Chapter Iv : Strtegy Formulation

4.1. Corporate level strategies

Corporate Strategy is regarded as encompassing the aims and objectives of the organization
together with the means of how these are to be achieved. It is, by definition, holistic, i.e., it
embraces all of the company’s different businesses and functions. Andrews defined corporate
strategy as: ‘the pattern of major objectives, purposes or goals and essential policies or
plans for achieving those goals, stated in such a way as to define what business the
company is in or is to be in and the kind of company it is or is to be’. Chandler believed
that it should also be concerned with ‘the allocation of resources necessary for carrying out
these goals’.

In defining its corporate strategy, the firm has to satisfy the sometimes-contradictory
expectations of several differing constituencies including, obviously, customers as well as
suppliers, shareholders, and employees.

It is widely believed that corporate strategy should address the essentials of the
organization, namely, the “what”, “why”, “how”, and “when”, of the organization. It is
concerned with “what businesses is the company in or would like to be in?” Secondly, it
embraces “why the company is in business?” i.e., the specific sales, profit, rate of return,
and growth targets it has or should have. Thirdly, the company needs to define “how” it aims to
achieve those targets, such as the technologies it will use, the markets it is or should be
operating in, and the products it markets or should market in order to achieve those objectives.
Finally, the company needs to decide “when” it aims to achieve those goals and the period over
which it defines its strategy.

4.1.1 Grand Strategies

Grand strategy is an overall framework for action developed at the corporate level. It is most
commonly used when corporation competes in a single market or in a few highly related
markets. There are three basic grand strategies that companies choose to pursue:
growth, stability, and retrenchment. The table below shows each of the grand strategies
in relation to the SWOT analysis.

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 Corporate Growth Corporate Stability
Valuable
Strengths Strategies
Strategies

Corporate Stability Corporate

Critical
Weaknesses Strategies Retrenchment
Strategies

Abundant Critical Environmental

Environmental Threats
Opportunities

A. Corporate Stability (or stable growth) Strategies

A stable growth strategy can be characterized as follows:

• The organization is satisfied with its past performance and decides to continue to pursue the
same or similar objectives.
• Each year the level of achievements expected is increased by approximately the same
percentage.
• The organization continues to serve its customers with basically the same product or
services.

A stable growth strategy is a relatively low risk strategy and is quite effective for successful
organizations in an industry that is growing and in an environment that is not volatile. For many
organizations, stable growth is probably the most effective strategy. Some of the reasons for the
use of a stable growth strategy are:

• Management may not wish to take the risk of greatly modifying its present strategy. Change
threatens those people who employ previously learned skills when new skills are required. It
also threatens old positions of influence. Furthermore, the management of a successful

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 organization quiet frequently assumes that strategies that have proved to be successful in
the past will continue to be successful in the future.
• Changes in strategy require changes in resource allocations. Changes in partners of
resource allocation in an established organization are difficult to achieve and frequently
require long periods.
• Too-rapid growth can lead to situations in which the organizations scale of operations
outpaces its administrative resources. Inefficiencies can quickly occur.
• The organization may not keep up with or be aware of changes that may affect its product
and market.
Generally, organizations that pursue a stable growth strategy concentrate on one
product/service. They grow by maintaining their share of the steadily increasing market, by
slowly increasing their share of the market, by adding new products/services (but only after
extensive marketing research), or by expanding their market coverage geographically. Many
organizations in the public utility, transportation, and insurance industries follow a stable growth
strategy. In fact, for many industries and for many organizations, stable growth is the most
logical and appropriate strategy. Some of the more popular of these strategies are the
pause/proceed with caution, no change, and profit strategies.

1. Pause/Proceed with Caution Strategy

A pause/proceed with caution strategy is, in effect, a timeout – an opportunity to rest before
continuing a growth or retrenchment strategy. It is a very deliberate attempt to make only
incremental improvements until a particular environmental situation changes. It is typically
conceived as a temporary strategy to be used until the environment becomes more hospitable
or to enable a company to consolidate its resources after prolonged rapid growth.

2. No change Strategy

A no change strategy is a decision to do nothing new – a choice to continue current

operations and policies for the foreseeable future. Rarely articulated as a definite strategy, a
no change strategy’s success depends on a lack of significant change in a corporation’s
situation. The relative stability created by the firm’s modest competitive position in an industry
facing little or no growth encourages the company to continue on its current course, making only
small adjustments for inflation in its sales and profit objectives.

3. Profit Strategy

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A profit strategy is a decision to do nothing new in a worsening situation but instead to act as
though the company’s problems are only temporary. The profit strategy is an attempt to
artificially support profits when a company’s sales are declining by reducing investment and
short-term discretionary expenditures. Rather than announcing the company’s poor position to
shareholders and the investment community at large, top management may be tempted to
follow this very seductive strategy. Blaming the company’s problems

B. Corporate Growth/Expansion Strategies

Organizations pursuing a growth strategy can be described as follows:

• They do not necessarily grow faster than the economy as a whole but do grow faster than
the markets in which their products are sold.
• They tend to have larger-than-average profit margins.
• They attempt to postpone or even eliminate the danger of price competition in their industry.
• They regularly develop new products, new markets, new processes, and new uses for old
products.
• Instead of adapting to changes in the outside world, they tend to adapt the outside world to
themselves by creating something or a demand for something that did not exist before.
Organizations pursuing growth strategies, however, are not confined to growth industries. They
can be found in industries with relatively fixed markets and established product lines.

Several different generic strategies fall in the growth category. The most frequently
encountered and clearly identifiable of the growth strategies are discussed in the
following sections.

1. Concentration Strategy

A concentration strategy focuses on a single product/service or on a small number of closely

related products/services and involves increasing sales, profits or market share faster than it
has increased in the past. Several factors might influence an organization to pursue a
concentration strategy. Some of these include:

• Lack of a full product line in the relevant market ( product line gap)
• Absent or inadequate distribution system to or within the relevant market (distribution gap)
• Less than full usage in the market (usage gap)
• Competitors sales( competitors gap)

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Some of the actions available to an organization in filling these gaps include the following:

• Filling out the existing product line (e.g., new sizes, options, styles or colors could be offered
for the existing product line).
• Developing new products in the existing product line (e.g., Cherry Coke was a new
products in the existing product line)
• Expanding distribution into new geographical areas either nationally or internationally
• Expanding the number of distribution outlets in a geographical area
• Expanding shelf space and improving the location and displays of the product in present
distribution outlets
• Encouraging nonusers to use the product and light users to use it more frequently through
the use of advertising, promotions and special pricing campaigns
• Penetrating competitors’ positions through pricing strategies, product differentiation and
advertising.
Basically, there are three general approaches to pursuing a concentration strategy: Market
development, Product development and horizontal integration.

Market development:

The trust under Market development approach is to expand the markets of the current business
this can be done by gaining a larger share of the current market, expanding into new
geographical areas or attracting new market segments. Coca- cola has continued to follow a
new market development strategy since its inception. It amassed its impressive market share
through large scale advertising program and has continued to expand into new geographical
areas.

2. Product development:

The trust under product development approach is to alter the basic product or service or to add
a closely related product or service that can be sold through the current marketing channels.
Successful product development strategies often capitalize on the favorable reputation of the
company or related products. The telephone company introduction of numerous styles of
phones and additional services, such as call forwarding and call holding, is an example of
product development strategy.

3. Horizontal integration:

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Horizontal integration occurs when an organization adds one or more businesses that produce
similar products or services and that are operating at the same stage in the product marketing
chain. Almost all Horizontal integration is accomplished by buying another organization in the
same business.

One concern with employing horizontal integration is that such a strategy eliminates the
competition that has existed between the two organizations and may result in legal ramification.

Many governments in developed countries prohibited mergers that substantially lessened

competition or that tended to create a monopoly in any field of business in any section of the
country. Some of the factors that are examined by the U.S. Department of justice in determining
the legality of a merger are:

(1) the level of concentration in the industry ( e.g., the market shares of the leading
organizations and the increase in concentration that will be caused by the proposed
merger),

(2) Whether the merger will give the resulting organization a competitive advantage over
other organizations in the industry,

(3) whether entry into the industry is difficult,

(4) whether there has been a trend of mergers within the industry,

(5) the economic power of the merged organizations,

(6) whether demand for the industries products is growing, and finally

(7) whether there is danger that the merger will trigger others.

A concentration strategy offers an organization several advantages. First, the organization has
much of the knowledge and many of the resources necessary to compete in the market place. A
second advantage is that a concentration strategy allows the organization to focus its attention
on doing a small number of things extremely well. One does not have to look very far to find
examples of companies that have failed because they spread their talent and resources in too
many different directions.

The major draw back to a concentration strategy is that it places all or most of the organization’s
resources in the same basket. If the market for the organizations product/service declines, than

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the organization is in trouble. This is an especially important concern when one considers that it
has been estimated 80 percent of today’s product’s will have disappeared from the market 10
years from now, while an estimated 80 percent of the products that will be sold in the next
decade are as yet unknown. Several factors outside the control of any single organization can
cause a decline in the demand for a product /service.

The increasing instability of consumer preference, the growing intensity and sophistication of the
competition, technological changes, and changes in government policy pose a risk for any
organization concentrating on a single product or service.

Regardless of the risk associated with a concentration strategy, many organizations have been
very successful in pursuing a concentration strategy

4. Vertical integration:

Vertical integration is a growth strategy that involves extending an organization’s present

business in two possible directions. Forward integration moves the organization into distributing
its own product and services. Backward integration moves an organization into supplying some
or all of the products or services used in producing its present products or services.

Several factors, including the following may cause an organization to pursue either forward or
backward Vertical integration:

• Backward integration gives an organization more control over the cost, availability and
quality of the raw material it uses.
• When suppliers of an organization products or services have large profit margins, the
organization can convert a cost-center into a profit-center by integrating backwards.
• Forward integration gives an organization control over sales and distribution channels,
which can help in eliminating inventory buildups and production slowdowns.
• When the distributors of an organization’s products or services have large markups, the
organization may increase its own profits by integrating forward.
• Some organizations use either forward or backward integration in hopes of benefiting from
the economics of scale available from the creation of nationwide sales and marketing
organizations and the constructions of larger manufacturing plants. These economics of
scale may result in lower overall cost and thus increased profits.
• Some organizations use either forward or backward integration to increase there size and
power in a particular market or industry in order to gain some degree of monopolistic control.

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Vertical integration is a reasonable and rational strategy in certain situations. However,
organizations should adopt a vertical integration strategy with caution, because integrated
organizations have become associated with mature and less profitable industries. At the same
time, escape from these industries is particularly difficult for a large, vertically integrated
organization.

5. Diversification:

Diversification occurs when an organization moves into areas that are clearly differentiated from
its current businesses. The reason for embarking on a Diversification Strategy can be many and
varied, but one of the most frequently encountered is to spread the risk so the organization is
not totally subject to the whims of any one given product or industry. For example, both Philip
Morris and R. J. Reynolds have diversified significantly since the time when cigarettes were first
linked to cancer. A second reason to diversify is that management may believe the move
represent an unusually attractive opportunities, especially when compared with other possible
growth strategies. Possible reason for this attractiveness could be that the market for current
products and services are saturated or, if current markets are not saturated, that the profit
potentials of diversification looks grater than that of expanding the current business. A third
reason to diversify is that the new area may be especially intriguing or challenging to
management. A forth reason why diversification can be attractive is to balance out seasonal and
cyclical fluctuations in product demand.

Most diversification strategies can be classified as either concentric diversification or

conglomerate diversification: concentric diversification occurs when the diversifications in
some way related to, but clearly differentiated from, the organization’s current business.
Conglomerate diversification occurs when the firm diversifies into an area(s) totally unrelated to
the organization’s current business.

Concentric diversification:

The basic difference between a concentric diversification strategy and a concentration strategy
is that a concentric diversification strategy involves expansion of the current business.
Concentric diversification involves adding products or services that lies within the organizations
know-how and experience in terms of technology employed, distribution system, or customer
base.

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A concentric diversification strategy can have several advantages. The most obvious is that it
allows the organization to build on its expertise in a related area. It can also have the advantage
of spreading the organizations risks. In their study to identify common characteristics of
successful U.S. companies, Thomas Peters and Robert Waterman, Jr., concluded,
“Organizations that do branch out by stick very close to their knitting outperform the others”

Conglomerate diversification

Conglomerate diversification is a growth strategy that involves adding new products or services
that are significantly different from the organizations present products or services.
Conglomerate diversification can be pursued internally or externally. Most frequently, however,
it is achieved through mergers, acquisitions, or joint ventures.

A great many organizations prefer the Conglomerate diversification strategy. In fact, the names
of organizations employing this strategy would read like a who’s who of American business.
American express, ITT, and others too numerous to mention are examples. The reasons for
following such a strategy are also numerous. Some of the more important ones follow:

• Supporting some strategic business units (SBUs) with the cash flow from other SBUs during
a period of development or temporary difficulties.
• Using the profits of one SBU to cover expenses in another SBU without paying taxes on the
profits from the first SBU
• Encouraging growth for its own sake and to satisfy the values and ambitions of management
or the owners
• Taking advantage of unusually attractive growth opportunities
• Distributing risk by serving several different markets
• Improving the overall profitability and flexibility of the organization by moving into industries
that have better economic characteristics then those of the acquiring organizations
• Gaining better access to capital markets and better stability and growth in earnings.
• Increasing the price of an originations stocks
• Reaping the benefits of synergy. Synergy results from a Conglomerate merger when the
combined organization is more profitable than the two organizations operating
independently.

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In choosing a Conglomerate diversification strategy, an organization should proceed with
caution and not diversify merely to be diversified. Conglomerate diversification brings with it
bigness and the difficult management problems associated with bigness. One study of 33 large
U.S., companies over the 1950-1968 period found that the companies ended up divesting a
startling 74% of all unrelated acquisitions. Evidence shows that Conglomerate firms which limit
their diversification to three or four major business categories are generally more successful that
those that don’t

There is little doubt that the right diversification strategy, whether concentric or Conglomerate,
can produce profitable results. However, experience, support by research, tends to favors
concentric diversification over Conglomerate diversification especially when the diversification
involves the sharing of activities (such as distribution channel) and the transferring of skills
among the old and new business.

C. Corporate Retrenchment Strategies

A company may pursue retrenchment strategies when it has a weak competitive position in
some or all of its product lines resulting in poor performance-sales are down and profits are
becoming losses. These strategies impose a great deal of pressure to improve performance. In
an attempt to eliminate the weaknesses that are dragging the company down, management
may follow one of several retrenchment strategies ranging from turn around or becoming a
captive company to selling out, bankruptcy, or liquidation.

1. Turnaround Strategy

The turnaround strategy emphasis the improvement of operational efficiency and is probably
most appropriate when a corporations problems are pervasive but not yet critical.

Analogous to a weight reduction diet, the two basic phases of a turnaround strategy are
contraction and consolidation.

Contraction is the initial effort to quickly “stop the bleeding” with a general across-the-board
cutback in size and costs.

The second phase, consolidation, implements a program to stabilize the now-leaner

corporation. To streamline the company, plans are developed to reduce unnecessary overhead
and to make functional activities cost justified. This is a crucial time for the organization. If the
consolidation phase is not conducted in a positive manner, many of the best people leave the

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organization. An overemphasis on downsizing and cutting costs coupled with a heavy hand top
management is usually counterproductive and can actually hurt performance. If, however, all
employees are encouraged to get involved in productivity improvements, the firm is likely to
emerge from this retrenchment period a much stronger and better organized company. It has
improved its competitive position and is able once again to expand the business.

2. Captive company strategy

A captive company strategy is the giving up of independence in exchange for security. A

company with a weak competitive position may not be able to engage in full-blown turnaround
strategy. The industry may not be sufficiently attractive to justify such an effort from either the
current management or from investors. Nevertheless a company in this situation faces poor
sales and increasing losses unless it takes some action.

Management desperately searches for an “angel” by offering to be a captive company to one of

its larger customers in order to guarantee the company’s continued existence with a long term
contract. In this way, the corporation may be able to reduce the scope of some of its functional
activities, such as marketing, thus reducing cost significantly. The weaker company gains
certainty of sales and production in return for becoming heavily dependent on one firm for at
least 75% of its sales. For example, to become the sole supplier of an auto part to General
motors, Simpson industries of Birmingham, Michigan, agreed to let a special team from GM
inspect its engine parts facilities and books and interview its employees. In return, nearly 80% of
the companies’ production was sold to GM through long-term contracts.

3. Sell Out/ Divestment strategy

If a corporation with a weak competitive position in its industry is unable either to pull it self up
by its bootstraps or to find a customer to which it can become a captive company it may have no
choice but to sell out. The sell out strategy makes sense if management can still obtain a good
price for its shareholders and the employees can keep their jobs by selling the entire company
to another firm. The hope is that another company will have the necessary resources and
determination to return the company to profitability.

If the corporation has multiple business lines and it choose to sell off a division with low growth
potential, this is called divestment.

4. Bankruptcy/Liquidation strategy

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When a company finds itself in the worst possible situation with a poor competitive position in an
industry with few prospects, management has only a few alternatives – all of them distasteful.
Because no one is interested in buying a weak company in an unattractive industry, the firm
must pursue a bankruptcy or liquidation strategy. Bankruptcy involves giving up management
of the firm to the courts in return for some settlement of the corporation’s obligations. Top
management hopes that once the court decides the claims on the company, the company will
be stronger and better able to compete in a more attractive industry.

In contrast to bankruptcy, which seeks to perpetuate the corporation, liquidation is the

termination of the firm. Because the industry is unattractive and the company too weak to be
sold as a going concern, management may choose to convert as many saleable assets as
possible to cash, which is then distributed to shareholders after all obligations are paid. The
benefit of liquidation over bankruptcy is that the board of directors, as representatives of the
shareholders, together with top management makes the decisions instead of turning them over
to the court, which may choose to ignore shareholders completely.

4.2. Business Strategy

Business strategy or competitive strategy is empowered to make key decisions about

current and future strategy within the framework of the overall corporate strategy. It seeks to
determine how an organization should compete in each of its businesses. For a small
organization in only one line of business or the large organization that has not diversified into
different products or markets, the business-level strategy typically overlaps with the
organizations corporate strategy.

For organizations in multiple businesses, however, each division (SBUs) will have its own
strategy that defines the products or services it will offer, the customers it wants to reach, and
the like. For example, Pepsi Co. has different business-level strategies for its various business
units – Soft drinks (Pepsi, Slice, Mountain Dew), Snacks (Frito-lay and Rold Gold pretzels),
Other Beverages (Tropicana juices, Aquafina bottled water, All Sport sports drinks, and Lipton
tea), and Quaker Oats. Each division has developed its own unique approach for competing.

The essence of business strategy is achieving sustainable competitive advantage.

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It has three aspects:

(1) deciding what product/service attributes (lower costs and prices, a better product, a wider
product line, superior customer service, emphasis on a particular market niche) offer the best
chance to win a competitive edge;

(2) developing skills, expertise, and competitive capabilities that set the company apart from
rivals;

and (3) trying to insulate the business as much as possible from the effects of competition.

On a broader internal front, business strategy must also aim at uniting strategic initiatives in the
various functional areas of business (Finance, HR, Marketing, R&D, Customer service etc.).
Strategic actions are needed in each functional areas to support the company’s competitive
approach and overall business strategy. Strategic unity and coordination across the various
functional areas add power to the business strategy.

4.3. Iniernational Strategy

International strategy refers to selling products in markets outside of the
firm’s domestic market. A primary reason that firms implement an
international strategy is to take advantage of new, potentially profitable
opportunities to expand the market for their products.

This is explained by Vernon’s adaptation of the product life cycle concept

formulated to explain internationalization.

1. A firm introduces an innovation (new product) in its domestic market.

2. Product demand develops in other countries and exports are provided
from domestic operations.
3. As demand increases, foreign competitors may begin to produce the
product; in response firms justify investing in production abroad.
4. As products becomes standardized, firms relocate production to low-cost
countries.

Another justification for implementing international strategy is to secure

critical resources, such as petroleum reserves (for the oil industry), bauxite
(for the manufacture of aluminum), or rubber (for tire manufacturing).

Foreign locations also may be selected to enable the firm to gain access to
low-cost factors of production, such as labor, manufacturing, assembly, or
R&D. For example:

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• Turkey’s low wage rates and rising productivity are providing
multinational firms with the incentive to establish operations in that
country.

Research on China found that reasons for investing in China differ by the
type of firm. Large multinational firms invest primarily to gain access to the
large demand potential of China’s domestic market. Smaller firms from
newly industrializing economies, such as Hong Kong, that use more mundane
technologies are more interested in low-cost sources of inputs such as labor
and land, to maintain their cost advantages.

In addition to the traditional reasons for internationalizing, several new

motives are emerging:

• Pressures to globally integrate operations (driven by a demand for more

universal products) increases as more nations become industrialized.
• Life styles are becoming more similar in industrialized nations.
• Global communications via mass media (especially television) facilitates
the ability of peoples around the world to visualize and model life styles
across disparate cultures.
• Technology in some industries is driving globalization as economies of
scale demand efficient scale investment greater than can be supported by
product demand in domestic markets.
• Pressures are rising to reduce costs by purchasing from the low-cost
producer.
• Firms are realizing that R&D expertise for the latest product innovation
may come from places other than domestic markets.
• Large scale, potentially profitable product demand is growing in emerging
markets—e.g. India, China.
• The risk of currency fluctuation provides firms with an incentive to locate
operations in countries where the risks of currency devaluation (relative
to the firm’s domestic currency) are the greatest.
• Pressures for local market responsiveness to culturally-driven
customization is increasing.
• Transportation costs can be high for large products.
• Suppliers follow customers into international markets.
• Differences in employment and other labor-related practices can be firm
strengths.
• Host country requirements for high levels of local content (in
procurement, R&D, and manufacturing) and/or joint ownership (either to
avoid tariffs or to obtain market entry) are growing.

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Accompanying these traditional and emerging reasons for international
expansion, other opportunities available to firms through international
strategy include:

• increasing the size of potential markets

• achieving greater returns on capital investment and/or investment in new
product and/or new process development
• gaining economies of scale, scope, or learning
• gaining location-based competitive advantage

Opportunities and Outcomes of International Strategy

The following opportunities and outcomes of international strategy are

• Firms should first identify international opportunities related to

increasing market size, return on investment, economies of scale and
learning, and location-related advantages.

• Once international opportunities have been identified, firms must

develop international strategies based on firm resources and
capabilities.

• A mode of entry should be selected to take advantage of the firm’s

core competencies.

• A firm’s ability to realize strategic competitiveness is tempered by

management’s ability to manage effectively and efficiently a complex
organization with locations in multiple countries and the economic and
political risks that accompany firm internationalization.

• The strategic outcomes from the process can include better

performance and more innovation.

4.4. Portfolio Analysis

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The corporate or business portfolio is the collection of businesses and products that make up
the company. The best business portfolio is one that fits the company's strengths and helps
exploit the most attractive opportunities.

The company must:

 Analyze its current business portfolio and decide which businesses should receive more
or less investment, and
 Develop growth strategies for adding new products and businesses to the portfolio,
whilst at the same time deciding when products and businesses should no longer be
retained.
Methods of Portfolio Planning

The two best-known portfolio-planning methods are from the Boston Consulting Group and by
General Electric/Shell. In each method, the first step is to identify the various Strategic Business
Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate
mission and objectives and that can be planned independently from the other businesses. An
SBU can be a company division, a product line or even individual brands - it all depends on how
the company is organised.

The Boston Consulting Group Matrix

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's
according to two dimensions:

On the horizontal axis: relative market share this serves as a measure of SBU strength in the
market. On the vertical axis: market growth rate this provides a measure of market
attractiveness

Figure 4.1: The Boston Consulting Group Box ("BCG Box")

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By dividing the matrix into four areas, four types of SBU can be distinguished:

Stars

Stars are high growth businesses or products competing in markets where they are relatively
strong compared with the competition. Often they need heavy investment to sustain their
growth. Eventually their growth will slow and, assuming they maintain their relative market
share, will become cash cows.

Cash Cows

Cash cows are low-growth businesses or products with a relatively high market share. These
are mature, successful businesses with relatively little need for investment. They need to be
managed for continued profit - so that they continue to generate the strong cash flows that the
company needs for its Stars.

Question marks

Question marks are businesses or products with low market share but which operate in higher
growth markets. This suggests that they have potential, but may require substantial investment
in order to grow market share at the expense of more powerful competitors. Management have
to think hard about "question marks" - which ones should they invest in? Which ones should
they allow to fail or shrink?

Dogs

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Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in
unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are
rarely, if ever, worth investing in.

Using the BCG Box to determine strategy

Once a company has classified its SBU's, it must decide what to do with them. In the diagram
above, the company has one large cash cow (the size of the circle is proportional to the SBU's
sales), a large dog and two, smaller stars and question marks.

Conventional strategic thinking suggests there are four possible strategies for each SBU:

 Build Share: here the company can invest to increase market share (for example
turning a "question mark" into a star)
 Hold: here the company invests just enough to keep the SBU in its present position
 Harvest: here the company reduces the amount of investment in order to maximise the
short-term cash flows and profits from the SBU. This may have the effect of turning Stars
into Cash Cows.
 Divest: the company can divest the SBU by phasing it out or selling it - in order to use
the resources elsewhere (e.g. investing in the more promising "question marks").

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