Unit 2 Strategic Management

Unit: 2.....
Strategic Analysis
Dr. Prashant Kalaskar

Syllabus
• 2.1: Analysing Company’s Internal Environment: Resource based view
of a Firm, types & sources of Competitive Advantage, Analysing
Company’s Resources & Competitive Position, VRIO Framework,
Competitive Advantage, Competitive Parity & Competitive
Disadvantage, Core Competence, Characteristics of Core & Distinctive
Competencies, Benchmarking as a Comparative Analysis.
• 2.2: Value Chain Analysis using Porter’s Model: Primary & Secondary
Activities
• 2.3: Organizational Capability Profile: Strategic Advantage Profile,
Concept of Stretch, Leverage & Fit, Ways of Resources Leveraging,
Concentrating, Accumulating, Complementing, Conserving,
Recovering resources
• 2.4: Portfolio Analysis: Business Portfolio Analysis using BCG Matrix &
GE9 Cell Model

Assessing Organizational Ability
to Make Strategy
• Analyze historical and current financial
performance
• Review strategic assets – resources and
competencies
• Breakdown and evaluate the internal value
chain

Historical Financial Performance
• Sales, market share, growth rates and profit %
• Free cash flow
• External capital sources
• Shareholder value

Components of
Internal Analysis
Discovering Core
Competencies
Resources
• Tangible
• Intangible
Capabilities
Core
Competencies
Competitive
Advantage
Value Creation
Four Criteria
of Sustainable
Advantages
•Valuable
•Rare
•Costly to Imitate
•Nonsubstitutable
Value
Chain
Analysis
•Outsource

Challenge of Internal Analysis
• How do we effectively manage current core
competencies while simultaneously developing
new ones?
• How do we assemble bundles of resources,
capabilities and core competencies to create
value for customers?
• How do we learn to change rapidly?

Strategic Advantage
• In Competitive Environment an Organization needs to
have Strategic Advantage.
• Organizational Capabilities produces Strategic
Advantage.
• Strength & Weaknesses provides Organizational
Competencies.
• Strength & Weaknesses depends upon two factors-
- Organizational Resources
-Organizational Behaviour

Strategic Advantage
Organizational
Resources
Organizational
Behaviour
Strength &
Weaknesses
Strategic
Advantage
Synergistic Effect
Organizational
Capabilities
Competencies

Organizational Resources
• Resources can be broadly classified as-
1) Tangible Resources
2) Intangible Resources
These Resources can also further classified as-
1) Physical Resources- (Technology, Plant, Equipment, Location, Access to
Raw Material etc.)
2) Human Resources- ( Skilled Manpower, Training, Intelligence,
Judgement, Relationship, Information, Knowledge etc)
3) Organizational Resources- ( Organizational Structure)

Organizational Resources
• These Resources needed to have certain
characteristics-
1) Valuable- adds in Strategic Advantage
2) Rare- adds in Strategic Advantage
3) Costly to Imitate- adds in long term performance & sustainable
competitive advantage
4) Organized for Usage- adds in long term performance &
sustainable competitive advantage

Organizational Behaviour
It is the ability of usage of available resources, by which
an organization can create a position
It leads to the development of a special identity &
character of an organization
- The quality of Leadership
- Management Philosophy
- Shared Values & Cultures
- Quality of Work Environment
- Organizational Policies
- Use of Power
(These produces organizational Strengths & Weaknesses)

Strengths & Weaknesses
• Strength is inherent capability of any organization,
which enables its strategic advantage
• Weakness is a inherent limitations or constraints
which creates a strategic disadvantage for the
organization.
• As like organization behaviour & resources, the
strengths & weaknesses also do not exists in
isolation from each other
• Ex- Strength-Availability of financial resources, efficient use of funds,
advanced technology machineries.
• Ex- Weakness- Wrong Plant Location, inefficient operations, poor
machineries

Synergistic Effect
• Two strengths or two weaknesses can show a
synergistic/ dysergic effect ( enhanced or reduced impact)
• Better coordination between Marketing & Sales
department produces increased sales & ultimately a
synergistic effect.
• Production & Marketing of goods efficiently is an
example of operational synergy.
• The reduced production of products, even with better
marketing efficiency produces weakness synergy
• Synergistic effect determines type & quality int.
environment which produces competencies

Competencies…
• Competencies are the special qualities that an organization
possesses, which helps the organization to withstand in competitive
environment.
• Strategic Advantage or Disadvantage of any organization depends
upon its level of competency against competition.
• Competencies are like– Unique resources, core capabilities, invisible
assets, embedded knowledge.
• When an organization uses these competencies exceedingly c/a core
competencies.
• A specific ability possessed by an Org. is c/a distinctive competency,
which determines its success.
• Ex- Johnson & Johnson (NICHE Mktg), Sony & Apple (Innovation),
Bajaj, Maruti-Suzuki (fuel efficiency) etc.

Organization’s Capabilities
• It is a potential or capacity to perform better
• Without capabilities, resources are of no value.
• Capability is a measurable attribute
• Capabilities helps organization to-
- Know what capacity exists within organization to
exploit opportunities or to face threats
- Know what potential to be developed to exploit
opportunities & to overcome weaknesses
Every organization carries capabilities, how they utilize them, makes all the
differences
Capabilities are what an organization does, and represent the organization’s
capacity to deploy resources

Strategic Advantage
• Strategic advantages are the result of organizational
capabilities-
• Strategic Advantage means-
- achievement of goals & objectives in terms of financial &
nonfinancial aspects
- Profitability, increased Mkt. share could be used to measure
Strategic Advantage (Higher the profitability- better the
strategic advantage)
- So killing competition & gaining new markets could be
competitive advantage
- Competitive advantage is a relative term than absolute term

Organization’s Capability Factors
• Financial Capabilities
• Marketing Capabilities
• Operations Capabilities
• Personnel Capabilities
• Information Management Capabilities
• General Management Capabilities

1) Financial Capabilities…
• All the factors related to- Availability, Utilization &
Management of funds defines Financial Capabilities
• 1) Factors related to sources of funds- (Availability of
working capital, credits availability, surplus, relationships
with financial institutions)
• 2) Factors related to utilization of funds- (Capital
Investment, Fixed asset procurement, dividends
distribution, loans & advances etc.)
• 3) Factors related to management of funds- (Financial
accounting, Budgeting system, tax planning, state of
financial health etc.)
• Ex.-Bajaj auto- High profitability & availability of surplus working capital, made
Bajaj auto ltd. No.1 in two wheeler market

2) Marketing Capabilities
• This capability includes- pricing, promotion & distribution
of products, better ability of implementation of
strategies
• a) Product related factors- product mix, quality,
positioning, packaging etc.
• b) Pricing factors- price objectives, pricing policy
• c) Place factors- distribution channels, transportation
• d) Promotion factors- sales promotion, advertising
• e) Integrated & System factors- Company image, MIS,
Mktg. Communication system etc.
• Ex: Parle Grp of Companies, Pfizer having two brands ranked in all India sales
etc.

3) Operational Capability
• Operational Capabilities are related to production of products
or services & the use of material resources.
• Factors that influence operations capability are-
• 1) Factors related to production system- (Capacity, Location,
Layout, degree of automation)
• 2) Factors related to operations & control system- (production
planning, material supply, inventory control, quality management,
maintenance system)
• 3) Factors related to R & D System- (Personnel, facilities, product
development pattern, level of technology used)
• Ex: Mumbai Dabawala having operational efficiency with zero error,
• Ex: JK tyres pioneered in radial tyres, could not capitalize it, while
Bridgestone have capitalized with the technology & acclaimed best tyres

4) Personnel Capabilities…
• It is related to availability of & use of human resources, skills,
which decides capability & ability to implement strategies.
• Factors are-
• 1) Factors related Human System- (system for manpower planning,
selection, development, training etc.)
• 2) Factors related to Organizational & Employee
Characteristics- ( Corporate Image, quality of Managers, working
conditions etc.)
• 3) factors related to Industrial Relations- (Management & Union
relations, employee welfare & security etc.)
Ex- Excellent Training Opportunities, safe & salutary working conditions,
promotions & development of employees (Tata Steel)
Ex: IT companies prone to have large attrition rate, a good culture can help to
reduce it

5) Information Management Capability
• This system is related to design & management of
information from outside & inside of organization.
• This information helps for strategic development.
• 1) Factors related to acquisition & retention of information-
(source, quantity, quality, timeliness of information)
• 2) Factors related to processing of information- (database
management, ability to synthesise information)
• 3) Factors related to retrieval & usage of information

6) General Management Capability
• It relates to integration & use of various functional areas
towards the achievement of goals
• 1) Factors related to General Management System- @
Corporate Level (strategic Management System, Setting
Strategic Intent)
• 2) Factors related to General Managers- @ SBU Level
• 3) Factors related to external relationship-
• 4) Factors related to internal environment-

Methods & Techniques of Organizational Appraisal
A) Internal Analysis-
• - VRIO Framework
• - Value Chain analysis
• - Quantitative Analysis- Financial & Non-financial Analysis
• - Qualitative Analysis
B) Comparative Analysis-
• - Historical analysis
• - Industrial Norms
• - Benchmarking
C) Comprehensive Analysis-
• - Balanced Score card
• - Key Factor Rating

VRIO Framework
• A resource based theory suggested by Barney
• Org. capabilities should have VRIO characteristics
• Valuable- for encashing opportunity or to reduce threats
(Relation with Govt., Bankers, Social community etc)
• Rare- If resources are rare, will provide strength (highly Skilled
& Motivated staffs or High tech Machines)
• Inimitable- Capabilities, resources are difficult to imitate,
provide sustainable strategic advantage to Org. (Corporate
Image, Financial Capability, Creditworthiness)
• Organized for Usage- Better Org. structure, business
process, reward system etc. provide strength to the Org.
(Fully Equipped R & D & Skilled Personnel, Potential Business Partner etc.),

How VRIO Framework is Prepared..?
Are the
Capabilities
(Resources)
Valuable
Are the
Capabilities
(Resources)
Rare
Are the
Capabilities
(Resources)
Costly to
Imitate
Are the
Capabilities
(Resources)
Organized
for Usage
Are the Capabilities
(Resources) provides
Strengths or
Weaknesses
No No No No Weakness
Yes No No Yes Strength
Yes Yes No Yes Distinctive Competence
Yes Yes Yes Yes
Strength & Sustainable
Distinctive Competence

Value Chain Analysis
• Introduced by M. Porter in 1985, for assessing the
strengths & weaknesses of the Organizations.
• All the activities undertaken by the Organizations
are interlinked.
• Activities starts from procurement of raw materials
to till the point of creation of place for final
product (Value for Customer)

• Primarily activity includes in the flow of final product to
customers involves 5 sub-activities-
• 1) Inbound Logistics- (Receiving & Storing)
• 2) Operations- (Raw material to finished products)
• 3) Outbound Logistics- (Order processing & distribution of
product)
• 4) Marketing & Sales- ( 4P’s)
• 5) Service- ( Installation & Repairs)
• Success of organization depends upon how effectively it
performs the series of actions
• This Value Chain Analysis provides a systematic way of
examination of all activities performed by an Org.

Value Chain Suggested by Porter
Inbound
Logistics
Outbound
Logistics
Mktg. &
Sales
ServiceOperations
Procurement
Technology Development
Human Resource Management
Firm’s Infrastructure
Profit
Margin
Primary
Activities
Support
Activities
Support Activities to enhance Primary Activities to Create SA/CA

• The Value Chain Analysis Requires:
1- Identifying the activities that make up the Organization’s
value chain & classifying them into primary & support
activities
2- Identifying the sub-activities done in those main activities
that contribute in providing value for the customers.
3- Identifying how the value contribution can be increased, so
that it costs less to the organizations to provide the same or
more value, thereby increasing the profit margin for the
organization
4- Identifying how the value configuration could be improved
by innovatively reconfiguring or recombining activities.

Value Chain Analysis Examples Starbucks
• Inbound Logistics
- Selecting the finest quality of coffee beans (Sourcing)
- Green or unroasted beans are procured directly from the
farms by the Starbucks buyers.
- These are transported to the storage sites after which the
beans are roasted and packaged.
- These are now ready to be sent to the distribution Centre
- The company does not outsource its procurement to ensure
high quality standards right from the point of selection of
coffee beans.

• Operations
- Starbucks has more than 21,000 stores internationally which
includes Starbucks Coffee, Teavana, Seattle’s Best Coffee
and Evolution Fresh retail locations.
- 79% of revenue generated from own retail outlets while 9% is
generated from Franchise Outlets
• Outbound Logistics
- Little or no presence of intermediaries in product selling.
- company has launched a new range of single-origin
coffees which will be sold through some leading retailers in
the U.S.

• Marketing & Sales
- Starbucks invests in superior quality products and high level
of customer services than aggressive marketing.
- However, need based marketing activities are carried out by
the company during new products launches in the form of
sampling in areas around the stores.
• Services
- Starbucks aims at building customer loyalty through high
level of customer service at its stores.
- The retail objective of Starbucks is, as it says in its annual
report, “to be the leading retailer and brand of coffee thro’
unique Starbucks Experience

• Support Activities
• Infrastructure:
- This includes all departments like management, finance,
legal, etc which are required to keep the company’s stores
operational including dedicated team of employees in green
aprons
• Human Resource Management
- Highly Skilled, Motivated Employees, Training programs,
Benefits through Compensations & Incentives, is all due to
the HRD created a work culture, resulting in less attrition in
the industry

• Support Activities
• Technology Development:
- Use of technology not only for coffee related processes to
produce quality & tasty coffee, also to make a shift office or
meeting place because of the free & unlimited wifi
availability & by Starbucks phone app for customer service
• Procurement
- The agents establish strategic relationship and partnership
with a supplier which is built up after reconnaissance and
communication about the company standards. High quality
standards are maintained with direct involvement of the
company right from the base level of selecting the finest raw
material

Quantitative Analysis
• Financial aspect- a better tool for performance appraisal
• But some non financial aspects are also important to be considered
• Financial Analysis- along with traditional techniques, following other
techniques can used to determine strengths & weaknesses of an
organization
• 1) EVA- Popular technique devised in USA to determine wealth of an
organization. (Financial Health of the Organization)
• EVA determines the wealth of the organization & is expressed as
difference of the after tax operating profits & total cost of capital
• EVA=Wealth of Org.=After Tax Profits + Capital cost of org.
• EVA is defined as- “The system of corporate management that
defines the profitability in terms of the returns on the capital above
the cost of servicing the capital employed”.

Quantitative Analysis
• 2) Activity Based Cost (ABC) technique- This techniques allows to
identify major activities carried out & also cost incurred on each activity.
• Thus ABC & EVA both helps the organization to identify their strength &
weaknesses of the organization.
• Non Financial Quantitative Analysis-
• Quantification of intangibles s/a Good Will, Morale of Employees…
• It can be analysed on the following parameters-
• - Employee retentionor employeeturnover.(Improved or not)
• -Market ranking(Improved or Gone down)
• -Servicecallrates(Increased or Decreased)
• -Numberofproductspatented(If obtained any)

Qualitative Analysis
• Qualitative analysis also provides the information regarding
Organizations strength & weakness
• Tenor of corporate culture.
• The ability to absorb & assimilate knowledge
• Level of Morale among the employees
• Qualitative Analysis is termed as SoftAnalysis
• Quantitative Analysis is termed as Hard Analysis

Comparative Analysis
• Historical Analysis- Company can develop its strength or tackle
weakness on the basis of its past performance.
• Such practice is standard in presentation of Balance Sheet & PL
account in annual report of the company.
• Areas which are doing consistently well are strong areas & Strength
of company & V V.
• Industry Norms- A comparison within Industry Orgnization.
• It gives a significant information- the basis to asses, where an
organization stands w.r.t. competitors or industry.
• Comparison b/n companies which operates with similar strategies,
hence direct comparison can be made.
• Thus industry norms provides a good idea to firms to know-
• - The areas which they excels- Strength
• - The areas needs improvement- Weakness

Comparative Analysis
Bench Marking- Benchmark is reference point for the purpose of
measuring & comparison
-This process is aimed at finding the best practice within &
outside the industry, to which that organization belongs
American Productivity & Quality Centre (APQC) Says- “The
practice of being humble enough to admit that, someone else is
better at something & being wise enough to learn how to match
& even surpass them at it”.

Comprehensive Analysis
• A combination of techniques can be used to get overview of its
strength & weaknesses, as every technique have diff. purpose &
limitations.
• A comprehensive analysis helps to deal with this limitation.
• 1) Balanced Score Card- A technique to measure performance of an
organization.
• “A set of measure, that gives a top managers & Stakeholders a fast
& comprehensive views of business.”
• It includes financial measure, that informs the results of actions
already taken.

-Every Organization is responsible to Stakeholders, Board
of Directors, Investors, Society & Customers etc.
-To be responsible to these groups, we need to answer,
1) How did we perform this past month, quarter, and year?
2) How are we going to do next month, quarter, and year?
-To be in better position, the company should not only
look in past or today’s performance, but should also
focus on future actions & achievements.
-Only financial analysis will not give necessary
information to take strategic decisions to improve
performance
Balanced Scorecard (BSC)

Balance Scorecard identifies 4 key performance
measure as follows-
• Financial perspective- How do we look at share
holders
• Customer Perspective- How do customer see
(expects from) us
• Internal Business Perspective- What we must excel
at
• Learning & Growth Perspective- Can we continue
to improve & create value

Objectives - what is to be achieved using the strategy
Measures - how are we going to measure progress
towards achievement of objective
Targets – It refers to the target (value) that the company
is going to obtain for each measure
Initiatives - what activities will be taken to facilitate
reaching towards the target
Balanced Scorecard

Balanced Score Card

BSC Example: Upward Airline’s Company

-Strategy maps are read from top to bottom.
-The objectives are listed in order of importance.
-Below the financial perspective, there is the customer
perspective.
-This is because Upward Airlines’ believes that the way
they’re going to meet their number one goal of
increasing shareholder value is by making their
customers happy.
-So what makes the customers happy?

-To make customers happy, they need to focus on
Innovation by offering Fast Ground Turnaround, Good
Locations that better serve their customers, and Direct
Routes to big cities
-To foster good relationships by creating Fun
Experiences where everyone is treated well.
-Cost Effectiveness, by focusing on No Frills, Standard
Fleet, and High Utilization of flights

-Learn & Growth Perspective: To achieve Financial
Perspective through Customer Satisfaction by improving
Business Perspective internally, Organizations must also
look at Learning & Growth Perspective
-Looking at highly performing company, one should learn
from them, improve in growth.
- Growth by offering High Compensation, Flexible Union
Contracts, and High Employee Ownership.

Key Factors Rating-
These factors are based on rating depending upon
number of key factors-
- Financial Capability Factors
- Marketing Capability Factors
- Operational Capability Factors
- Personnel Capability Factors
- Information Management Capability Factors
- General Management Capability Factors

Preparation of OCP
(Organisation Capability Profile)
Capability Factors of Organisation Weakness
(-5)
Normal
( 0 )
Strength
(+5)
Actual
Score
Financial Capability Factors (+11)
a) Sources of Funds 5
b) Usage of Funds 4
c) Management of Funds 2
Marketing Capability Factors (-1)
a) Product Related 4
b) Price Related -2
c) Promotion Related -3
d) Strategic Related 0

Preparation of SAP
(Strategic Advantage Profile)
Capability Factor Status Competitive Strength or Weakness
Financial Capability High Cost of Capital, reserves & surpluses
Position of industry is unsatisfactory
Marketing Capability Fare Competition in the Industry, Company’s
Position is secured at this position
Operations capability Plant & Machineries are in excellent
conditions. Sources for parts & components
are available
Personnel Capability Qualities of Managers & workers are
comparable to that of Competitors
Information Management Computerised Payroll, Information Collection,
Data Management, at par with Industries
need
General Management High quality & experienced Top management,
always proactive in decision making.

Concept of Stretch, Leverage, & Fit
• Stretch is the misfit between the resources &
aspirations.
• Leverage refers to concentrating, accumulating,
complementing, conserving & recovering the
resources in such a way that the available resource
are stretched so as to meet the aspirations that
organization wants to achieve.
• Concept of fit is opposite to the concept of stretch,
it means- positioning the firm with available
resources so as to match with the requirements of
environment

Business Portfolio Analysis
• Business:- An economic system in
which goods & services are exchanged for one
another or money, on the basis of their
perceived worth.
• Every business requires some form of
investment & sufficient
number of customers to whom its output can
be sold at profit on a consistent basis.

Meaning
• Portfolio- A collection of investments
all owned by-
the same individual or organization.
• Business Portfolio- The business portfolio is the
collection of businesses and products that
make up the company.
• Analysis- is the systematic way of resolution or
examination of any object or happening.

– Designing the business portfolio is a key step
in the strategic planning process.
– The best business portfolio is the one that
best fits the company’s strengths and
weaknesses and to the opportunities in the
environment.

• The company must:
– Analyze its current business portfolio or
Strategic Business Units (SBUs).
– Decide which SBUs should receive more, less
or no investment.
– Develop growth strategies for growth or
downsizing
– Evaluate relative strength of all businesses in
the company.

• Strategic Business Unit analysis.
– Evaluates strength of each independent
business unit in company.
– Applying Growth-Share Matrix key analysis
tool.

• Following tools are used for Business Portfolio
Analysis
- Growth Share Matrix (Boston Consulting Group or
Product Portfolio Analysis)
- Industry Attractiveness/Business Position Matrix
(General Electric/McKenzey Matrix)
- Hofer’s Product Market Evolution matrix
- PIMS (Profit Impact of Market Strategy)
• But commonly used techniques are BCG & GE9 cell
matrix

Market Share
• Market Share is the ratio of sales revenue of
the firm to the total sales revenue of all firms in
the industry, including the firm itself.

Relative Market Share
Example- Market Share of the India's Electronics Companies
COMPANY MARKETSHARE IN 2012
Sony 27%
Samsung 17%
LG 16%
Videocon 14%
Onida 10%
LG RMS =
Business unit sales this year
Leading rival sales this year
16
27
= 0.59%=

Profit
• Profit is the reward to a business firm for the risk it
undertakes in offering a product for sale.
• It is also the money left over after a firm’s total
expenses are subtracted from its total sales
(revenue generated).

Growth Rate
Market Growth (MGR) is used as a measure of a
market’s attractiveness.
Markets experiencing high growth are ones where
the total market share available is expanding, and
there’s plenty of opportunity for everyone to make
money.
MGR =
Individual sales
Current Year
Individual sales last year
Individual sales
Last Year

Product Life Cycle
Time
Sales
Development Introduction Growth Maturity Saturation Decline

BCG Matrix
• It is a portfolio planning model which is based on
the observation that a company’s business units
can be classified in to four categories:
Stars
Question marks
Cash cows
Dogs
• It is based on the combination of market growth
and market share relative to the best competitor
(Market Leader).

BCG Matrix & PLC

The Boston Consulting Group’s
Growth-Share Matrix
20%-
18%-
16%-
14%-
12%-
10%-
8%-
6%-
4%-
2%-
0
MarketGrowthRate
10x 4x 2x 1.5x 1x
Relative Market Share
.5x .4x .3x .2x .1x
Dogs
8
7
3
?
Question marks
?
2
1
Cash cows
6
Stars
5
4
High
High
Low
Low

Stars
• Stars are the unit with a high market share in a
fast growing industry.
• Star represent the best profits and growth
opportunities in the market.
• Generates high revenues and also requires
huge cash for sustaining the STAR position.
• Product is in growth stage.

Stars
• Strategic Implications:
– Huge potential
– May be expensive to develop
– Worth spending money to promote
– Consider the extent of their product life
cycle in decision making

Stars
• Strategic Decisions:
• Invest high & huge promotions to attract larger
customer base to match with the industry growth
rate.
• Competition will be increasing & hence, holding the
customer base (MS) with concentration & product
development strategy.

Cash Cows
• A cash cow is a product or a business unit that
generates unusually high profit margins.
• They are the business with low growth rate and
high market share.
Generating cash more than its requirement which
can be used by other units (positive cash flows).
• Product in maturity Stage.

Cash Cows
– Less Cost to promote
– Generate large amounts of cash –
can be used for further investment?
– Costs of developing and promoting
have largely gone
– Need to monitor their performance –
the long term?
– At the maturity stage of the PLC?

Cash Cows
• Holding the position through Stability Strategy &
through integration strategy
• Differentiation of products in stiff competitive
environment is must, to encash as mush share in
slow industry growth.

Question Marks
• Question Marks are the units with low market
share in a fast growing industry.
• They required large amount of cash to grow their
market share. for e.g.: Promotional expenses.
• They have the potential to generate profits and
achieve a dominant position in market.
• Product is in introduction stage, in a fast growing
market.

Question Marks
– What are the chances of these products
securing a hold in the market?
– How much will it cost to promote them to a
stronger position?
– Is it worth it?

Question Marks
– Aggressive investment & expansion to
capitalise on Industry’s Growth rate with
Focus Differentiation or Low cost Strategy
or
– Divestiture, if the cost of expansion &
building MS is outweigh the potential
payoff & financial risk

Dogs
• Dogs often have little future and are big cash
drainer on the company.
• Generating cash just to BREAK-EVEN. It is a self
sustaining unit (Negative Cash Flow).
• They do not generate any profit for the overall
business and hence can be sold off and hired off.
• Product is in decline stage, with no chance of
revival.

Dogs
– Are they worth persevering with?
– How much are they costing?
– Could they be revived in some way?
– How much would it cost to continue
to support such products?
– How much would it cost to remove
from the market?

GE9 Cell-McKensey Matrix
• GE Matrix or McKinsey Matrix is a strategic tool for
portfolio analysis.
• Developed by GE & McKensey & Co. of USA in 1971
• It is similar to the BCG Matrix and actually the GE /
McKinsey Matrix is an extension of the BCG Matrix
- Multifactor Portfolio Analysis Tool.
• This tool compares different businesses on
"Business Strength" and "Market Attractiveness"
as two variables

GE9 Cell-McKensey Matrix
• The GE / McKinsey Matrix is divided into nine cells -
nine alternatives (3x3) for positioning of any SBU
or product offering.
• Based on the strength of the business and its
market attractiveness each SBU will have a
different position in the matrix.
• Further, the market size and the current sales will
distinguish each SBU.
• Based on clear understanding of all of these factors
decision makers are able to develop effective
strategies.

Objectives of GE9 Cell-McKensey Matrix
• Thus, the objective of the analysis is to position
each SBU on the chart depending on the SBU's
Strength and the Attractiveness of the Industry
Sector or Market on which it is focused.
• Each axis is divided into Low, Medium and High,
giving the nine-cell matrix as shown ahead.

Market Size & Share
• SBUs are portrayed as a circle plotted on the
GE/McKinsey Matrix, where the size of the circle
represents a factor such as Market Size.
• The GE/McKinsey Matrix differs from other tools, like
the Boston Consulting Group Matrix, in that multiple
factors are used to define Industry Attractiveness
and Business Unit Strength.

General Electric’s Industry Attractiveness-
Business Strength Matrix
• Market Size
• Growth Rate
• Profit Margin
• Intensity of Competition
• Seasonality
•Resource
• Social Impact
• Regulation
• Environment
• Opportunities & Threats
•Technology
• Relative Market Share
• Reputation/ Image
• Bargaining Leverage
• Ability to Match
Quality/Service
Industry Attractiveness Business Strength

GE9 Cell Matrix
Harvest/Divest
Selectivity
/earnings
Build/Grow
Protect
Position
Invest to
Build
Build
selectively
Build
selectively
Selectively
manage for
earnings
Limited
expansion/
harvest
Protect &
refocus Divest
Manage for
earnings
High
Medium
Low
Industry Attractiveness
High Medium Low

GE9 Cell McKenzey Matrix
Invest to Build
• Challenge for leadership
• Build selectively on strength
Protect Position
• Invest to grow
• Effort on maintaining strength
Build Selectively
• Invest in most attractive segment
• Build up ability to counter competition
• Emphasize profitability by raising productivity

Protect & Refocus
• Manage for current earning
• Defend strength
Selectivity for Earning
• Protect existing program
• Investments in profitable segments
Build Selectively
• Specialize around limited strength
• Seek ways to overcome weaknesses
• Withdraw if indication of sustainable
growth are lacking

Manage for Earnings
• Protect position in profitable segment
• Upgrade product line
• Minimize investment
Limited Expansion for Harvest
• Look for ways to expand
without high risk
Harvest
• Sell at time that will maximize cash value
• Cut fixed costs and avoid investment
meanwhile

GE9Cell Matrix
Harvest/Divest- Businesses or products which are in
red zone, signals to stop indicating Retrenchment
Strategy of divestment & liquidation or a rebuilding
approach for adopting Turnaround Strategies
Selectivity/earnings- Business or Products which are
in yellow zone signals, Wait, See & Proceed,
indicating Hold & Maintain type of Strategies,
aiming at Stability & Consolidation.
Build/Grow- Business in the Green Zone, attract
major investment & adaption of Growth Strategies
- GE9 Cell Matrix is also known as Stop Light Strategy Matrix,
as these are like the Traffic Signals Lights.

Strategy Implications of
Attractiveness/Strength Matrix
• Businesses in upper left corner
– Accorded top investment priority
– Strategic prescription is grow and build
• Businesses in three diagonal cells
– Given medium investment priority
– Invest to maintain position
• Businesses in lower right corner
– Candidates for harvesting or divestiture
– May be candidates for an overhaul and
reposition strategy

Synergy
• “Synergy is the energy or force created by the
working together of various parts or processes.”
- Synergy in business is the benefit derived from
combining two or more elements (or businesses)
so that the performance of the combination is
higher than that of the sum of the individual
elements (or businesses).

Synergy
- The interaction of two or more agents or forces so
that their combined effect is greater than the sum
of their individual effects.
• Ex.-Leadership-Management Synergy
• Leaders: Provide vision.
– Managers: Provide resources.
• ► Resulting synergy: Employee empowerment

Dysergy
• Dysergy is the negative energy or force or impact
produced due to the inability of working together
of various parts or processes.”

Dysergy
- Dysergy in business is the losses derived from
combining two or more elements (or businesses)
so that the performance of the combination is
lower than that of the sum of the individual
elements (or businesses).
- The interaction of two or more agents or forces so
that their combined effect is poor than the sum of
their individual effects.

For Any Query
Dr.PrashantB.Kalaskar
# 9975770407,7350520025
prashantkalaskar007@gmail.com
pbkalaskar@sinhgad.edu

Unit 2 Strategic Management

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Unit 2 Strategic Management

Similaire à Unit 2 Strategic Management (20)

Plus de Dr. Prashant Kalaskar

Plus de Dr. Prashant Kalaskar (7)

Dernier

Dernier (20)

Unit 2 Strategic Management