STRATEGIC ANALYSIS

LEARNING OBJECTIVES
♦ Know the importance of strategic analysis in the formulation of strategy.
♦ Learn some of the methods of competitive analysis that are used in business
organizations.
♦ Know what is SWOT

Analysis is the critical starting point of strategic thinking.

Kenichi Ohmae
If you’re not faster than your competitor, you’re in a tenuous position, and if
you’re only half
as fast, you’re terminal.
George Salk
The idea is to concentrate our strength against our competitor’s relative
weakness.
Bruce Henderson
INTRODUCTION
The strategic management process, after deciding the vision, mission, goals and
objectives of the organization, turns its focus to scanning of environment in which
all organizations work as sub-systems. That is environmental scanning covers
both scanning of external environment and internal environment. The scanning of
external environment leads to the identification of the opportunities and threats
thrown open to organizations while the internal analysis leads to the study of
strengths and weaknesses which will decide as to what extent each company is
going to capitalize the opportunities and threats thrown open.

STRATEGIC ANALYSES
Strategy formulation is not a task in which managers can get by with opinions,
good instincts, and creative thinking. Judgments about what strategy to pursue
need to flow directly from solid analysis of a company's external environment and
internal situation. The two most important situational considerations are (1)
industry and competitive conditions and (2) a company's own competitive
capabilities, resources, internal strengths and weaknesses, and market position.
Issues to consider for strategic analyses

The elements worth considering include:

♦ Product situation: What is my current product? You may want to break this
definition up into parts such as the core product and any secondary or
supporting services or products that also make up what you sell. It is
important to observe this in terms of its different parts in order to be able to
relate this back to core client needs.
♦ Competitive situation: Analyze your main competitors - who are they what are
they up to - how do they compare. What are their competitive advantages?
♦ Distribution situation: Review your distribution Situation - how are you
getting your product to market? Do you need to go through distributors or
other intermediaries?
♦ Environmental factors: What external and internal environmental factors are
there that need to be taken into account. This can include economic or
sociological factors that impact on your performance.
♦ Opportunity and issue analysis: Things to write down here are what current
opportunities that are available in the market, the main threats that business is
facing and may face in the future, the strengths that the business can rely on and
any weaknesses that may affect the business performance.

Strategic Analysis
External Analysis Internal Analysis
♦ Customer Analysis ♦ Performance Analysis
Segments, motivations, unmet Profitability, sales, shareholder
needs. value analysis, customer
♦ Competitor Analysis satisfaction, product quality,
Identity, strategic groups, brand associations, relative cost,
performance, image, objectives, new products, employee
strategies, culture, cost structure, capability and performance,
strengths, weaknesses. product portfolio analysis.
♦ Market Analysis ♦ Determinates Analysis
Size, projected growth, Past and current strategies,
profitability, entry barriers, cost strategic problems, organizational
structure, strengths, weaknesses Capabilities and constraints,
♦ Environmental Analysis Financial resources and
Technological, government, Constraints, strengths, and
economic, cultural, weaknesses.
demographic, scenarios,
information-need areas.
 INDUSTRY AND COMPETITIVE ANALYSIS
Industry and competitive analysis can be done using a set of concepts and
techniques to get a clear fix on key industry traits, the intensity of competition, the
drivers of industry change, the market positions and strategies of rival companies,
the keys to competitive success, and the industry's profit outlook. It provides a
way of thinking strategically about any industry's overall situation and drawing
conclusions about whether the industry represents an attractive investment for
company funds. The analysis entails examining a company's business in the
context of a much wider environment. Industry and competitive analysis aims at
developing insight in several issues. Analyzing these issues build understanding
of a firm's surrounding environment and, collectively, form the basis for matching
its strategy to changing industry conditions and competitive realities.

METHODS OF INDUSTRY AND COMPETITIVE ANALYSIS

1. Dominant economic features of the industry

Industries differ significantly in their basic character and structure. Industry and
competitive analysis begins with an overview of the industry's dominant
economic features. Industry is "a group of firms whose products have same and
similar attributes such that they compete for the same buyers." The factors to
consider in profiling an industry's economic features are fairly standard and are
given as follows:

♦ Market size.
♦ Scope of competitive rivalry (local, regional, national, international, or global).
♦ Market growth rate and position in the business life (early development, rapid
growth and takeoff, early maturity, maturity, saturation and stagnation,
decline).
♦ Number of rivals and their relative sizes.
♦ Small companies dominant companies?
♦ The number of buyers and their relative sizes. Whether and to what extent
industry rivals have integrated backward and/or forward.
♦ The types of distribution channels used to access consumers.
♦ The pace of technological change in both production process innovation and
new product introductions.
♦ Whether the products and services of rival firms are highly differentiated,
weakly differentiated, or essentially identical.
♦ Whether companies can realize economies of scale in purchasing,
manufacturing, transportation, marketing, or advertising.
♦ Whether key industry participants are clustered in a particular location, for
example, lock industry in Aligarh. Saris and diamonds in Surat, information
technology in Bangalore. Similarly, there is also concentration of business in
different countries on account of graphical and other reasons.
♦ Whether certain industry activities are characterized by strong learning and
experience effects ("learning by doing") such that unit costs decline as
cumulative output grows.
♦ Whether high rates of capacity utilization are crucial to achieving low-cost
production efficiency.
♦ Capital requirements and the ease of entry and exit.
♦ Whether industry profitability is above/below par.
 2. Nature and strength of competition
One important component of industry and competitive analysis involves delving
into the industry's competitive process to discover what the main sources of
competitive pressure are and how strong each competitive force is. This analytical
step is essential because managers cannot devise a successful strategy without in-
depth understanding of the industry's competitive character. Even though
competitive pressures in various industries are never precisely the same, the
competitive process works similarly enough to use a common analytical
framework in gauging the nature and intensity of competitive forces.
Porter’s five forces model is a powerful tool for systematically diagnosing the
principle competitive pressures in a market and assessing how strong and
important each one is. Not only it is widely used technique of competition
analysis, but it is also relatively easy to understand and apply.

3. Analysis through Porter’s five forces model

To gain a deep understanding of a company’s industry and competitive
environment, managers do not need to gather all the information they can find and
waste a lot of time digesting it. Rather, the task is much more focused. Thinking
strategically about a company’s competitive environment entails using some well
defined concepts and analytical tools.
The character, mix, and subtleties of competitive forces are never the same from
one industry to another. A powerful and widely used tool for systematically
diagnosing the principal competitive pressures in a market and assessing the
strength and importance of each is the five-forces model of competition.(see
figure) This model holds that the state of competition in an industry is a
composite of competitive pressures operating in five areas of the overall market:

♦ Competitive pressures associated with the market maneuvering and jockeying

for buyer patronage that goes on among rival sellers in the industry.
♦ Competitive pressures associated with the threat of new entrants into the market.
♦ Competitive pressures coming from the attempts of companies in other
industries to win buyers over to their own substitute products.
♦ Competitive pressures stemming from supplier bargaining power and
supplier-seller collaboration.
♦ Competitive pressures stemming from buyer bargaining power and seller-
buyer Collaboration.

The way one uses the five-force model to determine what competition is like in a
given industry is to build the picture of competition in three steps:
Step 1: Identify the specific competitive pressures associated with each of
the five forces.
Step 2: Evaluate how strong the pressures comprising each of the five forces
are
(fierce, strong, moderate to normal, or weak).
 Step 3: Determine whether the collective strength of the five competitive
forces is conducive to earn attractive profits.

POTENTIAL
NEW
ENTRANTS
Competitive pressures
coming from the threat
of entry of new rivals

Competitive
Competitive
pressures stemming pressures
stemming from
from Suppliers INDUSTRY buyer
COMPETITOR
Bargaining Power S Bargaining Power
SUPPLIER
S BUYER
S
RIVALRY
AMONG
EXISTING
FIRMS

Competitive pressures
coming from substitute

Products
FIRMS IN OTHER
INDUSTRIES
OFFERING
SUBSTITUTE
PRODUCTS

Figure: The Five Force model of Competition

Threat of new entrants: New entrants are always a powerful source of

competition. The new capacity and product range they bring in throw up new
competitive pressure. And the bigger the new entrant, the more severe the
competitive effect. New entrants also place a limit on prices and affect the
profitability of existing players.
Bargaining power of customers: This is another force that influences the
competitive condition of the industry. This force will become heavier depending
on the possibilities of the
buyers forming groups or cartels. Mostly, this is a phenomenon seen in industrial
products. Quite often, users of industrial products come together formally or
informally and exert pressure on the producer in matters such as price, quality and
delivery. Two top CDMA service providers Reliance and Tata Teleservices are
putting a simultaneous pressure on Qualcomm to reduce the royalties on the
CDMA based handsets. Such a collusion on the part of buyers can be a major
force in some industries. The bargaining power of the buyers influences not only
the prices that the producer can charge but also influences in many cases, costs
and investments of the producer because powerful buyers usually bargain for
better services which involve costs and investment on the part of the producer.
Bargaining power of suppliers: Quite often suppliers, too, exercise considerable
bargaining power over companies. The more specialised the offering from the
supplier, greater is his clout. And, if the suppliers are also limited in number they
stand a still better chance to exhibit their bargaining power. The bargaining power
of suppliers determines the cost of raw materials and other inputs of the industry
and, therefore, industry attractiveness and profitability.

Rivalry among current players: The rivalry among existing players is an idea
that can be easily understood. This is what is normally understood as competition.
And it is obvious that for any player, the competitors influence prices as well as
the costs of competing in the industry, in production facilities product
development, advertising, sales force, etc.
Threats from substitutes: Substitute products are a latent source of competition
in an industry. In many cases they become a major constituent of competition.
Substitute products offering a price advantage and/or performance improvement
to the consumer can drastically alter the competitive character of an industry. And
they can bring it about all of a sudden. For example, coir suffered at the hands of
synthetic fiber. Wherever substantial investment in R&D is taking place, threats
from substitute products can be expected. Substitutes, too, usually limit the prices
and profits in an industry.
So, in addition to existing rivals or competitors proper, forces such as new
entrants, customers, suppliers, and substitutes have all to be viewed as forces
governing competition in the industry. A firm has to give due weight age to each
of these forces as a fight can emerge from any quarter.
 The five forces together determine industry attractiveness/profitability. This is so
because these forces influence the causes that underlie industry
attractiveness/profitability. For example, elements such as cost and investment
needed for being a player in the industry decide industry profitability, and all such
elements are governed by these forces. The collective strength of these five
competitive forces determines the scope to earn attractive profits. The strength of
the forces may vary from industry to industry as also within a given

3. Triggers of change
An industry's economic features and competitive structure say a lot about its
fundamental character but little about the ways in which its environment may be
changing. All industries are characterized by trends and new developments that
gradually produce changes important enough to require a strategic response from
participating firms. The popular hypothesis about industries going through a life
cycle helps explain industry change but is still incomplete. The life-cycle stages
are strongly keyed to changes in the overall industry growth rate (which is why
such terms as rapid growth, early maturity, saturation, and decline are used to
describe the stages). Yet there are more causes of industry change than an
industry's position in the life cycle.

The concept of driving forces

While it is important to judge what growth stage an industry is in, there's more
analytical value in identifying the specific factors causing fundamental industry
and competitive adjustments. Industry and competitive conditions change because
forces are in motion that create incentives or pressures for changes. The most
dominant forces are called driving forces because they have the biggest influence
on what kinds of changes will take place in the industry's structure and
competitive environment. Analyzing driving forces has two steps: identifying
what the driving forces are and assessing the impact they will have on the
industry.

The most common driving forces

Many events can affect an industry powerfully enough to qualify as driving

forces. Some are unique and specific to a particular industry situation, but many
drivers of change fall into general category affecting different industries
simultaneously. Some of the categories/examples of drivers are follows:
♦ The internet and the new e-commerce opportunities and threats it breeds in the
industry.
♦ Increasing globalization.
♦ Changes in the long-term industry growth rate.
♦ Product innovation.
♦ Marketing innovation.
♦ Entry or exit of major forms.
♦ Diffusion of technical know-how across more companies and more countries.
♦ Changes in cost and efficiency.
4. Identifying the companies that are in the strongest/weakest positions
The next step in examining the industry's competitive structure is to study the market
positions of rival companies. One technique for revealing the competitive positions of
industry participants is strategic group mapping, which is useful analytical tool for
comparing the market positions of each firm separately or for grouping them into like
positions when an industry has so many competitors that it is not practical to examine
each one in depth.

Strategic group
A strategic group consists of those rival firms with similar competitive
approaches and positions in the market. Companies in the same strategic group
can resemble one another in any of several ways: they may have comparable
product-line breadth, sell in the same price/quality range, emphasize the same
distribution channels, use essentially the same product attributes to appeal to
similar types of buyers, depend on identical technological approaches, or offer
buyers similar services and technical assistance. An industry contains only one
strategic group when all sellers pursue essentially identical strategies and have
comparable market positions. At the other extreme, there are as many strategic
groups as there are competitors when each rival pursues a distinctively different
competitive approach and occupies a substantially different competitive position
in the marketplace.

Procedure for constructing a strategic group

The procedure for constructing a strategic group map and deciding which firms
belong in which strategic group is straightforward:
♦ Identify the competitive characteristics that differentiate firms in the industry
typical variables are price/quality range (high, medium, low); geographic
coverage (local, regional, national, global); degree of vertical integration
(none, partial, full); product-line breadth (wide, narrow); use of distribution
channels (one, some, all); and degree of service offered (no-frills, limited,
full).
♦ Plot the firms on a two-variable map using pairs of these differentiating
characteristics
♦ Assign firms that fall in about the same strategy space to the same strategic group
♦ Draw circles around each strategic group making the circles proportional to
the size of the group's respective share of total industry sales revenues
5
.

L
ikely strategic moves of rivals
Unless a company pays attention to what competitors are doing, it ends up flying
blind into competitive battle. A company can't expect healthy rivalry without
monitoring the actions, understanding their strategies, and anticipating what
moves rivals are likely to make next. As in sports, scouting the opposition is
essential. Competitive intelligence about the strategies rivals are deploying, their
latest moves, their resource strengths and weaknesses, and the plans they have
announced is essential to anticipating the actions they are likely to take next and
what bearing their moves might have on a company's own best strategic moves.
Competitive intelligence can help a company determine whether it needs to
defend against specific moves taken by rivals or whether those moves provide an
opening for a new offensive thrust.

6. Key factors for competitive success

An industry's Key Success Factors (KSFs) are those things that most affect industry
members'
ability to prosper in the marketplace - the particular strategy elements, product
attributes, resources, competencies, competitive capabilities, and business
outcomes that spell the difference between profit and loss and, ultimately,
between competitive success or failure. KSFs by their very nature are so
important that all firms in the industry must pay close attention to them - they are
- the prerequisites for industry success or, to put it another way, KSFs are the
rules that shape whether a company will be financially and competitively
successful. The answers to three questions help identify an industry's key success
factors:
♦ On what basis do customers choose between the competing brands of sellers?
What product attributes are crucial?
♦ What resources and competitive capabilities does a seller need to have to be
competitively successful?
♦ What does it take for sellers to achieve a sustainable competitive advantage?
In apparel manufacturing, the KSFs are appealing designs and colour
combinations (to create buyer interest) and low-cost manufacturing efficiency (to
permit attractive retail pricing and ample profit margins). In tin and aluminium
cans, because the cost of shipping empty cans is substantial, one of the keys is
having plants located close to end-use customers so that the plant's output can be
marketed within economical shipping distances (regional market share is far more
crucial than national share).

Determining the industry's key success factors, given prevailing and anticipated
industry and competitive conditions, is a top-priority analytical consideration. At
the very least, managers need to understand the industry situation well enough to
know what is more important to competitive success and what is less important.
They heed to know what kinds of resources are competitively valuable.
Misdiagnosing the industry factors critical to long-term competitive success
greatly raises the risk of a misdirected strategy. In contrast, a company with
perceptive understanding of industry KSFs can gain sustainable competitive
advantage by training its strategy on industry KSFs and devoting its energies to
being distinctively better than rivals on one or more of these factors. Indeed,
companies that stand out on a particular KSF enjoy a stronger market position for
their, efforts-being distinctively better than rivals on one or more key success
factors presents a golden opportunity for gaining competitive advantage. Hence,
using the industry's KSFs as cornerstones for the company's strategy and trying to
gain sustainable competitive advantage by excelling at one particular KSF is a
fruitful competitive strategy approach.

Key success factors vary from industry to industry and even from time to time
within the same industry as driving forces and competitive conditions change.
Only rarely does an industry have more than three or four key success factors at
any one time. And even among these three or four, one or two usually outrank the
others in importance. Managers, therefore, have to resist the temptation to include
factors that have only minor importance on their list of key success factors.
K
ey
 7. PROSPECTS AND FINANCIAL ATTRACTIVENESS OF INDUSTRY
The final step of industry and competitive analysis is to use the results of analysis
of previous six issues to draw conclusions about the relative attractiveness or
unattractiveness of the industry, both near-term and long-term. Company
strategists are obligated to assess the industry outlook carefully, deciding whether
industry and competitive conditions present an attractive business opportunity for
the company or whether the company's growth and profit prospects are gloomy.
The important factors on which to base such conclusions include:
♦ The industry's growth potential.
♦ Whether competition currently permits adequate profitability and whether
competitive forces will become stronger or weaker.
♦ Whether industry profitability will be favourably or unfavourably affected by
the prevailing driving forces.
♦ The company's competitive position in the industry and whether its position is
likely to grow stronger or weaker. (Being a well-entrenched leader or strongly positioned
contender in an otherwise lackluster industry can still produce good profitability;
however, having to fight an uphill battle against much stronger rivals can make an
otherwise attractive industry unattractive).
♦ The company's potential to capitalize on the vulnerabilities of weaker rivals
(perhaps converting an unattractive industry situation into a potentially rewarding
company opportunity).
♦ Whether the company is able to defend against or counteract the factor that
make the industry unattractive.
♦ The degrees of risk and uncertainty in the industry's future.
♦ The severity of problems confronting the industry as a whole.
♦ Whether continued participation in this industry adds importantly to the firm's
ability to be successful in other industries in which it may have business interests.
As a general proposition, if an industry’s overall profit prospects are above
average, the industry can be considered attractive; if its profit prospects are below
average, it is unattractive. However, it is a mistake to think of industries as being
attractive or unattractive to all industry participants and all potential entrants.
Attractiveness is relative, not absolute, Industry environments unattractive to
weak competitors may be attractive to strong competitors.
If the industry and competitive situation is judged relatively unattractive, more
successful industry participants may choose to invest cautiously, look for ways to
protect their long-term competitiveness and profitability, and perhaps acquire
smaller firms if the price is right; over the longer term, strong companies may
consider diversification into more attractive businesses. Weak companies in
unattractive industries may consider merging with a rival to bolster market share
and profitability or, alternatively, begin looking outside the industry for attractive
diversification opportunities.

SWOT ANALYSIS
 The next component of strategic thinking requires the generation of a series of
strategic alternatives, or choices of future strategies to pursue, given the
company's internal strengths and weaknesses and its external opportunities and
threats. The comparison of strengths, weaknesses, opportunities, and threats is
normally referred to as a SWOT analysis
♦ Strength: Strength is an inherent capability of the organization which it can
use to gain strategic advantage over its competitors.
♦ Weakness: A weakness is an inherent limitation or constraint of the
organization which creates strategic disadvantage to it.
♦ Opportunity: An opportunity is a favourable condition in the organisation’s
environment which enables it to strengthen its position.
♦ Threat: A threat is an unfavourable condition in the organisation’s
environment which causes a risk for, or damage to, the organisation’s position.
Its central purpose is to identify the strategies that will create a firm-specific
business model that will best align, fit, or match a company's resources and
capabilities to the demands of the environment in which it operates.

SIGNIFICANCE OF SWOT ANALYSIS

♦ It provides a Logical Framework SWOT analysis provides us with a logical
framework for systematic and sound thrashing of issues having bearing on the business
situation, generation of alternative strategies and the choice of a strategy. Variation in
managerial perceptions about organizational strengths and weaknesses and the
environmental opportunities and threats lead to differences is approaches to specific
strategies and finally the choice of strategy that takes place through an interactive process
in dynamic backdrop.
♦ It presents a Comparative Account: SWOT analysis presents the information
about both external and internal environment in a structured form where it is possible to
compare external opportunities and threats with internal strengths and weaknesses. The
helps in matching external and internal environments so that a strategist can come out
with suitable strategy by developing certain patterns of relationship. The patterns are
combinations say, high opportunities and high strengths, high opportunities and low
strengths, high threats and high strengths, high threats and low strengths. In case a
different strategy is needed, as situation varies.
♦ It guides the strategist in Strategy Identification: It is natural that a strategist
faces a problem when his organization cannot be matched in the four patterns. It is
possible that the organization may have several opportunities and some serious threats. It
is equally, true that the organization may have powerful strengths coupled with major
weaknesses in the light of critical success factors. In such situation, SWOT analysis
guides the strategist to think of overall position of the organization that helps to identify
the major purpose of the strategy under focus.
SWOT analysis helps managers to craft a business model (or models) that will
allow a company to gain a competitive advantage in its industry (or industries).
Competitive advantage leads to increased profitability, and this maximizes a
company's chances of surviving in the fast-changing, global competitive
environment that characterizes most industries today.
 A. Potential Resources Strengths and Competitive Capabilities
♦ A powerful strategy supported by competitively valuable skills and experience in
key areas.
♦ A strong financial condition; ample financial resources to grow the business.
♦ Strong brand name, image/company reputation.
♦ A widely recognized market leader and an attractive customer base.
♦ Ability to take advantage of economies of scale and/or learning and experience
curve effects.
♦ Proprietary technology/ superior technological skills/ important patents.
♦ Superior intellectual capital relative to key rivals.
♦ Cost advantages.
♦ Strong advertising and promotion.
♦ Product innovation skills.
♦ Proven skills in improving product processes.
♦ Sophisticated use of e-commerce technologies and processes.
♦ Superior skills in supply chain management.
♦ A reputation for good customer service.

♦ Better product quality relative to rivals.

♦ Wide geographic coverage and/or strong global distribution capability.
♦ Alliances/joint ventures with other firms that provide access to valuable
technology, competencies, and/or attractive geographic markets.
B. Potential Resource Weaknesses and Competitive Deficiencies
♦ No clear strategic
direction. ♦ Obsolete
facilities.
♦ A weak balance sheet, burdened with too
much debt. ♦ Higher overall unit costs relative
to key competitors.
♦ Missing some key skills or competencies/lack of management depth/ a
deficiency of intellectual capital relative to leading rivals.
♦ Subpar profitability; no cost control measures or cost accounting practices.
♦ Plagued with internal operating problems.
♦ Falling behind rivals in putting e-commerce capabilities and strategies in place.
♦ Too narrow a product line relative to rivals.
♦ Weak brand image or reputation.
♦ Weaker dealer network than key rivals and/or lack of adequate global distribution
capability.
♦ Subpar e-commerce systems and capabilities relative to rivals.
♦ Short on financial resources to fund promising strategic initiatives.
♦ Lots of underutilized plant capacity.
♦ Behind on product quality and/or R&D and/or technological know-how.
♦ Not attracting new customers as rapidly as rivals.
C. Potential Company Opportunities
♦ Serving additional customer groups or expanding into new geographic
markets or product segments.
♦ Expanding the company’s product line to meet a broader range of customer needs.
♦ Utilizing existing company skills or technological know-how to enter new
product lines or new businesses.
♦ Using the internet and e-commerce technologies to dramatically cut costs
and/or to pursue new sales growth opportunities.
♦ Integrating forward or backward.
♦ Falling trade barriers in attractive foreign markets.

♦ Openings to take market share away from rivals.

♦ Ability to grow rapidly because of sharply rising demand in one or more market
segments.
♦ Acquisition of rival firms or companies with attractive technological expertise.
♦ Alliances or joint ventures that expand the firm’s market coverage or boost its
competitive capability.
♦ Openings to exploit emerging new technologies.
♦ Market openings to extend the company’s brand name or reputation to new
geographic areas.
D. Potential External Threats to Company’s Well-Being
♦ Likely entry of potent new competitors.
♦ Loss of sales to substitute products.
♦ Mounting competition from new Internet start-up companies pursuing e-
commerce strategies.
♦ Increasing intensity of competition among industry rivals – may cause
squeeze on profit margins.
♦ Technological changes or product innovations that undermine demand for the
firm’s product.
♦ Slowdowns in market growth.
♦ Adverse shifts in foreign exchange rates and trade policies of foreign
governments.
♦ Costly new regulatory requirements.
♦ Growing bargaining power of customers or suppliers.
♦ A shift in buyer needs and tastes away from the industry’s product.
♦ Adverse demographic changes that threaten to curtail demand for the firm’s
product.
♦ Vulnerability to industry driving forces.

ONLINE ASSIGNMENT
SWOT Analyses at Dhaka City College
Assignment
Online submission
Date of submission: 09-09-2020
Submit your work at: [email protected]

Strengths Weaknesses

Opportunities Threats
 PORTFOLIO ANALYSES
In order to analyse the current business portfolio, the company must conduct
portfolio analysis (a tool by which management identifies and evaluates the
various businesses that make up the company). In portfolio analyses top
management views its product lines and business units as a series of investments
from which it expects returns. A business portfolio is a collection of businesses
and products that make up the company. The best business portfolio is the one
that best fits the company’s strengths and weaknesses to opportunities in the
environment.
Portfolio analysis can be defined as a set of techniques that help strategists in
taking strategic decisions with regard to individual products or businesses in a
firm’s portfolio. It is primarily used for competitive analysis and corporate
strategic planning in multi product and multi business firms.
They may also be used in less -diversified firms, if these consist of a main
business and other minor complementary interests. The main advantage in
adopting a portfolio approach in a multi-product, multi-business firm is that
resources could be channelised at the corporate level to those businesses that
posses the greatest potential. For instance, a diversified company may decide to
divert resources from its cash-rich businesses to more prospective ones that hold
promise of a faster growth so that the company achieves its corporate level
objectives in an optima manner.
In order to design the business portfolio, the business must analyse its current
business portfolio and decide which business should receive more, less, or no
investment. Depending upon analyses businesses may develop growth strategies
for adding new products or businesses to the portfolio.

a. Boston consulting group (BCG) growth-share matrix

The BCG growth-share matrix is the simplest way to portray a corporation’s
portfolio of investments. Growth share matrix also known for its cow and dog
metaphors is popularly used for
resource allocation in a diversified company. Using the BCG approach, a
company classifies its different businesses on a two-dimensional growth-share
matrix. In the matrix:
♦ The vertical axis represents market growth rate and provides a measure of
market attractiveness.
♦ The horizontal axis represents relative market share and serves as a measure
of company strength in the market.
 Using the matrix, organisations can identify four different types of products or SBU
as follows:
♦ Stars are products or SBUs that are growing rapidly. They also need heavy
investment to maintain their position and finance their rapid growth potential. They
represent best opportunities for expansion.
♦ Cash Cows are low-growth, high market share businesses or products. They
generate cash and have low costs. They are established, successful, and need less
investment to maintain their market share. In long run when the growth rate slows down,
stars become cash cows.

Stars Question Marks

High
??
?
Market Growth

Cash Cows Dogs

Rate

R&D

High Low
Relative Market Share
Low
Figure: BCG Growth-Share Matrix
♦ Question Marks, sometimes called problem children or wildcats, are low
market share business in high-growth markets. They require a lot of cash to hold their
share. They need heavy investments with low potential to generate cash. Question marks
if left unattended arecapable of becoming cash traps. Since growth rate is high, increasing
it should be relatively easier. It is for business organisations to turn them stars and then to
cash cows when the growth rate reduces.
♦ Dogs are low-growth, low-share businesses and products. They may generate
enough cash to maintain themselves, but do not have much future. Sometimes they may
need cash to survive. Dogs should be minimised by means of divestment or liquidation.
Once the organisations have classified its products or SBUs, it must determine
what role each will play in the future. The four strategies that can be pursued are:
1. Build: Here the objective is to increase market share, even by forgoing short-term
earnings in
favour of building a strong future with large market share.
2. Hold: Here the objective is to preserve market share.
3. Harvest: Here the objective is to increase short-term cash flow regardless of long-
term
effect.
 4. Divest: Here the objective is to sell or liquidate the business because resources
can be
better used elsewhere.

The growth-share matrix has done much to help strategic planning study;
however, there are problems and limitations with the method. BCG matrix can be
difficult, time-consuming, and costly to implement. Management may find it
difficult to define SBUs and measure market share and growth. It also focuses on
classifying current businesses but provide little advice for future planning. They
can lead the company to placing too much emphasis on market-share growth or
growth through entry into attractive new markets. This can cause unwise
expansion into hot, new, risky ventures or giving up on established units too
quickly.