Strategic Management

Group Members
Syed Moeez Ali (1625128)
Zain Hyder Shah (1625133)
Nida Abdul Jabbar (1625120)
Raheel Ahmed Gopang (1625124)

Outline
1) Diversification
2) BCG Matrix
3) Internal-External Matrix

Diversification
Diversification consists of expanding the range of business activities carried out
by a firm either related (similar to existing business) or unrelated (different from
existing business) allows a firm to create value by productively using excess resources

Diversification involves:
Search and selection of new business areas.
Formulation and implementation of an entry strategy.
Search and activation of synergies between business areas.
Definition of priorities for the allocation of resources among business areas.

Diversification
Why Firms Diversify?
To grow.
To efficiently utilize existing resources and capabilities.
To escape from undesirable or unattractive industry environments.
To make use of surplus cash flows.

Diversification Strategies
Related Diversification:
A process that takes place when a business expands its activities
into product lines that are similar to those it currently offers. In
other word related diversification occurs when the company
adds to or expands its existing line of production or markets.
Example:
Nestle Raita they simply increased their produce line and
introduced new product in the same market they began with, they
extended it to different flavors e.g. Mint, Zeera, actiplus etc .

Horizontal or related diversification

Advantages:
Opportunities to achieve economies of scale and scope.
Opportunities to expand product offerings or expand into new

geographical areas.

Disadvantages:
Complexity and difficulty of coordinating different but related

businesses.

Diversification Strategies
Unrelated Diversification:
Unrelated Diversification is a form of diversification when the business

adds new or unrelated product lines and penetrates new markets.

Example:
In Pakistan, Aerosoft brand can be considered as they were into shoe

business and very recently opened their chain of restaurants by the

name of Kabab Jees.

Conglomerate or unrelated diversification

Firms pursue this strategy for several reasons:
Continue to grow after a core business has matured or started to decline.

To reduce cyclical fluctuations in sales revenues and cash flows.

Problems with conglomerate or unrelated diversification:

Managers often lack expertise or knowledge about their firms businesses.

BCG Matrix
What is a BCG matrix?
What is the importance of BCG matrix?
Explanation of BCG quadrants.
How relative market share and industry growth rate

are determined?
Hypothetical Example of a BCG matrix and its
illustration
Limitations of BCG matrix.

Industry sales growth

(Percentage)

BCG Matrix
BCG Matrix is also know as
growth share matrix.
There are four quadrants of a
BCG matrix.
BCG matrix was given by Bruce
Henderson in 1970 who worked
for Boston Consultant Group.
BCG matrix is applicable to only
those organizations who have
diversified businesses.

What is a BCG Matrix

The BCG matrix consist of four quadrants or

components; stars, question marks, cash cows

and dogs.
Relative market share is positioned on x-axis of
the BCG matrix. The range of relative market
share is 1 to 0. 1 is the highest market share, 0
is the lowest market share.
Industry growth rates are positioned along y-axis
which ranges from -20% as lowest, +20% as
highest and 0 as midpoint.

What is a BCG Matrix Contd

Different businesses of an organization are placed in

one of the four quadrants depending upon their relative

market share and their industry growth rates.
Each business unit is represented by a circle.
The size of the circle represents the revenues
that business has generated.
The shaded portion in each circle represents the
contribution of each business made to the overall
profit of the organization.

Importance of BCG Matrix

BCG is a portfolio management tool.
Graphical representation for an organization to examine

different businesses or products in its portfolio.

It tell about market share of each business and industry
growth rates.
BCG helps companies in resource allocation.
* which business unit to fund and how much?
*which business unit to sell and which business unit is to retain.

Quadrants of a BCG Matrix

- Question Marks
Products or business which have low relative market share but are competing
in high growth industry are placed in the question marks quadrant.
These divisions require more cash than they generate.
Organization must have to decide whether to purse intensive strategy or to sell
these businesses off.
Selling off question marks would release cash strains from the organization.
Pursing intensive strategies such as market penetration, product development
or market development to increase the relative market share of the product.
Such moves may make the product shift from question marks category to stars
category.
What to do with ?
Market development
Market penetration
Product development
Divestiture

Quadrants of a BCG Matrix

-Stars
Businesses placed in the Stars quadrant have high relative market share
and they compete in high growth industry.
Stars have the may become cash cows in the future when the
market/industry growth rate slows down.
It is important to keep the relative market share high to retain market
leadership otherwise the products would become question marks.
To keep the market share intact and prolong their dominance organizations
may go for forward, backward or horizontal integration. Product
development, market development or market penetration strategies can be
adopted.
The above mentioned moves are costly.
Therefore, stars despite of having a large relative market share still
What to do with
consumes a lot of cash.
Market or product development
Forward/Backward integration
Market penetration
Horizontal integration

Quadrants of a BCG Matrix

-Cash Cows
Businesses or division which have high relative market share but are competing
in low growth industry are placed in the fourth quadrant of cash cows.
Since these businesses are established they produce more cash then they require.
Funds generated from cash cows are used to support question marks and stars.
It is very important to sustain stars because in the long run stars have the
potential to become cash cows.
Product development or product diversification are best strategies for cash cows
to remain attractive otherwise they will loose their market share and become dogs.

What to do with
Product development
Product diversification

Quadrants of a BCG Matrix

-Dogs
Those divisions or businesses of an organization which have low market
share and are operating in low growth industry are known as dogs.
They neither generate nor require huge amounts of cash.
From Social point of view sometimes its okay to carry on with dogs
without divesting them if they are on break-even because people have job
associated with them.
From accounting point of view dogs are worthless which have little or
no potential and a burden on organizations treasury.
What to do with
Divestiture
Liquidation
Retrenchment

Relative Market Share and

Industry Growth Rate
Relative market share of a business is determined

by dividing the sales of a business with the sales of

the market leader.
For example if Sony VAIO sells 300,000 laptops and
the market leader Hp sells 450,000 laptops.
Relative market share of Sony VAIO= 300,000/450,000
= 0.66
Industry growth rate can be extracted from different
economic surveys about a particular industry.
For example in 2015 the laptop industry grew 12%.

Relative Market Share and

Industry Growth Rate
Thus, Sony VAIO will be termed as a star in Sonys

Industry growth rate

(percentage)

BCG Matrix because its has a market share of 0.66

and it is competing in a growing industry

Sony VAIO

Hypothetical Example and its Illustration

BGC Matrix for Antonio Corporation
Division

Revenues

Percent
Revenues

Profits

Percent
Profits

Relative
Market
Share

Industry
Growth Rate

$100,000

41

$30,000

62

0.80

-5

80,000

33

10,000

21

0.70

+10

50,000

20

7000

15

0.10

+15

15,000

1000

0.20

-5

Total

$245,000

100

$48000

100

Industry growth rate

(percentage)

BGC Matrix for Antonio Corporation

Limitations of BCG
Viewing every business as a question mark, star,

cash cow and dog is an oversimplification.

There are many businesses which fall in the middle
of the BCG matrix and it is hard to classify them
BCG provides a snap shot but it does not predict
what will happen to the market/industry growth rate.
There is a deficiency of other variable such as
competitive advantage and size of market.

Internal External Matrix

The Internal-External matrix is strategic management
tool used to analyze working conditions and strategic
position of a business.
IE matrix is an important portfolio management tool

considered much similar to BCG Matrix.

Requires more information about the business divisions.
Strategic applications of each matrix are different.

Characteristics
Based on two key dimensions:
The IFE total weighted scores on the x-axis
The EFE total weighted scores on the y-axis

Internal Factor Evaluation (IFE) Matrix is a strategy tool

used to evaluate firms internal environment and to reveal its

strengths as well as weaknesses.
External Factor Evaluation (EFE) Matrix is a strategy tool
used to examine companys external environment and to
identify the available opportunities and threats. Some of the
factors are: economic, social, cultural, demographic,
environmental, political, governmental, legal, technological,
and competitive information.

Main Regions of IE Matrix

Main Regions of IE Matrix

The position of various divisions of an organization is

categorized in a nine cell display.

On the x-axis of the IE Matrix, an IFE total weighted score
of 1.0 to 1.99 represents a weak internal position of the
business. A score of 2.0 to 2.99 is considered average. A
score of 3.0 to 4.0 is strong.
On the y-axis, an EFE total weighted score of 1.0 to 1.99 is
considered low. A score of 2.0 to 2.99 is medium. A score of
3.0 to 4.0 is high.

Internal External Matrix Regions

Grow & Build Region which is specified through I, II & IV

cells of the IE matrix.

Hold & Maintain Region which is covered by the III, V or

VII cells of the IF matrix.

Harvest or divest region which is covered through the VI,

VIII or IX cells of the IE matrix.

 Ratings in IFE / EFE matrix represent the response of firm

toward the internal strengths and weaknesses and in case

of EFE opportunities and threats.
Weight attribute in IFE / EFE matrix indicates the relative

importance of factor to being successful in the firms

industry. The weight range from 0.0 means not important
and 1.0 means important.
Weighted

score value is the result achieved after

multiplying each factor rating with the weight.