gen matrix (1)
TRANSCRIPT
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PROCESS OF STRATERGIC
CHOICE
The process of stratergic choice is essentiallya decision making process.
Decision making consists of setting
objectives, generating alternatives, choosingone or more alternatives that will help theorganistion achieve its objectives.
To make a choice from among thealterantives, a decision maker has to setcertain criteria on which to accept or rejectalterantives. These criteria are the selectionfactors and act as a guide to decision making.
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PROCESS OF STRATERGIC
CHOICE
Stratergic choice could be defined as thedecision to select from among the grandstrategies considered, the strategy which will
best meet the enterprices objectives. The decision involves focusing on a few
alternatives, considering the selectionfactors,evaluating the stratergic alternatives
and making the actual choice.
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PROCESS OF STRATERGIC
CHOICE
FOCUSING ON ALTERNATIVES The aim of focusing on few alternatives is to narrow
down the choice to a manageable number of feasible
strategies. Theoretically it is possible to consider all the
allterantives. But practically a decision maker wouldlimit the choice of a few alternatives.
Such a situation frequently poses a dilemma beforethe decion maker considering too many alternativeswould make the process unwidely and unproductivebut if only a few alternatives are considered, thedecision maker make ignore others which he should
have considered.
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PROCESS OF STRATERGIC
CHOICE
For resolving the dilemma a decision maker has tofocus on a resonable number of alternatives.
It is difficult to tell what that resonable number of
alternatives. It is still difficult to tell what resonablenumber would be.
In deciding on what would be a resonable number ofalternatives, it is advisable to start with businessdefinition.
The three dimensions along which a business Isdefined
Customer group
Customer Functions
Alternative technologies
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PROCESS OF STRATERGIC
CHOICE Gap analysis can also be used for focusing on strategic
alternatives.
A company sets objectives for a future period of time say3 to 5 years and then works backward to find out where it
can reach through the present level of efforts. Byanalysing the difference between the projected anddesired performance, a gap could be found.
How wide or narrow the gap is its important.
Where the gap is narrow satbility stratergies would seem
to be feasible alternative. If the gap is large due to expected enviornmental
opportunities, expansion stratergies are more likely to beused.
If it is large due to past and expected bad performance
retrenchment startergies may be more suitable.
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PROCESS OF STRATERGIC
CHOICE
CONSIDERING SELECTION FACTORS Narrowing down stratergic choice to a few feasible
alternatives is faciltated by considering the business
definition and gap analysis. These alternatives have to be subjected to furthr
analysis, such an analysis has to rely on certainfactors. These facors are termed as selection factors.
Selection factors can be broadly devided in to twogroups.
The objective factors.
The subjective factors.
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PROCESS OF STRATERGIC
CHOICE
Objective factors are based on anlytical techniqesand are hand facts or data used to facilitate astratergic choice.
Subjective factors on the other hand are based onones personal judgement, collective consensus andnon numerical data.
EVALUATION OF STRATERGIC ALTERNATIVES
Each alternatives has to be evaluated for its
capability to help the organisation to achieve itsobjectives.
Evaluation will be done by using both subjective andobjective factors.
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PROCESS OF STRATERGIC
CHOICE
MAKING THE STRATERGIC CHOICE.
Evaluation of stratergic choice should lead toa clear assessment of which alternative is the
most suitable under the existing conditions. The final step is therefore of making strategic
choice.
One or more strategies have to be chosen forimplementation. A blue print has to be madethat will describe the strategies and theconditions under which they would operate.This blue print is the strategic plan.
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BOSTON CONSULTING GROUP
MATRIX
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INTRODUCTION
BOSTON CONSULTING GROUP (BCG)
MATRIX is developed by BRUCEHENDERSON of the BOSTON
CONSULTING GROUP IN THE EARLY1970s.
According to this technique, businesses or
products are classified as low or highperformers depending upon their marketgrowth rate and relative market share.
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Relative Market Share
and Market Growth
To understand theBoston Matrix youneed to understand how market share
and market growth interrelate.
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MARKET SHARE
Market shareis the percentage of the total marketthat is being serviced by your company, measuredeither in revenue terms or unit volume terms.
RELATIVE MARKET SHARE
RMS = Business unit sales this yearLeading rival sales this year
The higher your market share, the higher proportionof the market you control.
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MARKET GROWTH
RATE Market growthis used as a measure of a markets
attractiveness.
MGR = Individual sales - individual sales
this year last yearIndividual sales last year
Markets experiencing high growth are ones wherethe total market share available is expanding, and
theres plenty of opportunity for everyone to makemoney.
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THE BCG GROWTH-SHARE
MATRIX It is a portfolio planning modelwhich is based on
the observation that a companys business units can
be classified in to four categories:
Stars
Question marks
Cash cows
Dogs
It is based on the combination of market growth andmarket share relative to the next best competitor.
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STARSHigh growth, High market share
Stars are leaders in business.
They also require heavy investment, to
maintain its large market share. It leads to large amount of cash consumption
and cash generation.
Attempts should be made to hold the marketshare otherwise the star will become a CASHCOW.
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CASH COWSLow growth , High market share
They are foundation of the company and oftenthe stars of yesterday.
They generate more cash than required.
They extract the profits by investing as littlecash as possible
They are located in an industry that is mature,not growing or declining.
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DOGSLow growth, Low market share
Dogs are the cash traps.
Dogs do not have potential to bring in much
cash.
Number of dogs in the company should beminimized.
Business is situated at a declining stage.
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QUESTION MARKSHigh growth , Low market share
Most businesses start of as question marks.
They will absorb great amounts of cash if the
market share remains unchanged, (low). Why question marks?
Question marks have potential to become
star and eventually cash cow but can alsobecome a dog.
Investments should be high for questionmarks.
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WHY BCG MATRIX ?
To assess :
Profiles of products/businesses
The cash demands of products The development cycles of products
Resource allocation and divestmentdecisions
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MAIN STEPS OF BCG MATRIX
Identifying and dividing a company into SBU.
Assessing and comparing the prospects ofeach SBU according to two criteria :
1. SBUS relative market share.
2. Growth rate OF SBUS industry.
Classifying the SBUS on the basis of BCG
matrix. Developing strategic objectives for each SBU.
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BENEFITS
BCG MATRIX is simple and easy tounderstand.
It helps you to quickly and simply screen the
opportunities open to you, and helps youthink about how you can make the most ofthem.
It is used to identify how corporate cashresources can best be used to maximize acompanys future growth and profitability.
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LIMITATIONS
BCG MATRIX uses only two dimensions,Relative market share and market growthrate.
Problems of getting data on market share andmarket growth.
High market share does not mean profits allthe time.
Business with low market share can beprofitable too.
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CONCLUSION
Though BCG MATRIX has its limitations it is one
of the most FAMOUS AND SIMPLE portfolioplanning matrix ,used by large companieshaving multi-products.
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GE MATRIX
The business portfolio is the collection ofbusinesses and products that make up the company.The best business portfolio is one that fits thecompany's strengths and helps exploit the most
attractive opportunities. The company must:
(1) Analyse its current business portfolio and decidewhich businesses should receive more or less
investment, and(2) Develop growth strategies for adding new products
and businesses to the portfolio, whilst at the sametime deciding when products and businesses should
no longer be retained.
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The two best-known portfolio planning methods arethe Boston Consulting Group Portfolio Matrix and theMcKinsey / General Electric Matrix.
In both methods, the first step is to identify the
various Strategic Business Units ("SBU's") in acompany portfolio. An SBU is a unit of the companythat has a separate mission and objectives and thatcan be planned independently from the other
businesses. An SBU can be a company division, aproduct line or even individual brands - it all dependson how the company is organised.
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The McKinsey / General Electric Matrix
The McKinsey/GE Matrix overcomes a numberof the disadvantages of the BCG Box.
Firstly,market ttractiveness replaces market
growth as the dimension of industryattractiveness, and includes a broader range offactors other than just the market growth rate.
Secondly, competitive strength replaces
market share as the dimension by which thecompetitive position of each SBU is assessed.
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The GE / McKinsey Matrix is divided into ninecells - nine alternatives for positioning of anySBU or product offering. Based on the
strength of the business and its marketattractiveness each SBU will have a differentposition in the matrix. Further, the market sizeand the current sales will distinguish each
SBU. Based on clear understanding of all ofthese factors decision makers are able todevelop effective strategies.
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GE Multifactor Portfolio MatrixIndustry Attractiveness
High
High
Medium
Medium
Low
Low
Invest/Grow
Selectivity/earnings
Harvest/Divest
ProtectPosition
Invest toBuild
Buildselectively
Buildselectively
Selectivelymanage forearnings
Limitedexpansion orharvest
Protect &refocus Divest
Manage forearnings
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The nine cells in the matrix can be grouped intothree major segments:
Segment 1: This is the best segment. The
business is strong and the market is attractive.The company should allocate resources in thisbusiness and focus on growing the business andincrease market share.
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Segment 2: The business is either strong but themarket is not attractive or the market is strong andthe business is not strong enough to pursue
potential opportunities. Decision makers shouldmake judgment on how to further deal with theseSBUs. Some of them may consume to muchresources and are not promising while others may
need additional resources and better strategy forgrowth.
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Segment 3: This is the worst segment.Businesses in this segment are weak and theirmarket is not attractive. Decision makers should
consider either repositioning these SBUs into adifferent market segment, develop better cost-effective offering, or get rid of these SBUs andinvest the resources into more promising and
attractive SBUs.
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Factors that Affect Market Attractiveness
There are several factors which can help to determineattractiveness. These are listed below:
- Market Size- Market growth
- Market profitability- Pricing trends- Competitive intensity / rivalry- Overall risk of returns in the industry
- Opportunity to differentiate products and services- Segmentation- Distribution structure (e.g. retail, direct, wholesale
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Factors that Affect Competitive Strength
Factors to consider include:
- Strength of assets and competencies- Relative brand strength
- Market share- Customer loyalty- Relative cost position (cost structure comparedwith competitors)
- Distribution strength- Record of technological or other innovation- Access to financial and other investmentresources
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Yes the GE matrix is superior to the BCG Matrix since ituses several dimensions, as compared to BCG's Matrix.However, problems or limitations include:
* There is no research to prove that there is a relationship
between market attractiveness and business position. * The interrelationships between SBU's, products, brands,
experiences or solutions is not taken into account.
* This approach does require extensive data gathering.
* There is no hard and fast rule on how to weightelements.
* The GE matrix offers a broad strategy and does notindicate how best to implement it.
PROBLEMS OR LIMITATIONS