![The SPACE Matrix
• Two internal dimensions (financial position
[FP] and competitive position [CP])
• Two external dimensions (stability position
[SP] and industry position [IP])
• Most important determinants of an
organization's overall strategic position](https://image.slidesharecdn.com/l7strategyanalysisandformulationtools-190512121427/85/L-7-strategy-analysis-and-formulation-tools-17-320.jpg)
L 7 strategy analysis and formulation tools
- 1. STRATEGY ANALYSIS AND FORMULATION TOOLS
- 2. The Process of Generating and Selecting Strategies • 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.
- 3. The Process of Generating and Selecting Strategies • 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.
- 4. The Process of Generating and Selecting Strategies • Alternative strategies proposed by participants should be considered and discussed in a series of meetings. • Proposed strategies should be listed in writing. • When all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness.
- 6. A Comprehensive Strategy-Formulation Framework • 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)
- 7. A Comprehensive Strategy-Formulation Framework • 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
- 8. A Comprehensive Strategy-Formulation Framework • 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
- 9. Matching Key External and Internal Factors to Formulate Alternative Strategies
- 10. The Matching Stage • The 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
- 11. The Matching Stage • SO Strategies • use a firm's internal strengths to take advantage of external opportunities • WO Strategies • aim at improving internal weaknesses by taking advantage of external opportunities
- 12. The Matching Stage • ST Strategies • use a firm's strengths to avoid or reduce the impact of external threats • WT Strategies • defensive tactics directed at reducing internal weakness and avoiding external threats
- 13. 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.
- 14. SWOT Matrix (cont.) 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.
- 15. The SPACE Matrix
- 16. The SPACE Matrix • Strategic Position and Action Evaluation (SPACE) Matrix • four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization
- 17. The SPACE Matrix • Two internal dimensions (financial position [FP] and competitive position [CP]) • Two external dimensions (stability position [SP] and industry position [IP]) • Most important determinants of an organization's overall strategic position
- 19. 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).
- 20. Steps to Develop a SPACE Matrix 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.
- 21. Steps to Develop a SPACE Matrix 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.
- 22. Steps to Develop a SPACE Matrix 6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. ► This vector reveals the type of strategies recommended for the organization: aggressive, competitive, defensive, or conservative
- 25. The Boston Consulting Group (BCG) Matrix • 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
- 26. The BCG Matrix
- 27. The BCG Matrix • 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
- 28. The BCG Matrix • Cash Cows – Quadrant III • generate cash in excess of their needs • should be managed to maintain their strong position for as long as possible • Dogs – Quadrant IV • compete in a slow- or no-market-growth industry • businesses are often liquidated, divested, or trimmed down through retrenchment
- 29. The BCG Matrix • 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.
- 30. The Internal-External (IE) Matrix
- 31. 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 • Three Major Regions • Grow and build • Hold and maintain • Harvest or divest
- 32. The IE Matrix
- 33. The Grand Strategy Matrix • Grand Strategy Matrix • based on two evaluative dimensions: competitive position and market (industry) growth
- 34. The Grand Strategy Matrix
- 35. The Grand Strategy Matrix • Quadrant I • continued concentration on current markets (market penetration and market development) and products (product development) is an appropriate strategy • Quadrant II • 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
- 36. The 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 • Quadrant IV • have characteristically high cash-flow levels and limited internal growth needs and often can pursue related or unrelated diversification successfully
- 37. The Quantitative Strategic Planning Matrix (QSPM) • 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
- 38. The Quantitative Strategic Planning Matrix (QSPM)
- 39. 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.
- 40. Steps in a QSPM (cont.) 4. Determine the Attractiveness Scores (AS). 5. Compute the Total Attractiveness Scores. 6. Compute the Sum Total Attractiveness Score.
- 41. 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
- 42. 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
- 43. A QSPM for a Retail Computer Store
- 44. A QSPM for a Retail Computer Store (cont.)
- 45. 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
- 46. Tactics to Aid Strategists Choose Methods That Afford Employee Commitment Achieve Satisfactory Results with a Popular Strategy Shift from Specific to General Issues Focus on Long-Term Issues and Concerns Involve Middle Level Managers in Decisions
- 47. Governance Issues • 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
- 48. Board of Director Duties and Responsibilities 1. Control and oversight over management 2. Adherence to legal prescriptions 3. Consideration of stakeholders/ interests 4. Advancement of stockholders’ rights
- 49. Principles of Good Governance 1. No more than two directors are current or former company executives. 2. The audit, compensation, and nominating committees are made up solely of outside directors. 3. Each director owns a large equity stake in the company, excluding stock options.
- 50. Principles of Good Governance 4. Each director attends at least 75 percent of all meetings. 5. The board meets regularly without management present and evaluates its own performance annually. 6. The CEO is not also the chairperson of the board. 7. There are no interlocking directorships (where a director or CEO sits on another director's board).
- 52. SYNOPSI S • Introduction • What is Balanced Scorecard? • Why are companies Adopting Balance score card? • Balanced Scorecard perspective • Advantages & Disadvantages
- 55. Balanced Scorecard • Four key Business Perspectives • Internal & Business process of Organization • Short Run & Long Run
- 56. Why are companies Adopting BSC? • Change. • Growth. • Implementation.
- 57. Financial Perspective Internal Process Perspective Learning & Growth Perspective Customer Perspective Vision & Strategy
- 58. Customers Perspective “Number One in delivering Value to Customers”. Time Quality Service Cost
- 59. Internal process perspective Internal process perspective Process alignment Process bottlenecks Process automation No of activates per function
- 60. Learning & Growth Perspective Learning & Growth perspective Training & learning opportunities Employee Turnover Job satisfaction Is there the correct level of expertise for the job ?
- 61. Financial perspective Financial perspective Financial results (Quat/year) Cash flow Return on investment Return on capital employed
- 62. Advantages Of BSC • It is used to align the business activities to vision and strategy • It improves Internal & External communications • It is used to monitor organizations performance • It provides management with comprehensive picture of operations • It provides strategic feed back • It improves decisions & better solutions
- 63. Disadvantages • It Doesn’t provide Recommendations • It is not fully Efficient • It takes time • It is High Implementation of cost • It can show low profit
Editor's Notes
- #3: Strategy analysis and choice seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. 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.
- #4: Involvement provides the best opportunity for managers and employees to gain an understanding of what the firm is doing and why and to become committed to helping the firm accomplish its objectives.
- #5: Creativity should be encouraged in the proposals of alternative strategies.
- #6: Called the input stage, Stage 1 summarizes the basic input information needed to formulate strategies. Stage 2, called the matching stage, focuses on generating feasible alternative strategies by aligning key external and internal factors. Stage 3, called the decision stage, involves a single technique, the Quantitative Strategic Planning Matrix (QSPM).
- #7: Stage 1 of the strategy-formulation analytical framework consists of the External Factor Evaluation (EFE) Matrix, the Internal Factor Evaluation (IFE) Matrix, and the Competitive Profile Matrix (CPM).
- #8: Stage 2 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.
- #9: A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. It reveals the relative attractiveness of alternative strategies and thus provides an objective basis for selecting specific strategies.
- #10: For example, a firm with excess working capital (an internal strength) could take advantage of the cell phone industry’s 20 percent annual growth rate (an external opportunity) by acquiring Cellfone, Inc. This example portrays simple one-to-one matching.
- #11: The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important matching tool that helps managers develop four types of strategies.
- #12: SO strategies use a firm’s internal strengths to take advantage of external opportunities. All managers would like their organization to be in a position in which internal strengths can be used to take advantage of external trends and events. WO strategies aim at improving internal weaknesses by taking advantage of external opportunities.
- #13: 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. 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.
- #14: The process of constructing a SWOT Matrix can be summarized in eight steps.
- #16: The Strategic Position and Action Evaluation (SPACE) Matrix, another important Stage 2 matching tool, is illustrated on this slide. Its four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization.
- #18: Like the SWOT Matrix, the SPACE Matrix should be both tailored to the particular organization being studied and based on factual information to the extent possible.
- #19: Variables commonly included on a SPACE matrix are listed on this slide.
- #20: The six steps to develop a SPACE matrix are outlined on the next few slides.
- #24: Some example strategy profiles that can emerge from SPACE analysis are shown in Figure 6-5. The directional vector associated with each profile suggests the type of strategies to pursue: aggressive, conservative, defensive, or competitive.
- #25: Additional strategy profiles are shown on this slide.
- #26: Autonomous divisions (also called segments or profit centers) of an organization make up what is called a business portfolio. When a firm’s divisions compete in different industries, a separate strategy often must be developed for each business.
- #27: Based on each division’s respective (x, y) coordinate, each segment can be properly positioned (centered) in a BCG Matrix. Each circle represents a separate division. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit, and the pie slice indicates the proportion of corporate profits generated by that division.
- #28: Divisions in Quadrant I (upper right) have a low relative market share position, yet they compete in a high-growth industry. Divisions in Quadrant II (upper left) represent the organization’s best long-run opportunities for growth and profitability, and are therefore called stars.
- #29: Divisions in Quadrant III (lower left) have a high relative market share position but compete in a low-growth industry. Divisions in Quadrant IV (lower right) have a low relative market share position and compete in a slow- or no-market-growth industry
- #30: Over time, organizations should strive to achieve a portfolio of divisions that are stars.
- #31: But there are four important differences between the BCG Matrix and the IE Matrix, as follows: 1. The x and y axes are different. 2. The IE Matrix requires more information about the divisions than does the BCG Matrix. 3. The strategic implications of each matrix are different. For these reasons, 4. The IE Matrix has nine quadrants versus four in a BCG Matrix.
- #33: As indicated by the positioning of the four circles, grow and build strategies are appropriate for Divisions 1, 2, and 3. But Division 4 is a candidate for harvest or divest. Division 2 contributes the greatest percentage of company sales and thus is represented by the largest circle. Division 1 contributes the greatest proportion of total profits; it has the largest-percentage pie slice.
- #34: All organizations can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants.
- #35: The Grand Strategy Matrix is based on two evaluative dimensions: (1) competitive position on the x-axis and (2) market (industry) growth on the y-axis. Appropriate strategies for an organization to consider are listed in sequential order of attractiveness in each quadrant of the Grand Strategy Matrix.
- #36: Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. Firms positioned in Quadrant II need to evaluate their present approach to the marketplace seriously.
- #37: Quadrant III organizations compete in slow-growth industries and have weak competitive positions. Quadrant IV businesses have a strong competitive position but are in a slow-growth industry.
- #38: Other than ranking strategies to achieve the prioritized list, there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions, the QSPM.
- #39: The left column of a QSPM consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2). Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix. In a column adjacent to the key success factors, the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded.
- #40: There are 6 steps to developing a QSPM.
- #42: Developing a Quantitative Strategic Planning Matrix makes it less likely that key factors will be overlooked or weighted inappropriately.
- #43: The Quantitative Strategic Planning Matrix has two limitations.
- #44: A Quantitative Strategic Planning Matrix for a retail computer store is provided on the next 2 slides. This example illustrates all the components of the QSPM: strategic alternatives, key factors, weights, attractiveness scores (AS), total attractiveness scores (TAS), and the sum total attractiveness score.
- #46: All organizations are political. Unless managed, political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees.
- #47: Because strategies must be effective in the marketplace and capable of gaining internal commitment, these tactics used by politicians for centuries can aid strategists.
- #48: The act of oversight and direction is referred to as governance.
- #49: Boards have four major duties and responsibilities.
- #50: BusinessWeek recently evaluated the boards of most large U.S. companies and provided the included “principles of good governance.”