STRATEGIC MANAGEMENT

ANALYTICAL FRAMEWORK

BY: PROF. ELZEBER O. MURALLOS

Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

 Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix
 Input Stage

• Environmental scan on:

- External Environment – General & Industry
- Internal Environment – The Functional Areas
- Competitors- Peers
• Procedure to develop EFE, IFE & CPM
• Strategist to quantify subjectively
• Intuitive judgment is important
 Input Stage

Internal Factor Evaluation

Matrix (IFE)

• Examines the functional areas

Stage 1: • Identifies major internal Strength & Weaknesses
The Input Stage
• Focuses on internal issues in functional areas
• Weights are relative to importance for success
• Sum of all the weights is = 1.0
• Ratings are scored 4 to 1:
4 = major strength 2 = minor weakness
3 = minor strength 1 = major weakness
INTERNAL FACTOR EVALUATION MATRIX (IFE) FOR COCA COLA

Key Internal Factors Weighted

Strengths Weight Rating Score

Strong brand 0.09 4 0.36

Strong marketing and advertising of products

around globe 0.07 4 0.28

Products are globally available 0.10 4 0.40

Healthy financial position 0.08 3 0.24

Brand equity 0.07 4 0.28

Competent workforce 0.05 3 0.15

Wide variety of products 0.05 3 0.15

Weaknesses
High debts 0.10 2 0.20

Health Issues 0.10 1 0.10

Some products have low sales 0.09 2 0.18

Weak image in India 0.06 2 0.12

Negative publicity 0.10 1 0.10

Taste differentiation 0.05 1 0.05

CONCLUSION 1.0 company internal position is

: With weighted score value of 2.65 means
Total Weighted Score 2.65
better.
 Input Stage
External Factor Evaluation
Matrix (EFE)

• Examines company’s external environment

Stage 1:
• Identifies the Opportunities and Threats.
The Input Stage • Uses PEST analysis, Porter’s Five Forces
• Weights are relative to importance for success
• Sum of all the weights is = 1.0
• Ratings are scored 4 to 1:
4 = superior 2 = average
3 = above average 1 = poor
 EXTERNAL FACTOR EVALUATION MATRIX (EFE) FOR COCA COLA

Key External Factors Weight Rating Weighted Score

OPPORTUNITIES

Strong and diversified product 0.13 4 0.52

Packaging 0.08 4 0.32

The acceptance of the new projects in the

company 0.03 4 0.12

New technology 0.14 4 0.56

Niche market could be focused. 0.05 3 0.15

Advertisement of unpopular products 0.03 2 0.06

Gap between competitors 0.04 2 0.08

Great number of successful brands 0.14 3 0.42

THREATS

Health conscious people 0.04 4 0.16

The factor of lawsuits 0.06 4 0.24

Falters showing the unhealthy side of the

product 0.09 3 0.27

Competitors 0.07 4 0.28

Economical changes 0.08 3 0.24

Increase in demand of substitutes.

CONCLUSION: 0.02 3 0.06
Based on the above calculations it has been concluded that the company’s Total Weighted Score is 3.48 which shows that the
company is hugely successful
Total Weighted Score in utilizing its opportunities and minimizing
1.0 the threats around it. 3.48
P E S T
PORTER’S FIVE FORCES
PORTER’S GENERIC STRATEGY
 Input Stage
Competitive Profile
Matrix

• Identifies major competitors

• Includes internal & external info
• Focus on internal issues among rival firms
Stage 1: • Weights are relative to importance for success
The Input Stage • Sum of all the weights is = 1.0
• Ratings are scored 4 to 1:
4 = major strength 2 = minor weakness
3 = minor strength 1 = major weakness
• Critical Success Factors:
Capitalization Advertising
Market Share Pricing, etc…
COMPETITIVE PROFILE MATRIX

Conclusion: With a weighted score of 3.66, Coke leads the way and indication of strong
competitive advantage against its rivals.
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

 Matching Stage

• Match between organization’s internal

resources and skills and the
opportunities and risks created by its
external factors.
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

 TOWS Matrix

Develop four types of strategies

– Strengths-Opportunities (SO)
– Weaknesses-Opportunities (WO)
– Strengths-Threats (ST)
– Weaknesses-Threats (WT)
 TOWS Matrix
Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in the Acquire Cellfone, Inc.

Excess working capacity
+ cell phone industry = Forward or Backward
(strength)
(opportunity) Integration

Exit of two major foreign Pursue

Insufficient capacity
+ competitors from the = Horizontal Integration by
(weakness)
industry (opportunity) buying competitor's facilities

Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults-Product Dev

Poor employee morale Develop a new employee

+ Strong union activity =
(weakness) (threat) benefits package
 SO Strategies

Threats Use a firm’s

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities
 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities
 ST Strategies

Threats Using firm’s

strengths to
Opportunities ST
avoid or reduce
Weaknesses Strategies
the impact of
Strengths external threats.
(TOWS)
 WT Strategies

Defensive
Threats tactics aimed
Opportunities WT at reducing
Strategies internal
Weaknesses
weaknesses
Strengths and avoiding
(TOWS) environmental
threats.
 TOWS Matrix
Steps in developing the TOWS 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
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
9. State Appropriate Strategy Options
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

 SPACE Matrix
Strategic Position and Action Evaluation Matrix

 Four quadrant framework

 Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive
 SPACE Matrix

Two Internal Dimensions

 Financial Strength [FS]
 Competitive Advantage [CA]

Two External Dimensions

 Environmental Stability [ES]
 Industry Strength [IS]
 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3

-4
-5
Defensive -6 Competitive
ES
(x = 3; y = 2.75)
 SPACE Factors
Internal Strategic Position External Strategic Position

Finance Strength (FS-Y-axis) Environ Stability (ES-Y-axis)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Ease of exit from market Competitive pressure
Risk involved in business Price elasticity of demand
 SPACE Factors
Internal Strategic Position External Strategic Position

Comp Advantage (CA-X-axis) Industry Strength (IS-X-axis)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

 BCG Matrix
Boston Consulting Group Matrix

• Enhances multidivisional firms’ efforts to

formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in
different industries requiring separate
strategy
 BCG Matrix
Boston Consulting Group Matrix

• Graphically portrays differences among

divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through
relative market share position and
industry growth rate
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
Industry Sales Growth Rate

+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
-20
 BCG Matrix
Question Marks

• Low relative market share position yet

compete in high-growth industry.
• Cash needs are high
• Case generation is low

• Decision to strengthen (intensive

strategies) or divest
 BCG Matrix
Stars

• High relative market share and high

industry growth rate.
• Best long-run opportunities for growth and
profitability

• Substantial investment to maintain or

strengthen dominant position
• Integration strategies, intensive strategies, joint
ventures
 BCG Matrix
Cash Cows

• High relative market share position, but

compete in low-growth industry
• Generate cash in excess of their needs
• Milked for other purposes

• Maintain strong position as long as

possible
• Product development, concentric diversification
• If becomes weak—retrenchment or divestiture
 BCG Matrix
Dogs

• Low relative market share position and

compete in slow or no market growth
• Weak internal and external position

• Decision to liquidate, divest, retrenchment

 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IEF Matrix

Grand Strategy Matrix

 Internal-External Factor Matrix

• Use to analyze the current position of

divisions and suggest the strategies for the
future.
• It is understanding and knowing the past.
• Uses the quantitative results in the IFE and
EFE matrices.
• In the Division level, identifies the high and
low contributors in the organization.
 IFE TOTAL WEIGHTED SCORE = 2.65
IEF MATRIX Strong Average Weak
(3.0 – 4.0) (2.0 – 2.99) (1.0 – 1.99)

I II III
High (Grow & (Grow & (Hold &
3.0-4.0) Build) Build) Maintain)
EFE TOTAL
WEIGHTED IV V VI
SCORE = 3.48 Medium (Grow & (Hold & (Harvest or
(2.0-2.99) Build) Maintain) Divest)

VII VIII IX
Low (Hold & (Harvest (Harvest or
(1.0-1.9) Maintain) or Divest) Divest)
GROW & BUILD ------------Q1, Q2, Q4
 BACKWARD, FORWARD OR HORIZONTAL INTEGRATION
 MARKET PENETRATION
 MARKET DEVELOPENT
 PORDUCT DEVELOPMENT

 HOLD AND MAINTAIN------Q3, Q5, Q7

 HOLD AND MAINTAIN
 MARKET PENETRATION
 PRODUCT DEVELOPMENT

 HARVEST AND DIVEST----Q6, Q8, Q9

 RETRENCHMENT
 DIVESTITURE
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

 Grand Strategy Matrix
• Popular tool for formulating alternative
strategies

• All organizations (or divisions) can be

positioned in one of four quadrants

• Based on two evaluative dimensions:

– Competitive position
– Industry growth: 5% = rapid growth
 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
 Grand Strategy Matrix

Quadrant I X-Strong Competitive Position

Y-Rapid Market Growth
• Excellent strategic position Y
• Concentration on current
markets and products
• Take risks aggressively
when necessary

X
 Grand Strategy Matrix

-X : Weak Competitive Position

Quadrant II Y : Rapid Market Growth
Y
• Evaluate present approach
seriously
• How to change to improve
competitiveness
• Rapid market growth
requires Intensive Strategy

-X
 Grand Strategy Matrix

Quadrant III -X : Weak Competitive Position

-Y : Slow Market Growth

• Compete in slow-growth -X
industries
• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction
indicated (retrenchment)
-Y
 Grand Strategy Matrix

X : Strong Competitive Position

Quadrant IV
-Y : Slow Market Growth

• Strong competitive position X

• Slow-growth industry
• Diversification indicated to
more promising growth
areas

-Y
 SUMMARY OF STRATEGIES
TOWS IEF Matrix SPACE GSM Total
STRATEGY OPTIONS Matrix

Integration Strategies
1.Forward integration

2.Backward integration
3.Horizontal integration 1 1 1 3

Intensive Strategies
1.Market penetration 1 1 1 1 4
2.Market Development 1 1 2
3.Product Development

Diversification Strategies
1.Related Diversification 1 1
2.Unrelated Diversification
3.Conglomeration Diversification 1 1

Defensive Strategies
1.Joint Venture 1 1
2.Retrenchment
3.Divestiture
4.Liquidation
STRATEGY OPTIONS
 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 3: BCG Matrix

The Decision Stage

IE Matrix

Grand Strategy Matrix

Quanti Strat Plan Matrix

 Formulation Framework

QUANTITATIVE STRATEGIC PLANNING MATRIX – QSPM

• TO DETERMINE THE MOST ATTRACTIVE STRATEGIES

• A TOP-LEVEL MANAGEMENT APPROACH
• USES INPUT FROM STAGES 1 TO 2
• REQUIRES INTUITIVE JUDGEMENT
• ALLOWS STRATEGIST TO DECIDE OBJECTIVELY
 QSPM
QUANTITATIVE STRATEGIC PLANNING MATRIX

• Assign weights to each external and internal critical

success factor
• Examine the Stage 2 (matching) matrices and
identify alternative strategies that the organization
should consider implementing
• Determine the Attractiveness Scores (AS)
• Compute the total Attractiveness Scores
• Compute the Sum Total Attractiveness Score
• After which, prepare the Action Plans and Financial
Projections
 QSPM Strategic Alternatives
Critical Factors Market P. Horizontal I. Market D.
Key External Factors Weight Rating Score Rating Score Rating Score
Economy
Political/Legal/Governmental
Social/Cultural/
Demographic/Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Overall Score 1.0
 5 YEAR ACTION PLAN
FUNCTIONAL OBJECTIVES STRATEGY TIME FRAME BUDGET
AREAS
MARKETING

PRODUCTION

ORGANIZATION

FINANCE

HRD

INFORM TECH

R&D
SETTING THE OBJECTIVES