February 2011

Master of Business Administration-MBA Semester 4

MB0052 – Strategic Management and Business Policy - 4 Credits

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 What similarities and differences do you find in BCG business portfolio

matrix, Ansoff growth matrix and GE growth pyramid. (10 marks)

Answer:

Strategic Advantage Profile (SAP) shows the strength and weakness of an organisation.

Preparation of SAP is very similar to ETOP analysis. The five functional areas in most

organisations are production or operation, finance or accounting, marketing or

distribution, human resource and corporate planning, and research and development.

These functional areas are listed to identify their relative strengths and weaknesses in

SAP. Very similar to the ETOP analysis, positive, neutral, and negative signs are

denoted and brief description is written in SAP profile. Each functional area is very

broad and has many constituents.

1 BCG portfolio matrix

The BCG matrix is a portfolio management tool used in product life cycle. BCG matrix is

often used to highlight the products which get more funding and attention within the

company. During a product’s life cycle, it is categorised into one of four types for the

purpose of funding decisions. Figure below depicts the BCG matrix.

BCG Growth Share Matrix

Question Marks (high growth, low market share) are new products with potential

success, but they need a lot of cash for development. If such a product gains enough

market shares to become a market leader, which is categorised under Stars, the

organisation takes money from more mature products and spends it on Question Marks.

Stars (high growth, high market share) are products at the peak of their product life

cycle and they are in a growing market. When their market rate grows, they become

Cash Cows.

Cash Cows (low growth, high market share) are typically products that bring in far more

money than is needed to maintain their market share. In this declining stage of their life

cycle, these products are milked for cash that can be invested in new Question Marks.

Dogs (low growth, low market share) are products that have low market share and do

not have the potential to bring in much cash. According to BCG matrix, Dogs have to be

sold off or be managed carefully for the small amount of cash they guarantee.

The key to success is assumed to be the market share. Firms with the highest market

share tend to have a cost leadership position based on economies of scale among other

things. If a company is able to apply the experience curve to its advantage, it should

able to produce and sell new products at low price, enough to garner early market share

leadership.

Limitations of BCG matrix:

• The use of highs and lows to form four categories is too simple

• The correlation between market share and profitability is questionable.

Low share business can also be profitable.

• Product lines or business are considered only in relation to one competitor: the market

leader. Small competitors with fast growing shares are ignored.

• Growth rate is the only aspect of industry attractiveness

• Market share is the only aspect of overall competitive position

2 Igor Ansoff growth matrix

The Ansoff Growth matrix is a tool that helps organisations to decide about their product

and market growth strategy. Growth matrix suggests that an organisation’s attempts to

grow depend on whether it markets new or existing products in new or existing markets.

Ansoff's matrix suggests strategic choices to achieve the objectives. Figure 3.6 depicts

Ansoff growth matrix.

Ansoff Growth Matrix

Market penetration – Market penetration is a strategy where the business focuses on

selling existing products into existing markets. This increases the revenue of the

organisation.

Market development – Market development is a growth strategy where the business

seeks to sell its existing products into new markets. This means that the product is the

same, but it is marketed to a new audience.

Product development – Product development is a growth strategy where a business

aims to introduce new products into existing markets. This strategy may need the

development of new competencies and requires the business to revise products to

appeal to existing markets.

Diversification – Diversification is the growth strategy where a business markets new

products in new markets. This is an intrinsically riskier strategy because the business is

moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, it should have a clear idea about what

it expects to gain from the strategy and an honest assessment of the risks.

Market Penetration

Product Development

Market Development

Diversification

New Market Existing Market

3 McKinsey/GE growth pyramid

The McKinsey/GE matrix is a tool that performs a business portfolio analysis on the

Strategic Business units in an organisation. It is more sophisticated than BCG matrix in

the following three aspects:

• Industry (market) attractiveness - Industry attractiveness replaces market growth. It

includes market growth, industry profitability, size and pricing practices, among other

possible opportunities and threats.

• Competitive strength - Competitive strength replaces market share. It includes market

share as well as technological positions, profitability, size, among other possible

strengths and weaknesses.

• McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2

matrixes.

External factors that determine market attractiveness are the following:

• 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)

Internal factors that affect competitive strength are the following:

• Strength of assets and competencies

• Relative brand strength

• Market share

• Customer loyalty

• Relative cost position (cost structure compared to competitors)

• Distribution strength

• Record of technological or other innovation

• Access to financial and other investment resources

McKinsey/GE Growth Pyramid

Q.2 Discuss the investment strategies applicable for businesses and methods to

rectify faulty investment strategies. (10 marks)

Answer:

Investment is defined as the commitment of money or capital (e.g. purchasing assets,

keeping funds in a bank account etc) to generate future returns. A proper understanding

of the investment strategies and a thorough analysis of the options helps an investor to

create a portfolio that maximizes returns and minimises exposure to risks.

Following are the ways to invest successfully:

• Leave a margin of safety – Always leave a margin of safety in your investments to

protect your portfolio. The following are the two ways to incorporate the above principle

in your investment selection process.

• Be conservative in your valuation assumptions

• Only buy assets dealing at substantial discounts to your conservative estimate.

• Invest in business which you understand – Invest in a business in which you have a

thorough understanding of the customers, products/services etc.

• Make assumptions – Make assumptions about your future performance by recognising

your own limitations. Never purchase the stock until you understand the industrial

economy and able to forecast the future of the company with certainty.

• Measure your success – Evaluate your performance by the underlying measures in

business.

• Have a clear disposition towards price – The more you pay for an asset in relation to

its earnings, the lesser is your return value. So have a clear outlook towards the price.

• Allocate capital by opportunity cost – Allocate investments/assets to the choice which

has been opted as the best among several mutually exclusive choices.

1 Investment strategies for new businesses

A new business always involves a certain amount of risk and money. Risk might arise

during development, execution, administration and making profit.

The following are the factors which affect the investment strategies of a new business:

• Accurate addressing of subjects in the guide – It involves choosing the right name for

the company, drawing up the first business plan, thoroughly updating the taxation

advices and banking and insurance tips.

• Developing certain character traits – Determination and originality are the key traits to

survive in a business. You must have the ability to organise your time and sincerely

arrange the requisite effort in your work during the early days.

• Be focused and alert during sudden declination with immediate solutions – Success

can never be guaranteed in a business, but your aim must be to minimise the

complicated elements. Setting up a new business always deal with certain risks,

common pitfalls and financial crisis. You must be focused towards such disaster at any

time with immediate solutions.

• Available resources – Resources can be in the form of manpower, raw materials etc.

Starting up a business can be a discouraging prospect. Availability of resources

influences the proliferation of the new business.

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Q.3. a. Distinguish policy, procedure and programmes with examples. (5 marks)

b. Give a short note on synergy. (5 marks)

Answer:

a. An organisation achieves its goals through different methods. They are policy,

procedure, process and programmes.

Policy

Policy is a predefined course of action set up by top level management to provide

guidance towards business strategies and objectives. It identifies the fundamental

activities and provides strategic ways to handle different issues. It recommends the

manner in which the objectives are achieved.

Procedure

A procedure is a specific method to achieve a goal. It consists of a series of steps to be

followed regularly or in a cycle to achieve the end result. An organisation has a set of

methods to manage different matters like training, auditing etc. It provides a clear and

understandable plan of action required to implement the policy.

Process

A process is a specific event in a series of business activities. The event changes the

state of data or product and generates an output (e.g., receiving orders, updating

information, setting budget etc.). Business process occurs at all levels of an

organisation.

Programmes

A programme lays down the principle steps to attain a specific objective. It sets a time

limit for each stage. They are concrete methods to accomplish a task. It identifies the

resources to be used, the steps to be taken, the timeframe for the steps and the role

assigned to each person to attain the specified objective. Programmes provide a

sequence of activities in an order in which it has to be implemented. A main programme

can be supported by several derived programmes. Example – To manufacture a new

product

several programmes may be used. They can be machines, raw material, technical staff,

etc. A sequence is created to prioritise the work and each work is scheduled to ensure

that it is completed within the time limit.

Differences between policy, procedure, process and programmes

Policy is general in nature and identifies the company rules. Policy explains the reason

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