assignment of sm

8/7/2019 Assignment of Sm

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SUBMITTED TO SUBMITTEED BY

MISS ANJALI SHARMA PARVEEN KUMARI

MBA 4th C

ROLL NO. 204


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BOSTON CONSULTING GROUP

MATRIX ( BCG )

This technique is particularly useful for multi-divisional or multiproduct

companies. The divisions or products compromise the

organisations business portfolio. The composition of the portfolio

can be critical to the growth and success of the company.

The BCG matrix considers two variables, namely..

1 MARKET GROWTH RATE

2 RELATIVE MARKET SHARE

The market growth rate is shown on the vertical (y) axis and is

expressed as a %. The range is set somewhat arbitrarily. The

overhead shows a range of 0 to 20% with division between lowand high growth at 10% (the original work by B Headley Strategy

and the business portfolio, Long Range Planning, Feb 1977 used

these criteria). Inflation and/or Gross National Product have some

impact on the range and thus the vertical axis can be modified to

represent an index where the dividing line between low and high

growth is at 1.0. Industries expanding faster than inflation or GNP


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would show above the line and those growing at less than inflation

or GNP would be classed as low growth and show below the line.

The horizontal (x) axis shows relative market share. The share is

calculated by reference to the largest competitor in the market.

Again the range and division between high and low shares is

arbitrary. The original work used a scale of 0.1, i.e. market

leadership occurs when the relative market share exceeds 1.0.

The BCG growth/share matrix is divided into four cells or

quadrants, each of which represent a particular type of business.

Divisions or products are represented by circles. The size of the

circle reflects the relative significance of the division/product to

group sales. A development of the matrix is to reflect the relative

profit contribution of each division and this is shown as a piesegment within

the circle.


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Dogs: Low Market Share / Low Market Growth

In these areas, your market presence is weak, so it's goingto take a lot of hard work to get noticed. You won't enjoy thescale economies of the larger players, so it's going to bedifficult to make a profit. And because market growth is low,it's going to take a lot of hard work to improve the situation.

Cash Cows:High Market Share / Low Market GrowthHere, you're well-established, so it's easier to get attention

and exploit new opportunities. However it's only worthexpending a certain amount of effort, because the marketisn't growing, and your opportunities are limited.

Stars:High Market Share / High Market GrowthHere you're well-established, and growth is exciting! Thereshould be some strong opportunities here, and you should

work hard to realize them.

Question Marks (Problem Child):Low Market Share / High Market Growth

These are the opportunities no one knows what to do with.They aren't generating much revenue right now because youdon't have a large market share. But, they are in highgrowth markets so the potential to make money is there.Question Marks might become Stars and eventual Cash

Cows, but they could just as easily absorb effort with littlereturn. These opportunities need serious thought as towhether increased investment is warranted.


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Limitations:

Though the Product Portfolio Matrix is well known to ease theway of portfolio analysis,It has several limitations also. Here some of limitations arenarrate briefly:

A. High Market Share is not the only factor to measurecompetitive advantage. Similarly, Market growth rate isnot the only factor to measure industry attractiveness.

B. Sometime a dog SBU used as synergy to other SBUs.i.e. a dog may help other SBUs to gain a competitiveadvantage.

C. Sometimes Dogs [of a huge market] can earn evenmore cash as Cash Cows.
http://bbamba.info/Articles/Marketing/Portfolio-BCG-Matrix.htmlhttp://bbamba.info/Articles/Marketing/Strategic-Business-Units-SBUs.htmlhttp://bbamba.info/Articles/Marketing/Portfolio-BCG-Matrix.htmlhttp://bbamba.info/Articles/Marketing/Strategic-Business-Units-SBUs.html


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Hofers Product/Market Evolution Matrix

Charles Hofer has proposed a three-by-five matrix where businesses are

plotted in terms of their product/market evolution and the comeptitive

position. Relative sizes of industries are shown by circles wherein in the

market share of the company is shaded as shown in Figure


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The GE Business Screen is not without controversy. Some observes

argue that there is too much subjectivity in the construction of thematrix.

According to Hofer and Schendel, "The Principal difficulty with GEBusiness Screen is that it does not depict as affectively at itmight the positions of new businesses that are just starting togrow in new industries.

In such instances, it may be preferable to use a fifteen-cellmatrix in which businesses are plotted in terms of theircompetitive position and their stage of product/market

evolution". Thus, Hoferdeveloped the Product/Market EvolutionPortfolio Matrix, or Life Cycle Matrix.

Several useful ideas concerning the strategic alternatives availableto each business unit emerge from an analysis ofFigure 4-14.

-Business unit A would to be a developing winner. Its relativelylarge share of the market combined with its being at thedevelopment stage of product- market evolution and its potentialfor being in a strong competitive position make it a good candidatefor receiving more corporate resources.

-Business unit B is somewhat similar to A. However, it has arelatively small share of the market given its strong competitiveposition. A strategy would have to be developed to overcome thislow market share in order to justify more investments.

-Business unit C might be classified as a potential loser. A strategymust be developed to overcome the low market share and weakcompetitive position in order to justify future investments.

-Business unit D is in a shakeout period, has a relatively large share

of the market, and is in a relatively strong position. Investmentshould be made to maintain that position.

-Business units E and F are cash cows and should be used for cashgeneration.


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-Business unit G appears to be a dog. It should be managed togenerate cash in the short run, if possible; however, the long-runstrategy will more the likely be divestment or liquidation.

Dan Schendel and Charles Hoferdeveloped a strategic management

model, incorporating both planning and control functions.

Their model consists of several basic steps:

(1) goal formulation,

(2) environmental analysis,

(3) strategy formulation,

(4) strategy evaluation,

(5) strategy implementation, and(6) strategic control.

According to Schendel and Hofer, the formulation portion ofstrategic management consists of at least three subprocesses:

-environmental analysis,

-resources analysis,- and value analysis.

Porter's Five Forces

Porter's Five Forces is a framework for industry analysis and

business strategy development formed by Michael E.
http://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porter


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PorterofHarvard Business Schoolin 1979. It draws upon Industrial

Organization (IO) economics to derive five forces that determine the

competitive intensity and therefore attractiveness of a market.

Attractiveness in this context refers to the overall industry profitability.

An "unattractive" industry is one in which the combination of thesefive forces acts to drive down overall profitability. A very unattractive

industry would be one approaching "pure competition", in which

available profits for all firms are driven down to zero.

Three of Porter's five forces refer to competition from external

sources. The remainder are internal threats.

Porter referred to these forces as the micro environment, to contrast it

with the more general term macro environment. They consist of those

forces close to a company that affect its ability to serve its customers

and make a profit. A change in any of the forces normally, requires a

business unit to re-assess the marketplace given the overall change

in industry information. The overall industry attractiveness does not

imply that every firm in the industry will return the same profitability.

Firms are able to apply theircore competencies, business model or

network to achieve a profit above the industry average. A clear

example of this is the airline industry. As an industry, profitability is

low and yet individual companies, by applying unique businessmodels, have been able to make a return in excess of the industry

average.

Porter's five forces include - three forces from 'horizontal' competition:

threat of substitute products, the threat of established rivals, and the

threat of new entrants; and two forces from 'vertical' competition:

the bargaining powerof suppliers and the bargaining power of

customers.
http://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Marketing#Marketing_environmenthttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Core_competencieshttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Industryhttp://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Marketing#Marketing_environmenthttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Core_competencieshttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Industryhttp://en.wikipedia.org/wiki/Bargaining_power


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The five forces

1 The threat of the entry of new competitors

Profitable markets that yield high returns will attract new firms. This

results in many new entrants, which eventually will decrease

profitability for all firms in the industry. Unless the entry of new firms

can be blocked by incumbents, the abnormal profit rate will fall

towards zero (perfect competition).

The existence ofbarriers to entry (patents, rights, etc.) The

most attractive segment is one in which entry barriers are high andexit barriers are low. Few new firms can enter and non-performing

firms can exit easily.

Economies of product differences

Brand equity

Switching costs orsunk costs
http://en.wikipedia.org/wiki/Incumbentshttp://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/Patentshttp://en.wikipedia.org/wiki/Rightshttp://en.wikipedia.org/wiki/Brand_equityhttp://en.wikipedia.org/wiki/Sunk_costshttp://en.wikipedia.org/wiki/Incumbentshttp://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/Patentshttp://en.wikipedia.org/wiki/Rightshttp://en.wikipedia.org/wiki/Brand_equityhttp://en.wikipedia.org/wiki/Sunk_costs


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Capital requirements

Access to distribution

Customer loyalty to established brands

Absolute cost

Industry profitability; the more profitable the industry the more

attractive it will be to new competitors

2 The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major

determinant of the competitiveness of the industry.

Sustainable competitive advantage through innovation

Competition between online and offline companies; click-and-

mortar-v- slags on a bridge[citation needed]

Level ofadvertising expense

Powerful competitive strategy

The visibility of proprietary items on the Web [2] used by a

company which can intensify competitive pressures on their rivals.

How will competition react to a certain behavior by another firm?Competitive rivalry is likely to be based on dimensions such as price,

quality, and innovation. Technological advances protect companies

from competition. This applies to products and services. Companies

that are successful with introducing new technology, are able to

charge higher prices and achieve higher profits, until competitors

imitate them. Examples of recent technology advantage in have

been mp3 players and mobile telephones. Vertical integration is a

strategy to reduce a business' own cost and thereby intensify

pressure on its rival.
http://en.wikipedia.org/wiki/Customer_loyaltyhttp://en.wikipedia.org/wiki/Competitive_advantagehttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Advertisinghttp://en.wikipedia.org/wiki/Competitive_strategyhttp://en.wikipedia.org/wiki/Porter_five_forces_analysis#cite_note-1http://en.wikipedia.org/wiki/MP3http://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Customer_loyaltyhttp://en.wikipedia.org/wiki/Competitive_advantagehttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Advertisinghttp://en.wikipedia.org/wiki/Competitive_strategyhttp://en.wikipedia.org/wiki/Porter_five_forces_analysis#cite_note-1http://en.wikipedia.org/wiki/MP3http://en.wikipedia.org/wiki/Vertical_integration


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3 The threat of substitute products or services

The existence of products outside of the realm of the common

product boundaries increases the propensity of customers to switch

to alternatives:

Buyer propensity to substitute

Relative price performance of substitute

Buyerswitching costs

Perceived level ofproduct differentiation

Number of substitute products available in the market

Ease of substitution. Information-based products are more

prone to substitution, as online product can easily replace material

product. Substandard product

Quality depreciation

4 The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of

outputs: the ability of customers to put the firm under pressure, which

also affects the customer's sensitivity to price changes.

Buyer concentration to firmconcentration ratio

Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed

costs

Buyer volume

Buyer switching costs relative to firm switching costs

Buyer information availability

Ability to backward integrate

Availability of existing substitute products

Buyerprice sensitivity

Differential advantage (uniqueness) of industry products

RFM Analysis
http://en.wikipedia.org/wiki/Propensityhttp://en.wikipedia.org/wiki/Switching_costshttp://en.wikipedia.org/wiki/Product_differentiationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Concentration_ratiohttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Price_sensitivityhttp://en.wikipedia.org/wiki/RFMhttp://en.wikipedia.org/wiki/Propensityhttp://en.wikipedia.org/wiki/Switching_costshttp://en.wikipedia.org/wiki/Product_differentiationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Concentration_ratiohttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Price_sensitivityhttp://en.wikipedia.org/wiki/RFM


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5 The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of

inputs. Suppliers of raw materials, components, labor, and services

(such as expertise) to the firm can be a source of power over the firm,

when there are few substitutes. Suppliers may refuse to work with the

firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Impact of inputs on cost or differentiation

Presence of substitute inputs

Strength of distribution channel Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labor unions)

Supplier competition - ability to forward vertically integrate and

cut out the BUYER

GE-MCKINSEY MATRIX

INTRODUCTION

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to performbusiness portfolio analysis as a step in the strategic planning process. The

GE/McKinsey Matrix identifies the optimum business portfolio as one that

fits perfectly to the company's strengths and helps to exploit the most

attractive industry sectors or markets. Thus, the objective of the analysis is

to position each SBU on the chart depending on the SBU's Strength and the
http://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Labor_unionshttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Labor_unions


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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

depicted below.

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


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define Industry Attractiveness and Business Unit Strength. Each factor can be given a

different weighting in calculating the overall attractiveness of a particular industry.

Typically:

Industry Attractiveness = Attractiveness Factor 1 Value by Factor 1 weighting +

Attractiveness Factor 2 Value by Factor 2 weighting, etc.

Business Unit Strength = Strength Factor 1 Value by Factor 1 weighting + Strength

Factor 2 Value by Factor 2 weighting, etc.

This template allows the user to define up to 10 SBUs to be plotted. Up to 10 different

factors can be used to define Industry Attractiveness, Typical factors would be Market

Size, Market Growth Rate, Industry Profitability, Competitive Rivalry, etc. Up to 10

factors can also be used to define SBU Strength. Typical factors are Market Share,

Distribution Channel Access, Financial Resources, R&D Capability, etc The factors and

their relative weightings are selected. The rating values for each factor are entered for

each SBU and Industry. The SBU Strength and Industry Sector Attractiveness are

calculated and the GE/McKinsey Matrix is automatically produced. The format used to

produce the Matrix is a MS-Excel Bubble Chart. Industry Attractiveness and Business

Strength are plotted on the X and Y axes. The size of the Bubble allows a further factor

to be depicted on the chart. The default factor used is Market Size. However, a

Dropdown list is available allowing the user to dynamically select any of the Industry

Attractiveness factors as an alternative.

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