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COM

UNIT-3

STRATEGIES

GE - PORTFOLIO MATRIX
Framework Summarized by Sam Mishra, MBA (MIT Sloan)
This 3 x 3 matrix is an outgrowth of a framework pioneered by General Electric (GE) in the 1970s to
assess its Strategic Business Units (SBUs) along two dimensions: industry attractiveness, and business
strength. In the figure below, three possible values of each of these two dimensions are plotted,
resulting in a nine-cell 3 x 3 matrix.

All business units of a firm can be represented by circles placed appropriately within the matrix. The
size of the circle represents the industry / market size. The market share of the SBU is represented by
the smaller sector within the circle. Thus, as you can see, this is a complex framework to evaluate an
SBU along four dimensions: market attractiveness, market size, market share, and business strength.
The cells in the nine-cell matrix are colored differently to categorize the matrix into five distinct zones
of overall business attractiveness: high (green cell), medium-high (yellow cells), medium (ocean-blue
cells), medium-low (pink cells), and low (red cell).
The strength of this framework is based on the premise that to be successful, a firm should enter
attractive markets / industries for which it has the needed business strengths to succeed. However,
over-reliance on this framework may lead to undue neglect of existing businesses. SBU owners /
managers will also be susceptible to manipulate the parameters so that their SBUs show up on the
desired high or medium-high overall attractive zones. Thus, this framework should be used with
caution while crafting strategy.

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the
Boston Consulting Group in the early 1970's. It is based on the observation that a company's business
units can be classified into four categories based on combinations of market growth and market share
relative to the largest competitor, hence the name "growth-share". Market growth serves as a proxy
for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The

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growth-share matrix thus maps the business unit positions within these two important determinants
of profitability.

BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the
generation of cash. This assumption often is true because of the experience curve; increased relative
market share implies that the firm is moving forward on the experience curve relative to its
competitors, thus developing a cost advantage.
A second assumption is that a growing market requires investment in assets to increase capacity and
therefore results in the consumption of cash. Thus the position of a business on the growth-share
matrix provides an indication of its cash generation and its cash consumption.

Henderson reasoned that the cash required by rapidly growing business units could be obtained from
the firm's other business units that were at a more mature stage and generating significant cash. By
investing to become the market share leader in a rapidly growing market, the business unit could
move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-
Share Matrix was born.

The four categories are:

DOGS:
 Dogs have low market share and a low growth rate and thus neither generate nor consume a large
amount of cash.
 However, dogs are cash traps because of the money tied up in a business that has little potential.
 Such businesses are candidates for divestiture.

QUESTION MARKS:
 Question marks are growing rapidly and thus consume large amounts of cash, but because they have
low market shares they do not generate much cash. The result is large net cash consumption.
 A question mark (also known as a "problem child") has the potential to gain market share and become
a star, and eventually a cash cow when the market growth slows.
 If the question mark does not succeed in becoming the market leader, then after perhaps years of cash
consumption it will degenerate into a dog when the market growth declines.
 Question marks must be analyzed carefully in order to determine whether they are worth the
investment required to grow market share

STARS:
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 Stars generate large amounts of cash because of their strong relative market share, but also consume
large amounts of cash because of their high growth rate; therefore the cash in each direction
approximately nets out.
 If a star can maintain its large market share, it will become a cash cow when the market growth rate
declines.
 The portfolio of a diversified company always should have stars that will become the next cash cows
and ensure future cash generation.
CASH COWS
 As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market
growth rate, and thus generate more cash than they consume.
 Such business units should be "milked", extracting the profits and investing as little cash as possible.
 Cash cows provide the cash required to turn question marks into market leaders, to cover the
administrative costs of the company, to fund research and development, to service the corporate debt,
and to pay dividends to shareholders.
 Because the cash cow generates a relatively stable cash flow, its value can be determined with
reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow
analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a business
unit will become either a cash cow or a dog, determined soley by whether it had become the market
leader during the period of high growth.
While originally developed as a model for resource allocation among the various business units in a
corporation, the growth-share matrix also can be used for resource allocation among products within
a single business unit. Its simplicity is its strength - the relative positions of the firm's entire business
portfolio can be displayed in a single diagram.

Limitations
The growth-share matrix once was used widely, but has since faded from popularity as more
comprehensive models have been developed. Some of its weaknesses are:
 Market growth rate is only one factor in industry attractiveness, and relative market share is only one
factor in competitive advantage. The growth-share matrix overlooks many other factors in these two
important determinants of profitability.
 The framework assumes that each business unit is independent of the others. In some cases, a
business unit that is a "dog" may be helping other business units gain a competitive advantage.
 The matrix depends heavily upon the breadth of the definition of the market. A business unit may
dominate its small niche, but have very low market share in the overall industry. In such a case, the
definition of the market can make the difference between a dog and a cash cow.
 While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing a
corporation's business portfolio at a glance, and may serve as a starting point for discussing resource
allocation among strategic business units.

SWOT ANALYSIS

SWOT analysis (alternately SLOT analysis) is a strategic planning method used to evaluate the
Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business
venture. It involves specifying the objective of the business venture or project and identifying the
internal and external factors that are favorable and unfavorable to achieve that objective. The
technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s
and 1970s using data from Fortune 500 companies.

Setting the objective should be done after the SWOT analysis has been performed.

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This would allow achievable goals or objectives to be set for the organization.
Strengths: characteristics of the business, or project team that give it an advantage over others
Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to
others
Opportunities: external chances to improve performance (e.g. make greater profits) in the
environment
Threats: external elements in the environment that could cause trouble for the business or project

Identification of SWOTs is essential because subsequent steps in the process of planning for
achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If
the objective is NOT attainable a different objective must be selected and the process repeated.

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to
achieving the objective. These come from within the company's unique value chain. SWOT analysis
groups key pieces of information into two main categories:

 Internal factors – The strengths and weaknesses internal to the organization.

 External factors – The opportunities and threats presented by the external environment to the
organization.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the
organization's objectives. What may represent strengths with respect to one objective may be
weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance,
manufacturing capabilities, and so on. The external factors may include macroeconomic matters,
technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or
competitive position. The results are often presented in the form of a matrix.

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SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may
tend to persuade companies to compile lists rather than think about what is actually important in
achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so
that, for example, weak opportunities may appear to balance strong threats. It is therefore advisable to
combine a SWOT analysis with portfolio analyses such as the GE/McKinsey matrix [2] or COPE
analysis[3].

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual
SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable
strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT analysis

 The usefulness of SWOT analysis is not limited to profit-seeking organizations.
 SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has
been defined.
 Examples include: non-profit organizations, governmental units, and individuals.
 SWOT analysis may also be used in pre-crisis planning and preventive crisis management.
 SWOT analysis may also be used in creating a recommendation during a viability study/survey.

Using SWOT to analyse the market position of a small management consultancy with specialism in
HRM.[8]

Strengths Weaknesses Opportunities Threats

Reputation in marketplaceShortage of consultants at Well established positionLarge consultancies
operating level rather than
with a well defined market
operating at a minor level
partner level niche
Expertise at partner level Unable
in to deal with multi-
Identified market for Other small consultancies
HRM consultancy disciplinary assignmentsconsultancy in areas other looking to invade the
because of size or lack ofthan HRM marketplace
ability

Strategy: PEST analysis

PEST analysis is concerned with the key external environmental influences on a business.

The acronym stands for the Political, Economic, Social and Technological issues that could affect the
strategic development of a business.

Identifying PEST influences is a useful way of summarising the external environment in which a
business operates. However, it must be followed up by consideration of how a business should
respond to these influences.

The table below lists some possible factors that could indicate important environmental influences for
a business under the PEST headings:

Political / Legal Economic Social Technological

Environmental regulation and
Economic growth Income distribution (change
Government spending on
protection (overall; by industry in distribution of disposable
research

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sector) income;

Taxation (corporate; consumer)

Monetary policy (interest
Demographics (age Government and industry
rates) structure of the population;
focus on technological effort
gender; family size and
composition; changing
nature of occupations)
International trade regulation
Government spendingLabour / social mobility New discoveries and
(overall level; specific development
spending priorities)
Consumer protection Policy towards Lifestyle changes (e.g. Home
Speed of technology transfer
unemployment working, single households)
(minimum wage,
unemployment benefits,
grants)
Employment law Taxation (impact on Attitudes to work and Rates of technological
consumer disposable leisure obsolescence
income, incentives to
invest in capital
equipment, corporation
tax rates)
Government organisation / Exchange rates (effects Education Energy use and costs
attitude on demand by overseas
customers; effect on cost
of imported components)
Competition regulation Inflation (effect on costs
Fashions and fads Changes in material sciences
and selling prices)
Stage of the business Health & welfare Impact of changes in
cycle (effect on short- Information technology
term business
performance)
Economic "mood" - Living conditions (housing, Internet!
consumer confidence amenities, pollution)

CORPORATE LEVEL STRATEGY:

Corporate level strategies

COMBINATION
STABILITY RETRENCHMENT

No change/Do-nothing Turnaround Simultaneous

Profit Liquidation Sequential

Pause/with caution Divestment Simultaneous

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EXPANSION and sequential

Concentration Integration Diversificatio Internationalization Co-operation

n

Market Penetration Vertical Concentric/related International Mergers & acquisition

Market development Horizontal [Link] related Multidomestic Joint venture

Product development [Link] related Global Strategic Alliances

3. Marketing and Translational

Technology related

Conglomerate/Unrelated

Meaning of Corporate Strategy:

Corporate strategy helps to exercise the choice of direction that an organization adopts. There
could be a small business firm involved in a single business or a large, complex and diversified
conglomerate with several different businesses. The corporate strategy in both these cases would
be about the basic direction of the firm as a whole.

Stability strategies:

The corporate strategy of stability is adopted by an organization when it attempts an incremental

improvement of its performance by marginally changing one or more of its businesses in terms of
their respective customer groups, customer functions and alternative technologies respectively.

Types of stability

 No change Strategy

 Profit Strategy

 Paused/Proceed with Caution Strategy

Expansion strategies:

The corporate strategy of expansion is followed when an organization aims at high growth
by substantially broadening the scope of one or more of its businesses in terms of their respective
customer groups, customer functions and alternative technologies singly or jointly in order to
improve its overall performance.

Types of Expansion Strategy

 Concentration

 Integration

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 Diversification

 Internationalization

 Cooperation

Concentration

Expansion concentration is often the first preference strategy for company. The simple reason for
this is that a company that familiar with an industry would naturally like to invest more in known
business rather than unknown ones.

Types of Concentration Strategies

 Market Penetration

 Market Development

 Product Development

Advantage of Concentration Strategies

 Concentration involves fewer organizational changes.

 It is less threatening and more comfortable saying with present business

Disadvantages of Concentration Strategies

 Concentration strategies are heavily dependent on the industries So adverse condition in

an industry can also companies if they are intensely concentrated

Integration

Integration basically means combining activities on the basis of the value chain related to
the present activity of a company.

Types of integration

 Vertical integration

Vertical Forward Integration

Vertical Backward Integration

 Horizontal Integration

1. Horizontal integration:

A firm is said to follow horizontal integration if it acquires another firm that produces
the same type of products the same type products with similar production
process/marketing practices.

2. Vertical integration:

Vertical integration means the degree to which a firm operates vertically in multiple
locations on an industry’s value chain from extracting raw materials to manufacturing

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and retailing. Vertical integration occurs when a company produces its own inputs or
disposes of its own outputs.

Backward Integration: Backward integration refers to performing a function previously

provided by a supplier.

Forward integration: Forward integration means performing a function previously

provided by a retailer.

Diversification: Diversification is considered to be a complex one because it involves a

simultaneous departure from current business, familiar products and familiar markets. Firms
choose diversification when the growth objectives are very high and it could not be achieved
within the existing product/market scope. Types of diversification:

Related diversification:

In related diversification the firm enters into a new business activity, which is linked in a
company’s existing business activity by commonality between one or more components of each
activity’s value chain.
Unrelated diversification:

In unrelated diversification, the firm enters into new business area that has no obvious
connection with any of the existing business. It is suitable, if the company “score functional skills
are highly specialized and have few applications outside the company’s core business.
Concentric diversification:

Concentric diversification is similar to related diversification as there are benefits of synergy

when the new business is related to existing business through process, technology and marketing.

Internationalisation:

It is a type of expansion strategies that require organizations to market their product and services
beyond the domestic or national market.

Type of Internationalisation

 International Strategy

 Multidomestic Strategy

 Global Strategy

 Transnational Strategy

Cooperation

The term ‘cooperation’ expenses the idea of simultaneous competition and cooperation
among rival firms for mutual benefits.

Types of cooperative

 Mergers(Combination)

 Horizontal Mergers

 Vertical Merger

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 Concentric Merger

 Conglomerate Merger

 Reverse Merge

 Acquisition/Takeover Strategy

 Amalgamation

 Acquisitions/Takeovers

 Sale of Assets

 Holding Company Acquisition

 Joint Venture

 Between two firms in one industry,

 Between two firms across different industries,

 Between an indian firms and a foreign company in India

 Between an Indian firm and a foreign company in that foreign

country

 Between an Indian Firm and a foreign in a third country

 Strategic Alliance Meaning:

A strategic alliance is a formal relationship between two or more

parties to pursue a set of agreed upon goals or to meet a critical
business need while remaining independent organizations.
Types of Strategic Alliances:
 Joint Venture
 Equity Strategic Alliance
 Non-equity Strategic Alliance
 Global Strategic Alliance

 Stages of Alliance operation:

 Strategy DevelopmenT

BUSINESS LEVEL STRATEGES

Meaning: Business Strategies are the course of action adopted by a firm for each of it is business
separately to serve identified customer groups and provide value to the customer by a
satisfaction of their needs. In the process the firm uses its competencies to gain, sustain, and
enhance its strategies or competitive advantage.

Types of Strategic at Business level

o Generic Strategic Alternative/Generic Competitive Strategies

o Competitive Tactics
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Generic Strategies;

A company competitive strategy consists of the business approach and initiative it undertakes
to attract customer and fulfill their expectation, to withstand competitive pressure and to
strengthen is market position.

Types of generic strategic alternative

o Cost leadership(lower cost/broad target)

o Differentiation(Differentiation/broad target)

o Focus(lower cost or differentiation/ narrow target)

Competitive Tactics

Strategy gives rise to tactics and thus, “tactics may be thought of as a sub-strategy.”

Categories of Competitive Tactics

 Timing Tactics

First-mover Strategies Advantage

Second-mover and late –mover Strategies Advantages

 Market Location Tactics

Offensive Strategy

Defensive Strategy

 Cooperative Strategies

STRATEGY IN GLOBAL ENVIRONMENT

Meaning:

A firm’s strategy can be defined as the action managers take to attain the gaol of the firms. For
most firms, a principle goal is to be highly profitability. To be profitability in a competitive global
environment, a firm must pay continual attention to both reducing the costs of value creation and
to different it’s product offering so that consumer are willing to pay more for the product than it
costs to produce it.

Increasing Profitability and Profit Growth through Global Expansion.

 Expanding the Market

 Realising Cost Economics from Global Volume

 Realising Location Economics

 Leveraging the skill of Global Subsidiaries

Cost Pressure and Pressure for Local Responsion

 Pressure for cost Reduction

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 Pressure for Local Responsiveness

High

Company Company C
A

Company B

Low

Low Pressures For local responsive High

Basic Global Entry Decisions

Which Market to Enter

When to Enter these Markets

Scale of Entry

Choice of Entry Modes in Global Market

Choice of Entry Modes in Global Market

Exporting Licensing & Franchising

Contract manufacturing Management contracting

Turnkey contracts Wholly owned manufacturing

facilities
Assembly operations
Joint ventures

Third country location

CORPORATE DEVELOPMENT: BUILDING AND RESTRUCTURING THEand
Merges CORPORATION.
Acquisitions

Corporate
StrategicDevelopment
Alliance refers to the planning and execution of a wide range of strategies to meet
specific organizational objectives. The kinds of activities falling
Counterunder
Tradecorporate development
may include initiatives such as recruitment of a new management team, plans for phasing in or
out of certain markets or products, establishing relationships with strategic business partners,
identifying and acquiring companies , securing financing, divesting of assets or divisions,
increasing intellectual property assets and so on.

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CORPORATE PORTFOLIO ANALYSIS.

When the company is in more than one business, it can select more than one strategic
alternative depending upon the demand of the situation prevailing in the different portfolios. It
is necessary to analyse the position of different business of the business house which is done
by corporate portfolio analysis.

Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of

products or business units to be managed for the best possible returns.

The aim of portfolio analysis is:

1) To analyse its current business portfolio and decide which business should receive more or
less investment.

2) To develop growth strategies, for adding new business to the portfolio; and

3) To decide which business should no longer be retained.

Techniques of Corporate analysis:

1. Boston’s Consultancy Model

2. GE-9 Cell Model

3. Corporate Parenting Analysis

BOSTON’S CONSULTANCY MODEL.

DCG Matrix

High
Select a few
20% Remain Diversified

15%
Stars Invest Questions Marks

10%

Liquidate
Cash cows Dogs
Low5%

High Relative market share Low

1) Stars

2) Cash cows

3) Question Marks (problem child or wild cat)

4) Dogs.

GE-9 CELL MODEL.

Nine cells of GE grid are dividing into three zones and depicted by different colours:

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1) Invest/Expand

2) Select/Earn

3) Harvest/Divest

CORPORATE PARENTING ANALYSIS.

1) Heartland Businesses

2) Edge-of-heartland Businesses

3) Ballast Businesses

4) Alien Territory Businesses

5) value-trap Businesses

STRATEGIC ANALYSIS AND CHOICE (SAC)

Strategic Analysis and Choice (SAC) seek to determine alternative courses of action that
could best enable the achieve its mission and objectives. The firm’sPresent strategies,
objectives and mission coupled with information gathered through external and internal
analysis provide a basis for generating and evaluating feasible alternative strategies.

Process of strategic analysis

Industry Analysis;

Define the business

Describe the Industry Structure

Identify Key Success Factor

Business Strategies Analysis

Identify Strategies Goals

Define Business Strategy

Identify Internal Capabilities and skills

Strategies Performance

Business Strategies Evaluation and Recommendations

Evaluations Business Strategy

Identify Critical Issues and Priorities

Make Recommendations

Benefits of Strategies Analysis

Sustainability

Whole Organizations Approach

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Sound goals

Funding

External Focus

Clear Expectations

Effectiveness

Limitations of Strategic Analysis

Lack of skill

Cynicism

Relevance

Force of Habit

Strategic choice:

According to Pearce and Robinson, “Strategies choice is a decision which determines

the future strategy of the firm”.

PROCESS OF STATEGIEC CHOICE:

The decision to select from among grand strategies considered, the strategy
which will best meet the enterprise objectives. The decision involves focusing on a few
alternative considering the selections the selections factors evaluating the alternatives
against these criteria, and making the actual choice”.

Objective
factors

Focusing Strategy choice

Evaluating Considering
Strategic strategies decision factors
alternative alternative

Subjective factors
FACTORS AFFECTING STRATEGIES CHOCE

External Constraints

Intra-organizational force and managerial Power-relations

Values and preferences and managerial attitude towards Risk

Impact of past Strategy

Time Constraints in Choice of strategy

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Information Constraints

Competitors Reaction

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