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Strategic Analysis and Choice meaning Corporate Level Strategic Analysis Business Level Strategic Analysis
2. 3.
BCG Matrix GE nine cell Matrix Hofers Product Market Evolution Shell Directional Policy Matrix
Industry level analysis
In order to make this choice from among the alternatives the decision maker has to set certain criteria on which he accepts / rejects the alternatives
Definition of Strategic Choice the decision to select from among the Grand strategies considered, the strategy which will best meet the enterprises objectives. The decision involves
1. 2. 3. 4.
Focussing on a few alternatives Considering the selection of factors Evaluating the alternatives against these criteria And making an actual choice
Refer to page 350, Azhar Kazmi to explain the above points in detail
Analysis focuses on what should a corporate entity do regarding the several businesses that are there in its portfolio .
Treats a corporate entity as constituting a portfolio of businesses under a corporate umbrella Analysis focuses on the question of what should a corporate entity do regarding the several businesses that are there in its portfolio Strategic alternatives constitute the Grand Strategies Stability, Expansion, Retrenchment & Combination Relevant to the case of a diversified corporation which has several businesses
A set of techniques that evolved during the mid 1960s & became a Management Fad Presently these techniques are useful & accepted to set a criteria normative as well as descriptive Assist expert strategists in exercising a strategic choice
Fad - a custom, style, etc. that many people are interested in for a short time; passing fashion; craze
A set of techniques that help strategists in taking strategic decisions with regard to individual products/ businesses in a firms portfolio Primarily used for Competitive analysis & corporate strategic planning in multi product & multi business firms
Advantages Resources could be channelized at corporate level to those business that possess the greatest potential
GROUP
MATRIX
Graphic representation of an Organization to examine the different businesses in its portfolio on the basis of their Relative Market shares & the Industry Growth rates
Enterprise Strategy development tool
BCG MATRIX
Developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP in 1970 According to this technique, different businesses/ products could be classified as low or high performers depending upon their industry growth rate & relative market share
Each of the cells represent a particular type of business The companys business units can be classified into four categories/ cells:
The vertical axis represents the rate of growth in sales in percentage for a particular industry The horizontal axis denotes the relative market share
RMS = Business unit sales this year Leading rival sales this year The higher your market share, the higher proportion of the market you control
MGR = Individual sales - individual sales this year last year Individual sales last year
Markets experiencing high growth are ones where the total market share available is expanding, and theres plenty of opportunity for everyone to make money
No single set of strategies can me used here if the company feels it can obtain a dominant market share it may select expansion strategies/ retrenchment may be a more realistic alternative Have the potential to become stars if enough investment is made or become dogs if ignored Eg. Holiday resorts, Light commercial vehicles, home improvement products
Cotton Jute,
BENEFITS
Simple & easy to understand Helps to quickly & simply screen the opportunities. Helps figure out how you can make the most of them Used to identify how corporate cash resources can best be utilized to maximize the companys future growth & profitability
Difficult, time-consuming, & costly to implement Focuses only on current businesses Low share or niche businesses can be profitable too High market share does not mean profits all the time
When Airbus launched a new jet, Airbus A380, it gained a high market share very quickly. But had to still cover very high development costs
GE MODEL
Originally developed by General Electric (GE) supported by the consulting firm McKinsey & company
Company can appropriately rate its different businesses for the purpose of Strategic Planning on the basis of 2 parameters
1. 2.
A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive & individual
Example Microsoft SBU's are distributed into operating systems, business software, consumer software and mobile & Internet technologies
INDUSTRY ATTRACTIVENESS
Based on how strong is the firm in the industry Desire of every firm to stay in the most attractive industries & excel through distinctive strengths Factors
Industry potential Current size of the industry Market Growth rate Structure of the industry Profitability of the industry The nature of competition and its diversity Impact of technology, the law, and energy efficiency Environmental impact
Current Market Share Management profile Companys Financial Solid Position Good Bargaining Position over Suppliers High level of Technology Use Quality of products and services R&D Growth rate Strong distribution network Differentiation strength - Branding and promotions success Brand & Corporate image Efficiency
Firm selects the factors relevant to its industry & competitive image
High
Protect Position
Build selectively
Medium
Build selectively
Low
Divest
Harvest /Divest
LIMITATIONS
Process highly subjective - Both selection & weighting of factors There is no research to prove that there is a relationship between market attractiveness and business position The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account This approach requires extensive data gathering The GE matrix offers a broad strategy but does not indicate how best to implement it
2.
Strong
Average
Weak
Weak
Average
Strong
Divestment Domain - Products falling in this area will probably be losing money, not necessarily every year, but the losses in bad years will outweigh the gains in good years. It is unlikely that management will be surprised by specific activities falling into this area since poor performance should already be known
Phased Withdrawal Domain - A product with an average to weak position with unattractive market prospects or a weak position with average market prospects is unlikely to be earning any significant amounts of cash. The indicated strategy is to realise the value of the assets on a controlled basis to make the resources available for redeployment elsewhere.
Diversification/Cash Generator Domain - A typical situation in this matrix area is when the company has a product that is moving towards the end of its life cycle and is being replaced in the market by other products. No finance should be allowed for expansion, and so long as it is profitable, the opportunity should be used as a source of cash for other areas. Every effort should be made to maximise profits since this particular activity has no long-term future Growth - Investment should be made to allow the product to grow with the market. Generally, the product will generate sufficient cash to be self-financing and should not be making demands on other corporate cash resources
Market Leadership & Innovation - The strategy should be to maintain this position. At certain stages this may imply a need for resources which cannot be met entirely from funds generated by the product, (e.g. resources to expand capacity), although earnings should be above average
Try Harder Domain - The implication is that the product can be moved towards the leadership box by judicious application of resource. In these circumstances the company should certainly consider making available resources in excess of what the product can generate
Double or Quit Domain - Tomorrows breadwinners among todays R&D projects may come from this area. Putting the strategy simply, those with the best prospects should be selected for full backing and development; the rest should be abandoned Proceed with Care Domain - In this position, some investments may be justified but major investments should be made with extreme caution.
BACKGROUND
The
15 cell matrix was proposed by Charles W. Hofer and Dan Schendel, developed in the late 1970s
It
considers the stages of development of the product/ market & the competitive position/ market evolution of different businesses in a companys corporate portfolio
1) To identify the major opportunities and threats a business unit faces in the future
2) to identify the skills around which it can develop a strategy to exploit the opportunities and negotiate around the threats
According to Hofer and Schendel - the major weakness with the GE Multi-factor matrix was that it didnt effectively depict the positions of new businesses that are just starting to grow in new industries
Thus, Hofer developed the - Product/Market Evolution Portfolio Matrix, or Life Cycle Matrix
THE APPROACH
Hofer-Schendel ascertain that four steps have to be undertaken to determine a basic strategic position This in turn determines the investment strategy of the business
Short-term financial condition & health of company must be determined - to assess whether it is a feasible entity to grow/ likely to go bankrupt Relative competitive position of the business must be ascertained Necessary to determine the position of evolution of the market that the business competes in - This will help decide increasing, growth / profit of the business A plot is then made of the businesss basic strategic position
2.
3.
4.
Strong
Average
Weak
Growth
Competitive shakeout
Maturity
Saturation
Decline
ADVANTAGES
Used to identify developing winners Illustrates how businesses are distributed across the stages of industry evolution