Chapter Six

The Nature of Strategy

Analysis and Choice
• After studying this chapter you be able to:
1. Describe a three stage framework for choosing
among alternative strategies
2. Identify important behavioral, political, ethical,
and social responsibility considerations in
strategy analysis
• and choice
• 3. Explain how to develop a SWOT Matrix,
SPACE Matrix, BCG Matrix, IE Matrix, and QSPM.
• 4. Discuss the role of organizational culture in
strategic analysis and choice.
The Nature of Strategy Analysis and Choice
Strategy analysis and choice seek to determine alternative
courses of action that could best enable the firm to achieve
its mission and objectives. The firm’s present strategies,
objectives, and mission, coupled with the external and
internal audit information, provide a basis for generating
and evaluating feasible alternative strategies.
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.

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. Therefore, a
manageable set of the most attractive alternative
strategies must be developed.
The advantages, disadvantages, trade-offs, costs, and
benefits of these strategies should be determined.
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.
All participants in the strategy analysis and choice activity
should have the firm’s external and internal audit
information by their sides.
This information, coupled with the firm’s mission statement,
will help participants crystallize in their own minds particular
strategies that they believe could benefit the firm most.
Creativity should be encouraged in this thought process.
When all feasible strategies identified by participants are
given and understood, the strategies should be ranked in
order of attractiveness by all participants, with
1 .should not be implemented,
2 .possibly should be implemented,
3 .probably should be implemented, and
4 .definitely should be implemented.
This process will result in a prioritized list of best strategies that
reflects the collective wisdom of the group.
The Strengths-Weaknesses-Opportunities-Threats Matrix
The Strengths-Weaknesses-Opportunities-Threats (SWOT)
Matrix is an important matching tool that helps managers
develop four types of strategies:
 1. SO (strengths-opportunities) Strategies,
2. WO (weaknesses-opportunities) Strategies,
3. ST (strengths-threats) Strategies, and
4. WT (weaknesses-threats) Strategies.
Matching key external and internal factors is the most
difficult part of developing a SWOT Matrix and requires
good judgment and there is no one best set of matches.
 Strength: Opportunity Strategies use a firm’s internal
strengths to take advantage of external opportunities. All
managers Would like their organizations to be in a position
in which internal strengths can be used to take advantage of
external trends and events.
Organizations generally will pursue WO, ST, or WT strategies to
get into a situation in which they can apply SO Strategies.
When a firm has major weaknesses, it will strive to overcome
them and make them strengths.
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.
ST Strategies use a firm’s strengths to avoid or reduce the
impact of external threats. This does not mean that a strong
organization should always meet threats in the external
environment head-on. Rival firms that copy ideas, innovations,
and patented products are a major threat in many industries.
 WT Strategies are defensive tactics directed at
reducing internal weakness and avoiding external
threats.
An organization faced with numerous external
threats and Internal weaknesses may indeed be in a
precarious position. In fact, such a firm may have to
fight for its survival, merge, retrench, declare
bankruptcy, or choose liquidation.
There are eight steps involved in constructing a
SWOT Matrix:
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 in the appropriate cell.
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.
A Comprehensive Strategy-Formulation Framework
Important strategy-formulation techniques can be
integrated into a three-stage decision making framework.
The tools presented in this framework Are applicable to all
sizes and types of organizations and can help strategists
identify, evaluate, and select strategies. These stages are:
1. The Input Stage
2. The Matching Stage
3. The decision Stage
Input Stage: The input tools require strategists to quantify subjectivity during early
stages of the strategy-formulation process. Making small decisions in the input
matrices regarding the relative importance of external and internal factors allows
strategists to more effectively generate and evaluate alternative strategies. Good
intuitive judgment is always needed in determining appropriate weights & ratings.
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. Matching external and internal critical
success factors is a 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.
 Developing strategies that use strengths to capitalize on
opportunities could be considered an offense.
 whereas strategies designed to improve upon
weaknesses while avoiding threats could be
termed defensive.
 Every organization has some external
opportunities and threats and internal strengths
and weaknesses that can be aligned to formulate
feasible alternative strategies.
The above Boston Consulting Group(BCG) Quadrant
describes the matching stages a strategy.
Quadrant I: Question Marks—Divisions in this
Quadrant have a low relative market share position,
yet they compete in a high-growth industry.
Generally these firms’ cash needs are high and their
cash generation is low.
These businesses are called Question Marks
because the organization must decide whether to
strengthen them by pursuing an intensive strategy
(market penetration, market development, or
product development) or to sell them.
The Stars (Quadrant II): such businesses represent the
organization’s best long-run opportunities for growth and
profitability. Divisions with a high relative market share and
a high industry growth rate should receive substantial
investment to maintain or strengthen their dominant
positions. Forward, backward, and horizontal integration;
market penetration; market development; and product
development are appropriate strategies for these divisions
to consider.
Cash Cows (Quadrant III): Divisions positioned in have a high
relative market share position but compete in a low-growth
industry. This stage is called Cash Cows because they
generate cash in excess of their needs, they are often
milked. Many of today’s Cash Cows were yesterday’s Stars.
Cash Cow divisions should be managed to maintain
their strong position for as long as possible. Product
development or diversification may be attractive strategies for
strong Cash Cows. However, as a Cash Cow division becomes
weak, retrenchment or divestiture can become more
appropriate.
The Dogs Stage (Quadrant IV): divisions of the organization
have a low relative market share position and compete in a
slow- or no-market-growth industry; they are Dogs in the firm’s
portfolio. Because of their weak internal and external position,
these businesses are often liquidated, divested, or trimmed
down through retrenchment. When a division first becomes a
Dog, retrenchment can be the best strategy to pursue because
many Dogs have bounced back, after strenuous asset and cost
reduction, to become viable, profitable divisions.
In summary:
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. The divisions of many firms evolve over time:
 Dogs become Question Marks,
 Question Marks become Stars,
 Stars become Cash Cows, and
 Cash Cows become Dogs in an ongoing
counterclockwise motion. Less frequently,
Stars become Question Marks,
Question Marks become Dogs,
Dogs become Cash Cows, and
Cash Cows become Stars (in a clockwise motion).
In some organizations, no cyclical motion is apparent. Over time, organizations
should strive to achieve a portfolio of divisions that are Stars.
The Decision Stage
Analysis and intuition provide a basis for making
strategy-formulation decisions. The matching
techniques just discussed reveal feasible alternative
strategies. Many of these strategies will likely have
been proposed by managers and employees
participating in the strategy analysis and choice
activity.
Any additional strategies resulting from the
matching analyses could be discussed and added to
the list of feasible alternative options.
Cultural Aspects of Strategy Choice
All organizations have a culture. Culture includes the set of
shared values, beliefs, attitudes, customs, norms,
personalities, heroes, and heroines that describe a firm.
Culture is the unique way an organization does business. It is
the human dimension that creates solidarity and meaning,
and it inspires commitment and productivity in an
organization when strategy changes are made.
All human beings have a basic need to make sense of the
world, to feel in control, and to make meaning. When events
threaten meaning, individuals react defensively. Managers
and employees may even sabotage new strategies in an
effort to recapture the status quo.
It is beneficial to view strategic management from a cultural
perspective, because success often rests upon the degree of
support that strategies receive from a firm’s culture.
If a firm’s strategies are supported by cultural products such
as values, beliefs, rites, rituals, ceremonies, stories, symbols,
language, heroes, and heroines, then managers often can
implement changes swiftly and easily.
However, if a supportive culture does not exist and is not
cultivated, then strategy changes may be ineffective or even
counterproductive. A firm’s culture can become antagonistic
to new strategies, and the result of that antagonism may be
confusion and disarray.
The Politics of Strategy Choice
All organizations are political. Unless managed, political
maneuvering:
consumes valuable time,
subverts organizational objectives,
diverts human energy, and
results in the loss of valuable employees.
Sometimes political biases and personal preferences get
unduly embedded in strategy choice decisions. Internal
politics affect the choice of strategies in all organizations
In the absence of objective analyses, strategy
decisions too often are based on the politics of the
moment.
With development of Improved strategy-formation
tools, political factors become less important in
making strategic decisions.
In the absence of objectivity, political factors
sometimes dictate strategies, and this is unfortunate.
Managing political relationships is an integral part of
building enthusiasm and esprit de corps in an
organization.
McKensy 7s framework

Strategy implementation requires the 7-S factors

1. Strategy: A set of decision & action which aims to gain
competitive advantage
2.Structure: The organizational chart presenting ,who reports
to whom, and how task to be divided.
3. Systems: Sequential activities engaged in the daily
operations
4.Style (leadership)
5. Staff (management):It is related to employees training
6. Shared values (culture):is subjected to commonly used
beliefs ,mindsets & assumptions
7.Skills (management):concerned with organization’s
dominant capabilities & competencies