services
Ch 6 -17
Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
10th Edition
Fred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6 -18
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive
Strategy-Formulation Framework
The Input Stage
Ch 6 -19
Chapter Outline (cont’d)
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Ch 6 -20
Chapter Outline (cont’d)
The Politics of Strategy Choice
Governance Issues
Ch 6 -21
To acquire or not to acquire, that is the

question –
Robert J. Terry
Life is full of lousy options --

General P.X. Kelley
Ch 6 -22
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -23
Alternative Strategies Derive From --
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
Ch 6 -24
Generating Alternatives --
Participation in generating alternative

strategies should be as broad as
possible
Ch 6 -25
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -26
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile Matrix

(CPM)
Ch 6 -27
Stage 1: 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
Ch 6 -28
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -29
Stage 2: The Matching Stage
Match between organization’s internal

resources & skills and the opportunities & risks
created by its external factors
Ch 6 -30
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Ch 6 -31
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -32
SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -33
WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -34
ST Strategies
Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats ST reduce the impact
Strategies of external
threats
SWOT
Ch 6 -35
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats WT avoiding
Strategies environmental
threats
SWOT
Ch 6 -36
SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths

List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -37
SWOT Matrix
Leave Blank Strengths – S Weaknesses – W
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies

Use strengths to take Overcoming weaknesses by
List Opportunities advantage of 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 -38
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
20% annual growth in

Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)
Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form the = by buying competitor's
(weakness)
industry (opportunity) facilities
Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -39
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -40
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -41
SPACE Matrix
Two Internal Dimensions

Financial Strength (FS)
Competitive Advantage (CA)
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
Ch 6 -42
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -43
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage CA Industry Strength (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 Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Ch 6 -44
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
-6
ES Ch 6 -45
The steps to develop a SPACE
Matrix:
 Select a set of variables to define financial strength (FS), competitive advantage (CA),
environmental stability (ES), and industry strength (IS).
 Table 6-2 provides Good examples
 Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make
up the FS and IS dimensions. Assign a number between –1 (best) to –6 (worst) for
variables that make up the ES and CA dimensions. On the FS and CA axes, make
comparison to competitors. On the IS and ES axes, make comparison to other
industries.
 Compute an average score for FS, CA, IS, and ES by summing the values given to the
variables and dividing by the number of variables included in each dimension.
 Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE
Matrix.
 Add the two scores on the x-axis and plot the resultant point on X. Add the two scores
on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
 Draw a directional vector from the origin of the SPACE matrix through the new
intersection point. This vector reveals the type of strategies recommended for the
organization.
 Aggressive
 Competitive
 Defensive
 Conservative
 Lets try with Data in table 6-3
Ch 6 -46
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -47
BCG Matrix
Boston Consulting Group 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
Ch 6 -48
BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an

industry to the market share held by the largest
rival firm in that industry.
Ch 6 -49
BCG Matrix
 Data required
 Relative market Share for each Division
 Horizontal axis
 Compare to leading firm (1 means you are the leading firm)
 Industry growth pattern
 Vertical axis
 Percentage of Corporate Revenues generated by division
 Size of circle
 Percentage of Corporate Profits generated by division
 Size of pie slice
Ch 6 -50
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Stars Question Marks
II I
Medium
0
Cash Cows Dogs

III IV
a S yrt s udnI
Low
-20
Ch 6 -51
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
Ch 6 -52
BCG Matrix
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
Ch 6 -53
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 weakens—retrenchment or divestiture
Ch 6 -54
BCG Matrix
Dogs
Low relative market share & compete in slow or

no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -55
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -56
IE Matrix
 The IE Matrix positions an organization’s various
divisions in a nine-cell display illustrated in Figure 6-
10.
 The IE Matrix is similar to the BCG Matrix in that
both tools involve plotting organization divisions in a
schematic diagram; this is why they are called
portfolio matrices.
 Differences between the IE Matrix and the BCG
Matrix
 Axes are different.
 IE Matrix requires more information about divisions than
BCG.
 Strategic implications of each matrix are different.
Ch 6 -57
IE Matrix
IFE Scores
Strong Average Weak
3-4 2-2.99 1-1.99
I II III
High
3-4
IV V VI
Scores
Medium
EFE
2-2.99
VII VIII IX
Low
1-1.99
Ch 6 -58
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -59
Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth
Ch 6 -60
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
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
SLOW MARKET GROWTH
Ch 6 -61
Quadrant I
Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Ch 6 -62
Quadrant II
Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive strategy
Ch 6 -63
Quadrant III
Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Ch 6 -64
Quadrant IV
Strong competitive position

Slow-growth industry
Diversification to more promising growth areas
Ch 6 -65
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -66
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative

attractiveness of feasible alternative actions
Ch 6 -67
QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
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
Ch 6 -68
QSPM
Limitations
Requires intuitive judgments & educated

assumptions
Only as good as the prerequisite inputs
Ch 6 -69
QSPM
Advantages
Sets of strategies considered simultaneously or

sequentially
Integration of pertinent external & internal
factors in the decision making process
Ch 6 -70
Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of

consistency with the firm’s culture
Ch 6 -71
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -72
Politics of Strategy Choice
Political tactics for strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -73
Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
 Advancement of stockholder rights
Ch 6 -74
Corporate Governance Issues
Business Week’s “principles of good governance”
1. No more than 2 directors current or former company executives

2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Ch 6 -75

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Copyright 2005 Prentice Hall 1

Cost Leadership Strategies

Low Cost Producer Advantage

Many price-sensitive buyers

Greater product flexibility

Industry segment of sufficient size

 Two or more companies form a temporary

 Managers who must collaborate daily; not

Acquiring Firm Acquired Firm

 Benefits a firm may achieve by entering a

 Securing access to rare resources

 Companies taking over the functional

The Nature of Strategy & Choice

The Input Stage

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

The Politics of Strategy Choice

To acquire or not to acquire, that is the

Life is full of lousy options --

Nature of Strategy Analysis & Choice

-- Establishing long-term objectives

Participation in generating alternative

Stage 1: External Factor Evaluation

Competitive Profile Matrix

Basic input information for the matching &

Stage 2: BCG Matrix

Grand Strategy Matrix

Match between organization’s internal

Four Types of Strategies

Strengths Use a firm’s

Developing the SWOT

List firm’s key internal Strengths

List Strengths List Weaknesses

Opportunities – O SO Strategies WO Strategies

Threats – T ST Strategies WT Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in

Exit of two major foreign Pursue horizontal integration

Decreasing numbers of Develop new products for

Stage 2: BCG Matrix

Grand Strategy Matrix

Two Internal Dimensions

Financial Strength (FS) Environmental Stability (ES)

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Stage 2: BCG Matrix

Grand Strategy Matrix

Boston Consulting Group Matrix

Relative Market Share Position

Ratio of a division’s own market share in an

Cash Cows Dogs

Decision to strengthen (intensive strategies) or

Substantial investment to maintain or

Maintain strong position as long as possible

Low relative market share & compete in slow or

Liquidation, divestiture, retrenchment

Stage 2: BCG Matrix

Grand Strategy Matrix

Stage 2: BCG Matrix

Grand Strategy Matrix

Tool for formulating alternative strategies