Unit 5 : Strategy Analysis and Choice
Stage 2 : The Matching Stage
Stage 1 : The Input Stage
Stage 3 : The Decision Stage
Internal Factors Evaluation Matrix (IFE Matrix)
Competitive Profile Matrix (CP Matrix)
External Factors Evaluation Matrix (EFE Matrix)
Boston Consulting Group (BCG) Matrix
The Internal-External (IE) Matrix
The SPACE Matrix
The SWOT Matrix
WO (Weaknesses-Opportunities) Strategies
ST (Strength-Threats) Strategies
SO (Strength-Opportunities) Strategies
WT (Weaknesses-Threats) Strategies
Use a firm's internal S to take advantage of external O
Improving internal W by taking advantage of external O
Use a firm's S to avoid or reduce the impact of external T
Defensive tactics directed at reducing internal W and avoiding external T
SWOT Matrix Steps
- Match the internal W with external O, and record the resultant WO strategies
- Match in internal S with external T, and record the resultant ST Strategies
- Match the internal S with external O, and record the resultant SO Strategies
- Match the internal W with external T, and record the resultant WT strategies
- List the firm's key external O & T and key internal S & W
Four-Quadrant Framework
Two Internal Dimension
Two External Dimension
Defensive ( CP & SP )
Competitive ( SP & IP )
Aggressive ( FP & IP )
Conservative ( CP & FP )
Market & Product Development
Market Penetration
Related Diversification
Market Penetration
Market & Product Development
Backward, Forward & Horizontal Integration
Related & Unrelated Diversification
Retrenchment
Liquidation
Divestiture
Market Penetration
Market & Product Development
Backward, Forward, Horizontal Integration
Financial Position [FP]
Competitive Position [CP]
Stability Position [SP]
Industry Position [IP]
Working Capital
Liquidity
Cash Flow
Inventory Turnover
Leverage
Earnings Per Share
Return on Investment
Price Earning Ratio
Product Life Cycle
Customer Loyalty
Product Quality
Capacity Utilisation
Market Share
Technological Know - How
Control Over Suppliers and Distributors
Price Range of Competing Products
Barriers To Entry Into Market
Demand Variability
Competitive Pressure
Rate of Inflation
Price Elasticity of Demand
Risk Involved In Business
Technological Changes
Resource Utilisation
Ease of Entry Into Market
Profit Potential
Productivity, Capacity Utilisation
Growth Potential
SPACE Matrix Steps
- Compute an average score for FP, CP, IP & SP
- Plot the average score for FP, IP, SP and CP on the appropriate axis.
- Assign a numerical value ranging from +1 (best) to +7 (worst) to each of the variables that makes up the SP and CP dimensions
- Add the two scores on the x-axis and plot
- Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions
- Add the two score on the y-axis and plot
- Select a set of variable to define FP, CP, SP & IP
- Plot the intersection of the new XY point
- Draw a directional vector from the origin of the SPACE Matrix through the new intersection point
Stars - Quadrant 2
Cash Cows - Quadrant 3
Question Marks - Quadrant 1
Dogs / Animal - Quadrant 4
Market Growth : High
Relative Market Share : Low
Relative Market Share : High
Market Growth : High
Relative Market Share : High
Market Growth : Low
Relative Market Share : Low
Market Growth : Low
IE Matrix based on 2 dimensions
IFE total weighted scores on the x-axis
EFE total weighted scores on the y-axis
Three Major Regions
Growth and Build
Hold and Maintain
Harvest or Divest
Based on Two Evaluation Dimension : Competitive Position & Market (Industry) Growth
Quadrant 2
Quadrant 3
Quadrant 1
Quadrant 4
Continued concentration on current market ( market penetration and market development ) and product ( product development ) is an appropriate strategy
Unable to compete effectively need to determine why the firm's current approach is ineffective and how the company can best change to improve its competitiveness
Must make some drastic changes quickly to avoid further decline and possible liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first
High cash-flow levels and limited internal growth needs and often can pursue related or unrelated diversification successfully.
Quantitative Strategic Planning Matrix (QSPM)
Uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies
QSPM 7 Steps
- Make a list of the firm's key external O & T and Internal S & W in the left column
- Assign weight to each key external and internal factors
- Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organisation should consider implementing
- Determine the Attractiveness Score (AS)
- Compute the total AS
- Compute the sum total AS
- Choose the highest sum total AS
Positive Features of the QSPM
Sets of strategies can be examined sequentially or simultaneously
Requires strategist to integrate pertinent external and internal factors the decision process
Can be adapted for use by small and large for-profit and non-profit organization