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

  1. Match the internal W with external O, and record the resultant WO strategies
  1. Match in internal S with external T, and record the resultant ST Strategies
  1. Match the internal S with external O, and record the resultant SO Strategies
  1. Match the internal W with external T, and record the resultant WT strategies
  1. 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

  1. Compute an average score for FP, CP, IP & SP
  1. Plot the average score for FP, IP, SP and CP on the appropriate axis.
  1. Assign a numerical value ranging from +1 (best) to +7 (worst) to each of the variables that makes up the SP and CP dimensions
  1. Add the two scores on the x-axis and plot
  1. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions
  1. Add the two score on the y-axis and plot
  1. Select a set of variable to define FP, CP, SP & IP
  1. Plot the intersection of the new XY point
  1. 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

  1. Make a list of the firm's key external O & T and Internal S & W in the left column
  1. Assign weight to each key external and internal factors
  1. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organisation should consider implementing
  1. Determine the Attractiveness Score (AS)
  1. Compute the total AS
  1. Compute the sum total AS
  1. 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