C H A P T E R 6

S tr a te gy Ana lys i s
a nd Choi c e
 OBJECTIVES
Following our discussion of this chapter, you should all be able to accomplish the following:

You can’t wait for inspiration. You have to go

after it with a club.

1. Describe a three-stage framework for choosing among alternative strategies.

2. Explain how to develop a SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and QSPM.
3. Identify important behavioral, political, ethical, and social responsibility considerations in strategy analysis
and choice.
4. Discuss the role of intuition in strategic analysis and choice.
5. Discuss the role of organizational culture in strategic analysis and choice.
6. Discuss the role of a board of directors in choosing among alternative strategies.
"Do not repeat the tactics
which have gained you
one victory, but let your
methods be regulated by
the infinite variety of
circumstances."

—
- Sun Tzu
THE NATURE OF STRATEGY
AND CHOICE

this chapter focuses on generating and

evaluating alternative strategies, as well
as selecting strategies to pursue.
Strategy analysis and choice seek to
determine alternative courses of action
that could best enable the firm to
achieve its mission and objectives.
Unless a desperate situation confronts the firm, alternative strategies will likely
represent incremental steps that move the firm from its present position to a
desired future position. Alternative strategies do not come out of the wild blue
yonder; they are derived from the firm’s vision, mission, objectives, external
audit, and internal audit; they are consistent with, or build on, past strategies
that have worked well.

Behavioral aspects of strategy formulation are described, including politics,

culture, ethics, and social responsibility considerations. Modern tools for
formulating strategies are described, and appropriate role of a board of
directors is discussed.
6

The Process of Generating

and Selecting Strategies
- Strategists never consider all feasible
alternatives that could benefit the firm because
there are an infinite number of possible actions
and an infinite number of ways to implement
those actions.
7

- Identifying and evaluating alternative strategies should

involve many of the managers and employees who earlier
assembled the organizational vision and mission
statements, performed the external audit, and conducted
the internal audit.

- Representatives from each department and division of

the firm should be included in this process, as was the
case in previous strategy-formulation activities.

- All participants in the strategy analysis and choice

activity should have the firm’s external and internal audit
information by their sides.
the process of generating and selecting strategies
A Comprehensive Strategy- Formulation
Framework
 Important strategy-formulation
A techniques can be integrated into a
Comprehensive three-stage decision-making
framework, as shown below. The
Strategy- tools presented in this framework
Formulation are applicable to all sizes and types
Framework of organizations and can help
strategists identify, evaluate, and
select strategies.
10 Stage 1 – Input Stage
•Summarizes the basic input info needed to formulate strategies
•Consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM)

Stage 2 – Matching Stage

•Focuses on generating feasible alternative strategies by aligning key external and
internal factors
•Techniques include the SWOT Matrix, the Strategic Position and Action Evaluation
(SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE)
Matrix, and the Grand Strategy Matrix

Stage 3 – Decision Stage

•Involves the Quantitative Strategic Planning Matrix (QSPM)
•Reveals the relative attractiveness of alternative strategies and thus provides an
objective basis for selecting specific strategies.

The strategy-formulation framework calls for the combination of intuition and analysis
in all nine procedures. To define plans and objectives, autonomous divisions of an
organization frequently employ strategy-formulation procedures. Divisional analyses
serve as a foundation for identifying, analyzing, and choosing among several
corporate-level strategies.
• Alternative strategies proposed by participants should be considered
and discussed in a meeting or series of meetings.
• Proposed strategies should be listed in writing.
• When all feasible strategies identified by participants are given and
understood, the strategies should be ranked in order of attractiveness
by all participants, with the following:

1 = should not be implemented

2 = possibly should be implemented
3 = probably should be implemented
4 = definitely should be implemented
A Comprehensive Strategic-Management Model
13

- It helps to better understand

the weaknesses and strengths
of the business.

- It also allows you make

agreements on long term
Benefits of bases for the successful future
Strategic of your business.
Business Model
- Also provides new
opportunities for the
productivity of the employee
and business.
 The Input Stage

• The information derived from these three matrices

provides basic input information for the matching and
decision stage matrices described later in this chapter.
 ▸ The input tools ▸ Making small ▸ Good intuitive
require decisions in the judgment is
strategists to input matrices always needed
quantify regarding the in determining
subjectivity relative appropriate
during early importance of weights and
stages of the external and ratings.
strategy- internal factors
formulation allows
The Input Stage process. strategists to
more
effectively
generate and
evaluate
alternative
strategies.
16

The Matching
Stage
Strategy is sometimes defined as the match an organization makes between its internal
resources and skills and the opportunities and risks created by its external factors. The
matching stage of the strategy-formulation framework consists of five techniques:
a)SWOT Matrix
b)SPACE Matrix
c)BCG Matrix
d)IE Matrix
Grand Strategy Matrix
These tools rely upon information derived from the input stage to match external
opportunities and threats with internal strengths and weaknesses. Matching external
and internal critical success factors is the key to effectively generating feasible
alternative strategies.
Any organization, whether military, product-oriented, service-oriented, governmental,
or even athletic, must develop and execute good strategies to win. A good offense
without a good defense, or vice versa, usually leads to defeat.
Key Internal Factor Key External Factor Resultant Strategy
     
Excess working capital (an internal strength) 20 percent annual growth in the cell phone industry (an Acquire Celfone, Inc.
  external opportunity)
 

     
Insufficient capacity 9an internal weakness) Exit of two major foreign competitors from the industry Pursue horizontal integration by buying competitors’
(an external opportunity) facilities
   

     
Strong R&D expertise (an internal strength) Decreasing numbers of younger adults (an external Develop new products for older adults
  threat)
 

     
Poor employee morale (an internal weakness) Rising healthcare costs (an external threat) Develop a new wellness program
 
THE SWOT MATRIX
 ▸ The Strengths-Weaknesses-Opportunities-Threats (SWOT)
Matrix is an important matching tool that helps managers
develop four types of strategies: SO (strengths-
opportunities) Strategies, WO (weaknesses-opportunities)
Strategies, ST (strengths-threats) Strategies, and WT
(weaknesses-threats) Strategies.3 Matching key external
and internal factors is the most difficult part of developing a
SWOT Matrix and requires good judgment—and there is no
The SWOT one best set of matches.
Matrix ▸ When an organization faces major threats, it will seek to
avoid them to concentrate on opportunities. WO Strategies
aim at improving internal weaknesses by taking advantage
of external opportunities. Sometimes key external
opportunities exist, but a firm has internal weaknesses that
prevent it from exploiting those opportunities.
 ▸ WT Strategies are defensive tactics directed at reducing
internal weakness and avoiding external threats. An
organization faced with numerous external threat and
internal weaknesses may indeed be in a precarious position.
▸ Although the SWOT matrix is widely used in strategic
planning, the analysis does have some limitations. First,
SWOT does not show how to achieve a competitive
advantage, so it must not be an end in itself. The matrix
The SWOT should be the starting point for a discussion on how
Matrix proposed strategies could be implemented as well as cost-
benefit considerations that ultimately could lead to
competitive advantage.
▸ Second, SWOT is a static assessment (or snapshot) in time.
A SWOT matrix can be like studying a single frame of a
motion picture where you see the lead characters and the
setting but have no clue as to the plot.
22

The SPACE Matrix

The Strategic Position and Action Evaluation (SPACE) Matrix

The Strategic Position and Action Evaluation

(SPACE) Matrix, another important Stage 2
matching tool, is illustrated in Figure 6-4. Its four-
quadrant framework indicates whether aggressive,
conservative, defensive, or competitive strategies
are most appropriate for a given organization. The
axes of the SPACE Matrix represent two internal
dimensions (Financial position [FP] and competitive
position [CP]) and two external dimensions
(Stability position [SP] and industry position [IP]).
These four factors are perhaps the most important
determinants of an organization’s overall strategic
position. 5 Depending on the type of organization,
numerous variables could make up each of the
dimensions represented on the axes of the SPACE
Matrix.
The SPACE Matrix
(Figure 6.4)
(Figure 6.2)
The steps required to develop a SPACE Matrix are as follows:

1. Select a set of variables to define financial position (FP), competitive position (CP),
stability position (SP), and industry position (IP).
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables
that make up the FP and IP dimensions. Assign a numerical value ranging
from -1 (best) to -7 (worst) to each of the variables that make up the SP and CP
dimensions. On the FP and CP axes, make comparison to competitors. On the IP and SP
axes, make comparison to other industries.
3. Compute an average score for FP, CP, IP, and SP by summing the values given to the
variables of each dimension and then by dividing by the number of variables included in
the respective dimension.
4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE
Matrix.

5. 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.

6. 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, or conservative.
Example of Strategy Profiles (figure 6.5)
A SPACE Matrix analysis for a bank is provided in Table 6-3. Note that
competitive
type strategies are recommended.
T H A NK YO U !