Strategic Management Ch. 6

WO Strategies

aim at improving internal weaknesses by taking advantage of external opportunities

WT Strategies

defensive tactics directed at reducing internal weakness and avoiding external threats

SPACE Matrix dimensions

Two internal dimensions (financial position [FP] and competitive position [CP]) Two external dimensions (stability position [SP] and industry position [IP])

Grand Strategy Matrix Quadrant II

Unable to compete effectivelyneed to determine why the firm's current approach is ineffective and how the company can best change to improve its competitiveness

Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

Helps managers develop four types of strategies: -SO (strengths-opportunities) Strategies -WO (weaknesses-opportunities) Strategies -ST (strengths-threats) Strategies -WT (weaknesses-threats) Strategies

SWOT Matrix Steps

1. List the firm's key external opportunities. 2. List the firm's key external threats. 3. List the firm's key internal strengths 4. List the firm's key internal weaknesses. 5. Match internal strengths with external opportunities, and record the resultant SO strategies. 6. Match internal weaknesses with external opportunities, and record the resultant WO strategies. 7. Match internal strengths with external threats, and record the resultant ST strategies. 8. Match internal weaknesses with external threats, and record the resultant WT strategies.

Board of Directors

A group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who look out for shareholders' interests

Limitations of the QSPM

Always requires informed judgments It is only as good as the prerequisite information and matching analyses on which it is based

Grand Strategy Matrix

Based on two evaluative dimensions: competitive position and market (industry) growth

Dogs - Quadrant IV

Compete in a slow- or no-market-growth industry. Businesses are often liquidated, divested, or trimmed down through retrenchment

Stage 2 - Matching Stage

Focuses on generating feasible alternative strategies by aligning key external and internal factors. Techniques include the Strengths-Weaknesses-Opportunities-Threats (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

The SPACE Matrix (Strategic Position and Action Evaluation)

Four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization

Cash Cows - Quadrant III

Generate cash in excess of their needs. Should be managed to maintain their strong position for as long as possible

BCG Matrix

Graphically portrays differences among divisions in terms of relative market share position and industry growth rate. Allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization. The major benefit of the BCG Matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organization's various divisions.

Three Major Regions in IE Matrix

Grow and build Hold and maintain Harvest or divest

Grand Strategy Matrix Quadrant IV

Have characteristically high cash-flow levels and limited internal growth needs and often can pursue related or unrelated diversification successfully

Quantitative Strategic Planning Matrix (QSPM)

Objectively indicates which alternative strategies are best. Uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies

Question Marks - Quadrant I

Organization must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them

Stars - Quadrant II

Represent the organization's best long-run opportunities for growth and profitability

Positive Features of the QSPM

Sets of strategies can be examined sequentially or simultaneously Requires strategists to integrate pertinent external and internal factors into the decision process Can be adapted for use by small and large for-profit and nonprofit organizations

The Culture and Politics of Strategy Choice

Strategies that require fewer cultural changes may be more attractive because extensive changes can take considerable time and effort. Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees Political biases and personal preferences get unduly embedded in strategy choice decisions

Stage 1 - Input Stage

Summarizes the basic input information needed to formulate strategies. Consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM)

The Internal-External (IE) Matrix

The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis

SO Strategies

use a firm's internal strengths to take advantage of external opportunities

ST Strategies

use a firm's strengths to avoid or reduce the impact of external threats

Steps in a QSPM

1. Make a list of the firm's key external opportunities and threats and internal strengths and weaknesses in the left column. 2. Assign weights to each key external and internal factor. 3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing. 4. Determine the Attractiveness Scores (AS). 5. Compute the Total Attractiveness Scores. 6. Compute the Sum Total Attractiveness Score.

Steps to Develop a SPACE Matrix

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. 3. Compute an average score for FP, CP, IP, and SP. 4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis. 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.

Grand Strategy Matrix Quadrant I

Continued concentration on current markets (market penetration and market development) and products (product development) is an appropriate strategy

Stage 3 - Decision Stage

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

Grand Strategy Matrix Quadrant III

Must make some drastic changes quickly to avoid further decline and possible liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first