UNIT - 3

STRATEGIC ANALYSIS AND CHOICE

Corporate Level Strategic Choice
BCG Matrix
GE Nine Cell Matrix
SWOT Analysis
 Business Level Strategic Analysis- Experience Curve
Analysis
 Industry Analysis-porter Five Force Model
Dr. Ashesh Anand
Assistant Professor
Vinoba Bhave University
Hazaribagh
 BCG 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
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.
BCG Matrix
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
 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- 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.

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 are capable of becoming cash traps. Since growth rate is high, increasing it
should be relatively easier. It is for business organizations to turn them stars and then
to cash cows when the growth rate reduces
 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.

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 are capable of becoming cash traps. Since growth rate is high, increasing it should be relatively easier. It is for business
organizations 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 minimized by means of divestment or liquidation.
 BCG Matrix : Post Identification Strategies

1. Build: Here the objective is to increase market share, even by

forgoing short- term earnings in favor 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.
 BCG Matrix : Post Identification Strategies

1. Build: Here the objective is to increase The growth-share matrix has done much to
market share, even by forgoing short- term help strategic planning; however, there are
earnings in favor of building a strong future some problems and limitations with the
with large market share. technique. BCG matrix can be difficult, time-
2. Hold: Here the objective is to preserve consuming, and costly to implement.
market share. Management may find it difficult to define
3. Harvest: Here the objective is to increase SBUs and measure market share and growth.
short-term cash flow regardless of long- It also focuses on classifying current
term effect. businesses but provide little advice for future
4. Divest: Here the objective is to sell or planning. They can lead the company to
liquidate the business because resources placing too much emphasis on market-share
can be better used elsewhere. growth or growth through entry into attractive
new markets. This can cause unwise
expansion into hot, new, risky ventures or
divesting established units too quickly
 GE Nine Cell Matrix
This model uses two factors while taking strategic decisions:

Business Strength and Market Attractiveness.

The vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.

The market attractiveness is measured by a number of factors like:

 GE Nine Cell Matrix
This model uses two factors while taking strategic decisions:

Business Strength and Market Attractiveness.

The vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.
The market attractiveness is measured by a number of factors like:

 Size of the market.

 Market growth rate.
 Industry profitability.
 Competitive intensity.
 Availability of Technology
 GE Nine Cell Matrix
This model uses two factors while taking strategic decisions:

Business Strength and Market Attractiveness.

The vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.
The market attractiveness is measured by a number of factors like:

 Size of the market.

 Pricing trends.
 Market growth rate.
 Industry profitability.  Overall risk of returns in the
 Competitive intensity. industry.
 Availability of Technology  Opportunity for differentiation
of products and services.
 Demand variability.
 Segmentation
 GE Nine Cell Matrix
This model uses two factors while taking strategic decisions:

Business Strength and Market Attractiveness.

The vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.
The market attractiveness is measured by a number of factors like:

 Pricing trends.
 Size of the market.
 Overall risk of returns in the industry.
 Market growth rate.
 Opportunity for differentiation of products
 Industry profitability. and services.
 Competitive intensity.  Demand variability.
 Availability of Technology  Segmentation

 Distribution structure (e.g. direct marketing, retail, wholesale) etc.

 Business strength is measured by considering the typical drivers
like

 Market share.
 Market share growth rate.
 Profit margin.
 Distribution efficiency.
 Brand image.
 Ability to compete on price and quality.
 Business strength is measured by considering the typical drivers
like

 Market share.
 Market share growth rate.
 Profit margin.
 Distribution efficiency.
 Brand image.
 Ability to compete on price and quality.

 Customer loyalty.
 Production capacity.
 Technological capability.
 Relative cost position.
 Management caliber, etc.
If a product falls in the green
section, the business is at
advantageous position. To reap
BUSINESS STRENGTH
the benefits, the strategic decision
can be to expand, to invest and Strong Average Weak
grow.

If a product is in the amber or

MARKET ATTRACTIVNESS
High Invest/
yellow zone, it needs caution and Invest/Expand Select/Earn
managerial discretion is called for Expand
making the strategic choices.

If a product is in the red zone, it

Medium
will eventually lead to losses that Invest/
Select/Earn Harvest/Divest
would make things difficult for Expand
organizations. In such cases, the
appropriate strategy should be
retrenchment, divestment or
liquidation. Low
Select/Earn Harvest/Divest Harvest/Divest
 EXPERIENCE CURVE
Experience curve is an important concept used for applying a
portfolio approach. The concept is akin to a learning curve
which explains the efficiency increase gained by workers
through REPETITIVE PRODUCTIVE WORK.
Experience curve is based on the commonly observed
phenomenon that unit costs decline as a firm accumulates
experience in terms of a cumulative volume of production. It is
based on the concept, “we learn as we grow”.

The implication is that larger firms in an industry would tend to

have lower unit costs as compared to those for smaller
companies, thereby gaining a competitive cost advantage
 EXPERIENCE CURVE
Experience curve is an important concept used for applying a portfolio
approach. The concept is akin to a learning curve which explains the
efficiency increase gained by workers through REPETITIVE PRODUCTIVE
WORK.
Experience curve is based on the commonly observed phenomenon that unit
costs decline as a firm accumulates experience in terms of a cumulative
volume of production. It is based on the concept, “we learn as we grow”.

The implication is that larger firms in an industry would tend to have lower
unit costs as compared to those for smaller companies, thereby gaining a
competitive cost advantage

Experience curve results from a variety of factors such as

learning effects, economies of scale, product redesign and
technological improvements in production.
 Experience Curve has following
features

 As business organization grow, they

gain experience.

 Experience may provide an

advantage over the competition.
Experience is a key barrier to
entry

 Large and successful organization

possess stronger “experience
effect

The concept of experience curve is relevant

for a number of areas in strategic
management.
Experience curve is considered a barrier for
new firms contemplating entry in an industry.
It is also used to build market share and
discourage competition.