BUS 496 - Strategic Management - Ch. 6

strategy-formulation analytical framework

A three stage, nine matrix, array of tools widely used for strategic planning as a guide: (stage 1: input stage; stage 2: matching stage; stage 3: decision stage).

governance

The act of oversight and direction, especially in association with the duties of a board of directors.

halo error

The human tendency to put too much weight on a single factor.

matching

When an organization matches its internal strengths and weaknesses with its external opportunities and threats using, for example, the SWOT, SPACE, BCG, IE, or GRAND Matrices.

Boston Consulting Group (BCG) matrix

A four quadrant, strategic planning analytical tool that places an organization's various divisions as circles in a display (similar to the IE Matrix) based on two key dimensions: 1) relative market share position and 2) industry growth rate. The diagram's four quadrants (Stars, Question Marks, Cash Cows, Question Marks) each have different strategy implications.

Grand Strategy Matrix

A four-quadrant, two axis tool for formulating alternative strategies. All organizations can be positioned in one of this matrix's four strategy quadrants, based on their position on two evaluative dimensions: competitive position and market (industry) growth. Strategy suggestions ensue depending on which quadrant the firm is located.

board of directors

A group of individuals above the CEO, who have oversight and guidance over management and who care for shareholders' interests.

internal-external (IE) matrix

A nine quadrant, strategic planning analytical tool that places an organization's various divisions as circles in a display (similar to the BCG Matrix) based on two key dimensions: 1) the segment's IFE total weighted scores on the x-axis and 2) the segment's EFE total weighted scores on the y-axis. The diagram is divided into three major regions that have different strategy implications: 1) grow and build or 2) hold and maintain, or 3) harvest or divest.

stars

A quadrant in the BCG Matrix for divisions that have a high relative market share position and compete in a high growth industry; this is the upper left quadrant.

cash cows

A quadrant in the BCG Matrix for divisions that have a high relative market share position but compete in a low growth industry; they generate cash in excess of their needs, they are often milked, this is the lower left quadrant.

dogs

A quadrant in the BCG Matrix for divisions that have a low relative market share position and compete in a low growth industry, this is the lower right quadrant.

question marks

A quadrant in the BCG Matrix for divisions that have a low relative market share position but compete in a high-growth industry; this is the upper right quadrant; firm's generally must decide whether to strengthen such divisions or sell them (hence a question is at hand).

Quantitative Strategic Planning Matrix (QSPM)

An analytical technique designed to determine the relative attractiveness of feasible alternative actions. This technique comprises Stage 3 of the strategy-formulation analytical framework; it objectively indicates which alternative strategies are best.

business portfolio

Autonomous divisions (or profit centers or segments) of an organization as represented by circles in a BCG and IE matrices.

attractiveness scores (AS)

In a QSPM, the numerical value (rating) that indicates the relative attractiveness of each strategy given a single internal or external factor.

Total Attractiveness Scores (TAS)

In a QSPM, the product of multiplying the weights by the Attractiveness Scores in each row. The values indicate the relative attractiveness of each alternative strategy, considering only the impact of the adjacent external or internal critical success factor.

Sum Total Attractiveness Scores (STAS)

In a QSPM, this is the sum of the Total Attractiveness Scores in each strategy column; value reveals which strategy is most attractive in each set of alternatives.

directional vector

In a SPACE Matrix analysis, this line begins at the origin and goes into one of four quadrants, revealing the type of strategies recommended for the organization: aggressive, competitive, defensive, or conservative.

defensive quadrant

In a SPACE Matrix analysis, when the firm's directional vector into the lower left quadrant it suggests that the firm should pursue defensive strategies such as retrenchment.

competitive quadrant

In a SPACE Matrix analysis, when the firm's directional vector points in the lower right quadrant it suggests that the firm should pursue competitive strategies such as horizontal integration.

conservative quadrant

In a SPACE Matrix analysis, when the firm's directional vector points in the upper left quadrant it suggests that the firm should pursue conservative strategies such as market penetration.

aggressive quadrant

In a SPACE matrix analysis, when the firm's directional vector points in the upper right quadrant, the firm should pursue aggressive strategies.

Strategic Position and Action Evaluation (SPACE) matrix

Indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. The axes of this 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.

champions

Individuals most strongly identified with a firm's new idea/product/service, and whose futures are linked to its success.

relative market share position

It is the horizontal axis in a BCG Matrix, which is the firm's particular segment's market share (or revenues or #stores) divided by the industry leader's analogous number

financial position (FP)

One of four dimensions/axes of the SPACE Matrix that determines an organization's financial strength, considering such factors as return on investment, leverage, liquidity, working capital, and cash flow.

stability position (SP)

One of four dimensions/axes of the SPACE Matrix that determines how stable/unstable a firm's industry is, considering such factors as technological changes, rate of inflation, demand of variability, price range of competing products, barriers to entry into market, competitive pressure, ease of exit from market, price elasticity of demand and risk involved in business.

industry position (IP)

One of four dimensions/axes of the SPACE Matrix that determines how strong/weak a firm's industry is, considering such factors as growth potential, profit potential, financial stability, extent leveraged, resource utilization, ease of entry into market, productivity and capacity utilization.

competitive position

One of four dimensions/axes of the SPACE Matrix; determines an organization's competitiveness, using such factors as market share, product quality, product life cycle, customer loyalty, capacity utilization, technological know-how and control over suppliers and distributors.

input stage

Stage 1 of the strategy-formulation analytical framework that summarizes the basic input information needed to formulate strategies; consists of an EFEM, CPM, and IFEM.

matching stage

Stage 2 of the strategy-formulation framework that focuses upon generating feasible alternative strategies by aligning internal with external factors by utilizing five matrices: BCG, IE, SWOT, GRAND, SPACE.

decision stage

Stage 3 of the strategy formulation analytical framework that involves development of the Quantitative Strategic Planning Matrix (QSPM). A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies.

SO strategies

Strategies that result from matching a firm's internal strengths with its external opportunities.

ST strategies

Strategies that result from matching a firm's internal strengths with its external threats.

WO Strategies

Strategies that result from matching a firm's internal weaknesses with its external opportunities.

WT strategies

Strategies that result from matching a firm's internal weaknesses with its external threats.

Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

The most widely used of all strategic planning matrices; matches a firm's internal strengths/weaknesses with its external opportunities/threats to generate four types of strategies: SO (strengths-opportunities) Strategies, WO (weaknessesopportunities) Strategies, ST (strengths-threats) Strategies, and WT (weaknesses-threats) Strategies.

culture

The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm. Strategists should strive to preserve, emphasize, and build upon these aspects.