Prof. Samir V.

Charania SBU Portfolio Management Strategic Management

4. SBU PORTFOLIO MANAGEMENT

4.1 BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by
BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in its portfolio on the
basis of their related market share and industry growth rates. It is a two dimensional
analysis on management of SBU’s (Strategic Business Units). In other words, it is a
comparative analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their
industry growth rate and relative market share.
The analysis requires that both measures be calculated for each SBU. The dimension of
business strength, relative market share, will measure comparative advantage indicated by
market dominance.
BCG matrix has four cells, with the horizontal axis representing relative market share and
the vertical axis denoting market growth rate. The mid-point of relative market share is set
at 1.0. If all the SBU’s are in same industry, the average growth rate of the industry is used.
While, if all the SBU’s are located in different industries, then the mid-point is set at the
growth rate for the economy.
Resources are allocated to the business units according to their situation on the grid. The
four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each
of these cells represents a particular type of business.

10 x 1x 0.1 x
Figure: BCG Matrix
1. Question Marks: Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to maintain
or gain market share. They require attention to determine if the venture can be viable.
Question marks are generally new goods and services which have a good commercial
prospective. There is no specific strategy which can be adopted. If the firm thinks it has
dominant market share, then it can adopt expansion strategy, else retrenchment strategy
can be adopted. Most businesses start as question marks as the company tries to enter a
high growth market in which there is already a market-share. If ignored, then question
marks may become dogs, while if huge investment is made, then they have potential of
becoming stars.

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2. Stars: Stars represent business units having large market share in a fast growing industry.
They may generate cash but because of fast growing market, stars require huge investments
to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are
attractive as they are located in a robust industry and these business units are highly
competitive in the industry. If successful, a star will become a cash cow when the industry
matures.

3. Cash Cows: Cash Cows represent business units having a large market share in a mature,
slow growing industry. Cash cows require little investment and generate cash that can be
utilized for investment in other business units. These SBU’s are the corporation’s key source
of cash, and are specifically the core business. They are the base of an organization. These
businesses usually follow stability strategies. When cash cows lose their appeal and move
towards deterioration, then a retrenchment policy may be pursued.

4. Dogs: Dogs represent businesses having weak market shares in low-growth markets. They
neither generate cash nor require huge amount of cash. Due to low market share, these
business units face cost disadvantages. Generally retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitor’s/rival firms.
These business firms have weak market share because of high costs, poor quality, ineffective
marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there
are fewer prospects for it to gain market share. Number of dogs should be avoided and
minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business
units and makes it possible to compare many business units at a glance. But BCG Matrix is
not free from limitations, such as-
1. BCG matrix classifies businesses as low and high, but generally businesses can be medium
also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

4.2 Value Analysis (Value Chain)

Introduction:
A value chain is a set of activities that a firm operating in a specific industry performs in
order to deliver a valuable product or service for the market.
A value chain, developed by Michael Porter is used to describe the process by which
businesses receive raw materials, add value to the raw materials through various processes
to create a finished product, and then sell that end product to customers. It is one of the
most valued concepts in today’s market because the Value chain tells the organization how

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they can differentiate their products by analyzing the chain of events which occur within the
company.

How does a value chain work?

A company's value chain allows it to create a competitive advantage over its competitors. A
strong value chain management team maximizes the value of each one of the interrelated
activities. Porter divided the value chain of a manufacturing organization into (A) Primary
Activities which includes: Inbound logistics, operations, outbound logistics, marketing, and
sales and service & (B) Support Activities which includes Firm’s infrastructure, Technology
development, Human Resources Management & Procurement.

(A) Primary Activities:

Primary activities are directly related to the flow of the product to the customer & includes
the following. These activities are the basics in any company and are the activities which
provide strength and sustainability to the company.
1. Inbound Logistics: All the activities that an organization uses for receiving, storing &
transporting inputs going into the production process. Typical inbound logistics activities
performed in the organization are: Materials handling, warehousing & inventory control.

2. Operations: All activities required for transformation of raw materials to finished

products. Typical operations activities performed in organizations are: Assembling,
Fabricating, Machining, Maintaining & Packaging.

3. Outbound Logistics : All activities that an organization uses for receiving, storing &
transporting outputs going out of the production process. Typical outbound logistic activities
performed in an organisation are: Material Handling, Order Processing, Physical distribution
& its warehousing.

4. Marketing and Sales: All activities that an organization uses to market & sell its products
to customers. Typical marketing & sales activities performed by organizations are of pricing,
developing products, advertising, promoting & distributing.

5. Service: All activities that an organization uses for enhancing & maintaining a products
value. Typical service activities performed by organizations are: Installations, Repair and
Maintenance & Customer Training.

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Support activities are provided to sustain the primary activities. These consist of:
1. Firm infrastructure: All activities that an organisation uses for ascertaining the external
opportunities and threats, identifying strengths and weaknesses and generally managing the
organisation for achieving its objectives. Typical firm infrastructure activities performed by
organizations are of accounting, finance, planning, general management, legal support and
managing government relations.

2. Human resource management: All activities that an organisation uses for managing
human resources. Typical human resource management activities performed by
organizations are of recruitment, selection and training, developing, appraising and
compensating employees.

3. Technology development: All activities that an organisation uses for creating, developing
and improving products and services. Typical technology development activities performed
by organizations are research and development, product design, process design, equipment
design and servicing procedures.

4. Procurement: All activities that an organisation uses for procuring inputs needed to
produce products or provide services. Typical procurement activities performed by
organizations are purchasing fixed assets such as machinery and equipments, raw materials
and supplies.

Using Porter's Value Chain (Steps)

To identify and understand your company's value chain, follow these steps.
Step 1 – Identify sub activities for each primary activity
For each primary activity, determine which specific sub activities create value. There are
three different types of sub activities:
Direct activities create value by themselves. Example: In a book publisher's marketing and
sales activity, direct sub activities include making sales calls to bookstores, advertising, and
selling online.
Indirect activities allow direct activities to run smoothly. Example: For the book publisher's
sales and marketing activity, indirect sub activities include managing the sales force and
keeping customer records.
Quality assurance activities ensure that direct and indirect activities meet the necessary
standards. For the book publisher's sales and marketing activity, this might include
proofreading and editing advertisements.

Step 2 – Identify sub activities for each support activity.

For each of the Human Resource Management, Technology Development and Procurement
support activities, determine the sub activities that create value within each primary
activity. Example: Consider how human resource management adds value to inbound
logistics, operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and
quality assurance sub activities.
Then identify the various value-creating sub activities in your company's infrastructure.
These will generally be cross-functional in nature, rather than specific to each primary
activity. Again, look for direct, indirect, and quality assurance activities.

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Step 3 – Identify links

Find the connections between all of the value activities you've identified. This will take time,
but the links are key to increasing competitive advantage from the value chain framework.
For example, there's a link between developing the sales force (an HR investment) and sales
volumes. There's another link between order turnaround times, and service phone calls
from frustrated customers waiting for deliveries.

4.3 Competitor Analysis (Porter’s Five Forces Model):

Organizations operate within a competitive industry environment. They do not exist in
vacuum. Analyzing the organization’s competitors helps to discover the weakness,
opportunities & threats to organization from the environment. Competitor’s analysis is a
driver of organization’s strategies & it measures its standing amongst the competitors.
Competitive Advantage:
Competitive advantage is the critical advantage that a firm possesses in the market over a
competitor in the industry. According to Michael Porter, there are two types of competitive
advantages - cost advantage and differentiation advantage.
A firm that offers the consumer the same value as the competitors, but at a lower cost, is
said to possess cost advantage, whereas a company that offers superior value to its
customers when compared to its competitors, possesses differentiation advantage. These
two advantages are called positional advantages as they represent the firm's leading
capability in the industry in either of these advantages.

PORTER’S FIVE FORCES MODEL

Competition in an industry is determined not only by existing competitors but also by other
market forces such as customers, suppliers, potential entrants, and the existence of
substitute products. Understanding the level of competition is important because the level
of profits depends to a large extent upon this.

1. Barriers to Entry/Threat of New Entrants:

Firms generally face a threat from new entrants in an industry in which the entry and exit of
new players are free. Any firm can enter or exit such an industry, at its free will, unless
restricted by macro environmental factors. Various entry barriers are: economies of scale,
product differentiation, high capital cost, cost disadvantages independent of scale, access to
distribution channels and government policy, patents and proprietary knowledge, etc.

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Example: an industry creating barriers to new entrants is Reliance Industries that set up a
petrochemical plant with the highest capacity in the industry of 27 mtpa capacity in
Jamnagar, Gujarat. Due to its higher capacity, it was able to achieve economies of scale. This
created entry barriers for new players. If a company wants to enter his industry now, it has
to develop a plant of the same or higher capacity. Otherwise, its production cost will be very
high and it will not be able to compete in the marketplace. Example: Xerox and GE were
unable to enter the mainframe computer industry mainly due to their lack of economies of
scale in production, marketing, research and service.
Prior to economic liberalization in India, organizations needed to get a license or permit
from the government to produce certain items such as cement, etc. Even the quantity that
they could produce was also fixed by the government. Similarly, there were certain product
categories that were reserved only for public sector undertakings.

2. Intensity of Rivalry among Firms:

Any firm tries to gain an advantage over its competitors. The industry concentration or the
number of business units operating within a particular industry indicates the amount of
rivalry. When a few firms enjoy a large market share, rivalry among them will be less. On the
other hand, if significant market share is enjoyed by a large number of small players, the
rivalry among them will be high mainly because of equality in size. When rivalry among firms
is high, it leads to price wars, advertising battles, launches of new products and increased
customer services and warranties. A lack of differentiation among the products of the
players in the industry also leads to intense competition. Similarly, when the switching costs
for customers are low, rivalry among firms is high.

3. Threat of Substitutes:
Substitutes affect the level of competition in an industry. Sometimes, the price that a
company can charge from its customers is restricted by the prices of substitutes. Example:
tea, soft drinks, juices, etc. are substitutes for coffee. Because of the existence of these
substitutes, the prices charged by companies in the coffee industry are restricted. If coffee
prices are hiked, customers have the option of switching over to tea or soft drinks, which are
its substitutes. At the same time, the switching costs are negligible.

4. Bargaining Power of Buyers:

The bargaining power of buyers is determined by the industry in which the firm is operating.
If the firm is operating in a market where there are many suppliers and a few buyers, then
the buyers have the capacity to significantly influence the price. Example: There are only a
few automobile companies in India but there are numerous suppliers of auto components.
For auto components, automobile companies are the buyers. Therefore, automobile
companies command prices because they have higher bargaining power. Buyers can
sometimes integrate backward and become competitors.
Porter specified the following circumstances in which the bargaining power of buyers will be
higher:
 When there are many suppliers and a few large buyers.
 When the buyers purchase in large quantities.
 When the supplier's industry depends on the buyers for a large percentage of its total
orders.

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 When the buyers can switch orders between supply' companies at a low cost, thereby
playing companies off against each other to force down prices.
 When it is economically feasible for the buyers to purchase the input from several
companies at a time.
 When the buyers can use the threat to provide for their own needs through vertical
integration as a device for forcing down prices.

5. Bargaining Power of Suppliers:

Similar to buyer power, suppliers too exert power. When there are only a few suppliers in
the market and many buyers, the suppliers can get together and decide on the price which
is most profitable to them. Example: A powerful supplier is Intel, the world's largest
manufacturer of microprocessors. Though there are other players, they are very small in size
and their credibility in the market is not as high as that of Intel. Therefore, most
manufacturers of personal computers are dependent on this single powerful supplier of
computer chips. Most standard personal computers run on Intel's microprocessors. So, PC
manufacturers have little choice but to use an Intel microprocessor.

4.4 Generic Strategies

Michael Porter developed three generic strategies that a company could use to gain
competitive advantage, back in 1980. These three are: cost leadership, differentiation and
focus.
Cost Leadership Strategy
This generic strategy calls for being the low cost producer in an industry for a given level of
quality. The firm sells its products either at average industry prices to earn a profit higher
than that of rivals, or below the average industry prices to gain market share. In the event of
a price war, the firm can maintain some profitability while the competition suffers losses.
Even without a price war, as the industry matures and prices decline, the firms that can
produce more cheaply will remain profitable for a longer period of time. The cost leadership
strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by improving process efficiencies,
gaining unique access to a large source of lower cost materials, making optimal outsourcing
and vertical integration decisions, or avoiding some cost together. If competing firms are

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unable to lower their costs by a similar amount, the firm may be able to sustain a
competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
• Access to the capital required making a significant investment in production assets; this
investment represents a barrier to entry that many firms may not overcome.
• Skill in designing products for efficient manufacturing, for example, having a small
component count to shorten the assembly process.
• High level of expertise in manufacturing process engineering.
• Efficient distribution channels.
Each generic strategy has its risks, including the low-cost strategy. For example, other firms
may be able to lower their costs as well. As technology improves, the competition may be
able to leapfrog the production capabilities, thus eliminating the competitive advantage.
Additionally, several firms following a focus strategy and targeting various narrow markets
may be able to achieve an even lower cost within their segments and as a group gain
significant market share. Example: Amul, Indigo, Jio

Differentiation Strategy
A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive to be better
than or different from the products of the competition. The value added by the uniqueness
of the product may allow the firm to charge a premium price for it. The firm hopes that the
higher price will more than cover the extra costs incurred in offering the unique product.
Because of the product's unique attributes, if suppliers increase their prices the firm may be
able to pass along the costs to its customers who cannot find substitute products easily.
Firms that succeed in a differentiation strategy often have the following internal strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.
• Strong sales team with the ability to successfully communicate the perceived strengths of
the product.
• Corporate reputation for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors and
changes in customer tastes. Additionally, various firms pursuing focus strategies may be
able to achieve even greater differentiation in their market segments. Example: Dell allows
its customers to configure their requirement. Example: Frooti when introduced in 80’s was
the first brand to launch in Tetra Pack in India. Example: Dominoz positioning of 30 minutes
delivery

Focus Strategy
The focus strategy concentrates on a narrow segment and within that segment attempts to
achieve either a cost advantage Example: Ginger Hotel or differentiation Example: Apple
products (Niche Brands). The premise is that the needs of the group can be better serviced
by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of
customer loyalty, and this entrenched loyalty discourages other firms from competing
directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volumes
and therefore less bargaining power with their suppliers. However, firms pursuing a

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differentiation-focused strategy may be able to pass higher costs on to customers since

close substitute products do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product
development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in
order to compete directly. Finally, other focusers may be able to carve out sub segments
that they can serve even better.

4.5 Ansoff Matrix

About the Ansoff Matrix
The Ansoff Matrix also known as the Ansoff product and market growth matrix is a
marketing planning tool which usually aids a business in determining its product and market
growth. This is usually determined by focusing on whether the products are new or existing
and whether the market is new or existing.
The model was invented by H. Igor Ansoff. It was firstly published in his article “Strategies
for Diversification” in the Harvard Business Review (1957). The Ansoff Matrix has four
alternatives of marketing strategies:
Market Penetration: Selling existing products to existing markets
Market Development: Extending existing products into new markets
Product Development: Developing new products for existing markets
Diversification: Developing new products for new markets

1. Market Penetration:
This strategy seeks business growth through selling existing products in existing market(s).
For this reason it is a low risk strategy, as the firm is not risking developing new products or
venturing into new markets. The strategy works in a growing market, where simply
maintaining market share will result in growth. Example: increasing sales to current
customers by providing something more (buy one & get one free approach adopted by
various Indian companies), woo customers away from competitors product (offering
lucrative promotional price to project own product as more cost effectiveness & functional
approach adopted by FMCG & consumer durable companies) or convert non users into
users by portraying attractive features, price advantage, etc. Example: P&G reduced the
price of its detergent Ariel in the Indian market to increase its sales in the market. Another
way in which market penetration can be increased is by coming up with various initiatives
that will encourage increased usage of the product. Example: Toothpaste companies initially
advertised “Brush Daily”. Then they modified their communication & said “Bush twice”.

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Later they again modified & said, “Brush after every meal. Example: Research has shown
that the toothbrush head influences the amount of toothpaste that one will use. Thus if the
head of the toothbrush is bigger it will mean that more toothpaste will be used thus
promoting the usage of the toothpaste and eventually leading to more purchase of the
toothpaste. Example: Kellogg’s was positioned as a breakfast meal. The company realized
that by doing so it’s restricting its consumption. So it came up with a concept of snack food
for kids appox at 4’o clock.

2. Market Development: It may also be known as Market Extension. In this strategy the
business targets new markets, or new areas of the market, by selling more of the same
product to a new customer audience. This strategy assumes that the existing markets have
been fully exploited thus the need to venture into new markets. There are various
approaches to this strategy, which include: Selling in different geographical areas (new
countries/regions): Example: Amul Butter in foreign markets. Example: Sunsilk selling
shampoos in rural market, new distribution channels (Example: Insurance companies selling
insurance through Banks – Banacassurance, new product packaging, and different pricing
policies. Example: Mac Donalds when it started its operation through Franchising, initiated
selling its existing product i.e burger to a new market i.e India

3. Product Development: Another strategy is to develop or ‘acquire’ a new product to sell in

an existing market. The new product could be developed, or acquired through acquisition of
another company. This may be a good strategy for a company that already has a strong
market share of a particular market and wishes to diversify its product range. Example: Tata
acquired iconic luxury brands in the automobile market – Jaguar & Land Rover. The upward
move was on the realisation that it is virtually impossible to create a brand in luxury space
without heritage & pedigree. However, it would need a strong research and development
capability. This strategy relates to new products and any problems that are encountered
could damage the company’s reputation. Hence extensive testing and piloting is
recommended. Example: P&G and HUL keep on introducing new products in different
categories. This is because both of these top FMCG firms are already present in the market.
They are only leveraging their strength in the existing market by introducing new products.
Since these companies are already selling shampoos and soaps in all grocery stores across a
city, the same distribution channel can be utilized thereby increasing its profitability.

4. Diversification: This growth strategy involves an organization marketing or selling new

products to new markets at the same time. It is the most risky strategy among the others as
it involves two unknowns, new products being created and the business does not know the
development problems that may occur in the process.
For a business to take a step into diversification, they need to have their facts right
regarding what it expects to gain from the strategy and have a clear assessment of the risks
involved. There are different diversification strategies:
(i) Concentric diversification is a type of business strategy where a company acquires or
creates new products or services to reach more consumers. These new products and
services usually are closely related to the company's existing products and services. The
corporation's lines of business still possess some "common thread" that serves to relate
them in some manner. The point of commonality may be similar technology, customer
usage, distribution, managerial skills, or product similarity.

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Concentric diversification occurs when the diversification is in some way related to, but
clearly differentiated from, the organization's current business.
Example: Aditya Birla group is into business of textile manufacturing – Grasim. It venturing
into brand Louis Philippe is an example of concentric diversification.

(ii) Conglomerate Diversification /unrelated Diversification/ Strategies

Type of diversification whereby a firm enters (through acquisition or merger) an entirely
different market that has little or no synergy with its core business or technology.
Conglomerate diversification is growth strategy that involves adding new products or
services that are significantly different from the organization's present products or services.
Conglomerate diversification occurs when the firm diversifies into an area(s) totally
unrelated to the organization current business. Firm can also enter through merger or
acquisition. Example: Aditya Birla group acquired Future group’s Pantaloons.
Most conglomerate diversifications are based on the rationale that expansion into unrelated
industries has a very attractive potential.
Example: ITC is multi-business conglomerate with a diversified portfolio of businesses
spanning Fast Moving Consumer Goods, Paper & Packaging, Hotels, Agri Business and
Information Technology. Example: Aditya Birla group venturing into diversified business in
Telecom (Idea), Textile manufacturing (Grasim),Readymade Apparel (Louis Phillipe),
Insurance (Birla Sun Life). Example: Essar Group (shipping, marine construction, oil support
services, iron & steel)
(iii) Horizontal Diversification:
Type of diversification under which a firm develops or acquires new products that are
different from its core business or technology, but which may appeal to its current
customers. Example: P&G in men’s grooming needs (Gillite), batteries (Durcell) & dental
care products (Oral-B). Example: HUL acquiring modern Foods. In the above examples,
products are not technologically related, but appeals to its current customers. Example:
Pepsi making Kurkure.

4.6 McKinsey’s 7S Model

Definition
McKinsey 7s model is a tool that analyzes firm’s organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order
to identify if they are effectively aligned and allow organization to achieve its objectives.

Understanding the tool

McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since
the introduction, the model has been widely used by academics and practitioners and
remains one of the most popular strategic planning tools.
It sought to present an emphasis on human resources (Soft S), rather than the traditional
mass production tangibles of capital, infrastructure and equipment, as a key to higher
organizational performance. The goal of the model was to show how 7 elements of the
company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned
together to achieve effectiveness in a company. The key point of the model is that all the
seven areas are interconnected and a change in one area requires change in the rest of a
firm for it to function effectively.

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The model represents the connections between seven areas and divides them into ‘Soft Ss’
and ‘Hard Ss’. The shape of the model emphasizes interconnectedness of the elements.

The model can be applied to many situations and is a valuable tool when organizational
design is at question. The most common uses of the framework are:
 To facilitate organizational change.
 To help implement new strategy.
 To identify how each area may change in a future.
 To facilitate the merger of organizations.
Hard S:
1. Strategy is a plan developed by a firm to achieve sustained competitive advantage and
successfully compete in the market. A well aligned & sound strategy is the one that is clearly
articulated, is long-term, helps to achieve competitive advantage and is reinforced by strong
vision, mission and values. But it’s hard to tell if such strategy is well-aligned with other
elements when analyzed alone. So the key in 7s model is not to look at your company to
find the great strategy, structure, systems and etc. but to look if its aligned with other
elements. Example: Short-term strategy is usually a poor choice for a company but if it’s
aligned with other 6 elements, and then it may provide strong results.
The key issues are:
 Gaining appropriate budgets and demonstrating, delivering value and ROI from budgets.
 Annual planning approach.
 Techniques for using digital business to impact organization strategy.
 Techniques for aligning digital business strategy with organisational and marketing
strategy.

2. Structure represents the way business divisions and units are organized and includes the
information of who is accountable to whom. In other words, structure is the organizational
chart of the firm. It is also one of the most visible and easy to change elements of the
framework.
The key issues are:
 Integration of digital marketing or e-commerce teams with other management,
marketing (corporate communications, brand marketing, direct marketing) and IT staff.
 Use of cross-functional teams and steering groups.
 Insourcing Vs outsourcing.

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3. Systems are the processes and procedures of the company, which reveal business’s daily
activities and how decisions are made. Systems are the area of the firm that determines
how business is done and it should be the main focus for managers during organizational
change.
The key issues are:
 Campaign planning approach-integration.
 Managing or sharing customer information.
 Managing customer experience, service and content quality.
 Unified reporting of digital marketing effectiveness and
 In-house Vs external best-of-breed Vs external integrated technology solutions.

Soft S:
4. Skills are the abilities that firm’s employees perform very well. They also include
capabilities and competences. During organizational change, the question often arises of
what skills the company will really need to reinforce its new strategy or new structure.
The key issues are: staff skills in specific areas such as supplier selection, project
management, content management and specific e-marketing media channels.

5. Staff element is concerned with what type and how many employees an organization will
need and how they will be recruited, trained, motivated and rewarded.
The key issues are:
 Insourcing Vs outsourcing.
 Achieving senior management buy-in/involvement with digital marketing.
 Staff recruitment and retention, and virtual working.
 Staff development and training.

6. Style represents the way the company is managed by top-level managers, how they
interact, what actions do they take and their symbolic value. In other words, it is the
management style of company’s leaders.
The key issues are:
 Defining a long-term vision for transformation.
 Relates to role of the digital marketing or e-commerce teams in influencing strategy – is it
dynamic and influential or a service which is conservative and looking for a voice?.

7. Shared Values are at the core of McKinsey 7s model. They are the norms and standards
that guide employee behavior and company actions and thus, are the foundation of every
organization.
The key issues are: improving the perception of the importance and effectiveness of digital
business amongst senior managers and staff it works with (marketing generalists and IT).

The authors of the framework emphasize that all elements must be given equal importance
to achieve the best results.

4.7 GE MATRIX
The GE multi factoral was first developed by Mckinsey for General Electric in the 1970s.
The G.E matrix helps a strategic business unit evaluate its overall strength. Each product,

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brand, service, or potential product is mapped in this industry attractiveness/business

strength space.
The GE matrix / McKinsey matrix (MKM) is a model to perform a business portfolio analysis
on the Strategic Business Units of a corporation. A business portfolio is the collection of
Strategic Business Units that make up a corporation.

Reason for application of GE Matrix: In the business world, the problem of resource scarcity is
affecting the decisions the companies make. With limited resources, but many opportunities
of using them, the businesses need to choose how to use their cash best. The fight for
investments takes place in every level of the company: between teams, functional
departments, divisions or business units. The question of where and how much to invest is
an ever going concern for those who allocate the resources. The GE Matrix helps to take
care of the situation & compares the business units and assigns them to the groups that are
worth investing in or the groups that should be harvested or divested.

About GE Matrix: GE-Mckinsey matrix consists of nine cells. Business units are plotted on
the X-axis, which measure strength of a business unit and Y-axis measures industry
attractiveness.
In 1970s, General Electric was managing a huge and complex portfolio of unrelated products
and was unsatisfied about the returns from its investments in the products. At the time,
companies usually relied on projections of future cash flows, future market growth or some
other future projections to make investment decisions, which was an unreliable method to
allocate the resources. Therefore, GE consulted the McKinsey & Company and as a result
the nine-box framework was designed. The nine-box matrix plots the Business Unit’s on its 9
cells that indicate whether the company should invest in a product, harvest/divest it or do a
further research on the product and invest in it if there’re still some resources left.

Parameters for Evaluating GE Matrix

The two parameters for the purpose of evaluation are:

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a. Industry Attractiveness: Industry attractiveness indicates how hard or easy it will be for a
company to compete in the market and earn profits. The more profitable the industry is the
more attractive it becomes.
Industry attractiveness consists of many factors that collectively determine the competition
level in it. Some of the factors comprises of:
 Market size
 Market growth rate
 Number of competitors in the market
 Market profitability

b. Business Unit Strength: expresses the overall power and position of a business unit
within a company compared to the existing competitors. Some of the factors comprises of:
 Market share
 Market share growth rate
 Financial results compared to competitors
 Production capacity compared to competitors

The Matrix Implication:

The nine cells of the GE Matrix are grouped on the basis of low to high industry
attractiveness & weak to strong business strength. Three zones, of three cells each takes
into consideration 3 different types of strategy (represented with 3 different colors) while
using this matrix, which are:
1. Safe Investment and Growth:
If the business units are present in the upper right corner (green space) of the matrix, it
means that organizations should prioritize these business units by investing more in order to
make them grow as much as possible.

2. Selective Investment / Prudent:

In this case, which consists of the business units lying on the yellow area of the matrix,
organization can highlight some kind of risk regarding the success of the business in
question in the future. Due to the high ambiguity concerning the whole decision making on
this category, one should only invest on it, if there is money left after investing on the safe
investments (on the green space).

3. Danger Zone Harvest and/or Divest

Organizations are facing a situation where neither the business units nor the
industry/market promise any kind of success (red space). Thus, the company should harvest
the maximum benefits remaining from the business having in view its divestment.

Advantages of GE Matrix
1. Helps to prioritize the limited resources in order to achieve the best returns.

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2. Managers become more aware of how their products or business units perform.
3. It’s more sophisticated business portfolio framework than the BCG matrix.
4. Identifies the strategic steps the company needs to make to improve the performance of
its business portfolio.

Disadvantages of GE Matrix
1. Requires a consultant or a highly experienced person to determine industry’s
attractiveness and business unit strength as accurately as possible.
2. It is costly to conduct.
3. It doesn’t take into account the synergies that could exist between two or more business
units.
4. It cannot effectively depict the position of new business units in developing industry

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