strstegic analysis and choice
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Strategic Analysis
The process by which objectives are
formulated and achieved is known asstrategic management and strategy actsas the means to achieve the objective.
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Meaning of strategy
The word ‘strategy’ has entered in thefield of management from the military
services where it refers to apply the forcesagainst an enemy to win a war.
Originally, the word strategy ha s been
derived from Greek, ‘strategos’ whichmeans generalship.
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Process of Strategy
The process of strategy is cyclical in
nature. The elements within it interactamong themselves.
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Four phases
Focusing on strategic alternatives.
Analyzing the strategic alternatives.
Evaluating the strategic alternatives.
Choosing from among the strategicalternatives.
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STRATEGIC ANALYSIS
Corporate Portfolio Analysis.
SWOT Analysis.
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Corporate Portfolio Analysis
Portfolio analysis is an analytical tool
which views a corporation as a basket orportfolio of products or business units tobe managed for the best possible returns.
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The aim of portfolio analysis is
To analyze its current business portfolio anddecide which businesses should receive
more or less investment To develop growth strategies, for adding
new businesses to the portfolio
To decide which business should not longerbe retained
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BCG MATRIX The Boston Consulting Group (BCG) is a global management consulting
firm with offices in 42 countries. It is recognized as one of the most prestigious
management consulting firms in the world The BCG matrix was developed by Boston
Consulting group in 1970s. It is also called asthe growth share matrix. This is the mostpopular and most simplest matrix to describe thecorporation’s portfolio of businesses or products.
The BCG matrix helps to determine priorities in aproduct portfolio. Its basic purpose is to investwhere there is growth from which the firm canbenefit, and divest those businesses that havelow market share and low growth prospects.
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BCG MATRIX
Each of the products or business units is plottedon a two dimensional matrix consisting of
relative market share – is the ratio of the marketshare of the concerned product or business unitin the industry divided by the share of themarket leader
market growth rate – is the percentage of market growth, by which sales of a particularproduct or business unit has increased
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Analysis of the BCG matrix – the matrix reflects thecontribution of theproducts or business units
to its cash flow. Based onthis analysis, the productsor business units areclassified as –
Stars
Cash cows
Question marks
Dogs
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Stars – high growth, high market share
Stars are products that enjoy a relatively
high market share in a strongly growingmarket. They are potentially profitable andmay grow further to become an importantproduct or category for the company. Thefirm should focus on and invest in theseproducts or business units.
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Cash Cows – Low growth, high marketshare
These are the product areas that havehigh relative market shares but exist inlow-growth markets. The business ismature and it is assumed that lower levelsof investment will be required. On this
basis, it is therefore likely that they will beable to generate both cash and profits.Such profits could then be transferred tosupport the stars.
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Question Marks – high growth, lowmarket share
Question marks are also called problem childrenor wild cats. These are products with lowrelative market shares in high growth markets.
The high market growth means thatconsiderable investment may still be requiredand the low market share will mean that suchproducts will have difficulty in generating
substantial cash. These businesses are calledquestion marks because the organization mustdecide whether to strengthen them or to sellthem.
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Dogs – Low growth, low market share
These are products that have low market sharesin low growth businesses. These products willneed low investment but they are unlikely to bemajor profit earners. In practice, they mayactually absorb cash required to hold theirposition. They are often regarded asunattractive for the long term and recommendedfor disposal.
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Advantages –
It is easy to use
It is quantifiable
It draws attention to the cash flows
It draws attention to the investment needs
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Limitations –
It is too simplistic
Link between market share and profitability is not strong
Growth rate is only one aspect of industry attractiveness
It is not always clear how markets should be defined
Market share is considered as the only aspect of overallcompetitive position
Many products or business units fall right in the middleof the matrix, and cannot easily be classified.
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GE Nine-Cell Matrix The horizontal
axis representsbusiness
strength andthe vertical axisrepresentindustry
attractiveness
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Cont..
This matrix was developed in 1970s by theGeneral Electric Company with the assistance
of the consulting firm, McKinsey & Co, USA.This is also called GE multifactor portfoliomatrix.
This matrix consists of nine cells (3X3) based
on two key variables: business strength
industry attractiveness
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GE matrix is also called “Stoplight” strategy matrixbecause the three zones are like green, yellow and
red of traffic lights.
Green indicates invest/expand – if the product falls ingreen zone, the business strength is strong andindustry is at least medium in attractiveness, thestrategic decision should be to expand, to invest andto grow.
Yellow indicates select/earn – if the product falls inyellow zone, the business strength is low but industryattractiveness is high, it needs caution and managerialdiscretion for making the strategic choice
Red indicates harvest/divest – if the product falls inthe red zone, the business strength is average or weak and attractiveness is also low or medium, theappropriate strategy should be divestment.
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Comparison GE versus BCG -
Thus products or business units in thegreen zone are almost equivalent to stars
or cash cows, yellow zone are likequestion marks and red zone are similar todogs in the BCG matrix.
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SWOT analysis
The SWOT analysis is an extremely usefultool for understanding and decision-
making for all sorts of situations inbusiness and organizations. SWOT is anacronym for Strengths, Weaknesses,
Opportunities, Threats.
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Hero Motocorp
STRENGTHS
Hero Motocorp introduced First stroke bike
in the Indian market. It gives 70 Km/Liter Avg.
Huge sale network (3500 Dealers).
Better sale service. It has the highest share in automobile
sector.
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WEAKNESS:
Its market share is reducing from last few
years.
Spare parts are too costly.
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OPPOURTUNITIES:
Hero Motocorp the first manufacture to launcheco friendly bikes with 4-stroke engines. They
have attained a stronger good will andpopularity in the industry and the consumers.
There is large no. of young consumers in the
market. Company has to focus on them.
They have big opportunities in heavy bike
segments.
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THREATS:
Main threats to Hero Motocorp are theircompetitors like:-
Bajaj Auto Ltd.
TVS motors Ltd.
Yamaha Motors India.
Honda motorcycle and scooter India.
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BAJAJ
STRENGTHS
Highly experienced management.
Product design & development capabilities. Extensive R&D focus.
Wide spread distribution network.
High performance product across all categories. Good customer service.
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WEAKNESS:
Hasn’t employed the excess cash for long.
Slow to make decisions and adapt to
changes that affect the profession.
Do not have the resources to research themarket and promote the designation.
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OPPOURTUNITIES:
Their business sector is expanding, withmany future opportunities for success.
competitors may be slow to adopt newtechnologies
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THREATS:
A small change in focus of a large
competitor might wipe out anymarket position they achieve.
The competition catches-up any new
innovation in no time.
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