Strategic Management

UNIT III
Maleeha Gul
• Tomorrow always arrives. It is always
different. And even the mightiest company is
in trouble if it has not worked on the future.
Being surprised by what happens is a risk that
even the largest and richest company cannot
afford, and even the smallest business need
not run.
 Strategic Alternatives

• After analyzing the environment and assessing

the internal environment, the next step in the
strategic planning process is to develop
strategic alternatives to help the organization
in achieving its objectives.
Different Kind of Strategic Alternatives
• A firm’s relative position within its industry
determines whether a firm’s profitability is
above or below the industry average. The
fundamental basis of above average
profitability in the long run is sustainable
competitive advantage.
• In Porter’s view, strategic management should
be concerned with building and sustaining
competitive advantage.
• The term competitive advantage refers to the ability
gained through attributes and resources to perform at a
higher level than others in the same industry or market
• Successfully implemented strategies will lift a firm to
supe- rior performance by facilitating the firm with
competitive advantage to outperform current or
potential players
• To gain competitive advantage, a business strategy of a
firm manipulates the var- ious resources over which it
has direct control and these re- sources have the ability
to generate competitive advantage
• “Competitive advantage grows out of value a
firm is able to create for its buyers that exceeds
the firm's cost of creating it. Value is what buyers
are willing to pay, and superior value stems from
offering lower prices than competitors for
equivalent benefits or providing unique benefits
that more than offset a higher price. There are
two basic types of competitive advantage: cost
leadership and differentiation.” Michael Porter
 Generic Strategies
• According to Micheal E. Porter strategies allow
organisations to gain competitive advantage
from three different bases.
• Ֆ Cost leadership
• Ֆ Differentiation, and
• Ֆ Focus.
• Each of these strategies is designed to give a
firm a competitive advantage. Focus strategy
has two variants
 Cost leadership strategy
• The goal of cost leadership strategy is to offer products
or services at the lowest cost in the industry.
• General cost leadership refers to the need to get all
costs lower whatever their nature, whether they are
fixed or variable costs, whether they relate to labour,
capital or resource inputs, and whether they relate to
design or distribution
• The challenge of this strategy is to earn a suitable
profit for the company,
• This strategy emphasizes efficiency. By producing
high volumes of standardized products, the firm
hopes to take advantage of economies of scale and
experience curve effects.
• The product is often a basic no- frills product that is
produced at a relatively low cost and made available
to a very large customer base.
• Maintaining this strategy requires a continuous
search for cost reductions in all aspects of the
business. The associated distribution strategy is to
obtain the most extensive distribution possible.
• Promotional strategy often involves trying to make a
virtue out of low cost product features.
• To be successful, this strategy usually requires
a considerable market share advantage or
preferential access to raw materials,
components, labor, or some other important
input.
• Without one or more of these advantages,
the strategy can easily be mimicked by
competitors.
• Companies such as Walmart succeed with this
strategy by featuring low prices on key items
on which customers are price-aware, while
selling other mer- chandise at less aggressive
discounts.
• Products are to be created at the lowest cost
in the industry. An example is to use space in
stores for sales and not for storing excess
product.
• Reliance became number one company of
India because of its cost leadership strategy.
• Reliance’s project management skills, among
the best in its business anywhere in the world,
and its competencies in mobilizing large
amount of low-cost finance enables them to
set up world –scale plants at the highest
speeds and lowest capital costs.
• Ranbaxy laboratories, number two most
competitive company of India (after Reliance)
attained cost leadership through upgrading
technology and benchmarking against
international competitors.
• Gujarat Ambuja made a success by following
this cost leadership strategy. It benchmarked
itself against the best practices of cement
companies across the world.
 CASE STUDY
• Wal-Mart's Cost Leadership Strategy
 Differentiation Strategy

• Differentiation is aimed at the broad market that involves the

creation of a product or services that is perceived throughout its
industry as unique. The company or business unit may then charge
a premium for its product. This specialty can be associated with
design, brand image, technology, features, dealers, network, or
customer‟s service. Differentiation is a viable strategy for earning
above average returns in a specific business because the resulting
brand loyalty lowers customers' sensitivity to price. Increased
costs can usually be passed on to the buyers. Buyer‟s loyalty can
also serve as entry barrier-new firms must develop their own
distinctive competence to differentiate their products in some way
in order to compete successfully.
 Differentiation strategy

• The goal of differentiation strategy is to

provide a variety of products, services, or
features to consumers that competi- tors are
not yet offering or are unable to offer.
• This strategy gives a direct advantage to the
company which is able to pro- vide a unique
product or service that none of its competitors
are able to offer.
• Differentiation is aimed at the broad market that
involves the creation of a product or services that is
perceived throughout its industry as unique.
• The company or business unit may then charge a
premium for its product.
• This specialty can be associated with design, brand
image, technology, features, dealers, network, or
customer‟s service.
• Differentiation is a viable strategy for earning above
average returns in a specific business because the
resulting brand loyalty lowers customers' sensitivity
to price. Increased costs can usually be passed on
to the buyers.
• Buyer‟s loyalty can also serve as entry barrier-new
firms must develop their own distinctive
competence to differentiate their products in some
way in order to compete successfully.
• Organizations usually seek growth in sales,
profits, market share, or some other measure as
a primary objective. The different grand
strategies in this category are:
• 􏰀 Concentration
• 􏰀 Integration
• 􏰀 Diversification
• 􏰀 Mergers and acquisitions
• 􏰀 Joint Ventures
• Research does suggest that a differentiation
strategy is more likely to generate higher
profits than is a low cost strategy because
differentiation creates a better entry barrier. A
low-cost strategy is more likely, however, to
generate increases in market share.
• Examples of the successful use of a
differentiation strategy are Hero Honda, Asian
Paints, HLL, Nike athletic shoes, Apple
Computer, and Mercedes-Benz automobiles.
• An example is Dell which launched mass-
customizations on computers to fit
consumers’ needs. This allows the company to
make its first product to be the star of its
sales.
CASE STUDY
 Focus Strategy
• In this strategy the firm concentrates on a select few
target markets. It is also called a focus strategy or
niche strategy.
• It is hoped that by focusing your marketing efforts on
one or two narrow market segments and tailoring your
marketing mix to these specialized markets, you can
better meet the needs of that target market.
• The firm typically looks to gain a competitive
advantage through effectiveness rather than efficiency.
• It is most suitable for relatively small firms but can be
used by any company. As a focus strategy it may be
used to select targets that are less vulnerable to
substitutes or where a competition is weakest to earn
above-average return on investment.
The focus strategy has two variants.
• (a) In cost focus a firm seeks a cost advantage in its
target segment
(b) Differentiation focus a firm seeks differentiation in
its target segment.
• Both variants of the focus strategy rest on
differences between a focuser's target segment
and other segments in the industry. The target
segments must either have buyers with unusual
needs or else the production and delivery system
that best serves the target segment must differ
from that of other industry segments. Cost focus
exploits differences in cost behavior in some
segments, while differentiation focus exploits the
special needs of buyers in certain segments.
• For example, products such as Rolls – Royce
automobiles, Cross pens, and Hartmann luggage are
designed to appeal to the upscale market and serve it
well rather than trying to compete in the mass market.
• Strategy of opening hotels in Himachal is focused
strategy of Himachal Tourism Development
Corporation, which is pursued on geographic grounds.
Rolls – Royce pursues the strategy of selling cars to
status conscious high –income consumers. Ranbaxy
focused on just two categories of drugs – antibiotics
and antibacterial (product – line)
CASE STUDY
Porter’s three Generic Strategies and their requirements
 PITFALLS OF GENERIC STRATEGIES

• Risk of cost leadership- Positioning a firm as a low cost manufacturer or

service provider places a severe burden on the firm. Cost leadership is
vulnerable to risks such as:

• Technological change that erases past investments and outdates past learning.

• Risk of imitation by late entrants who have advantage of low cost learning.

• Lack of attention to the needs and preferences of customer due to excessive

concerns for cost minimization.

• Unexpected inflation in costs that reduces the firm‟s ability to offset product
differentiation through cost leadership. might find submarkets within the
target market of the focus firm and out focus the focuser.
• Risk of differentiation – A differentiation strategy is vulnerable to the following risks:
Increased cost differential between low cost producers and the differentiating firm
will motivate brand loyalty customers to switch brands. Thus, buyers would sacrifice
some additional features and image for huge savings in cost.
Imitation might narrow down the perceived difference.
If a differentiating firm lags behind too much, a low cost firm may take over the
market of the differentiating firm.
Example, the Japanese motor cycle producer Kawasaki, made inroads into the
territory of differentiated players such as Harley-Davidson and Triumph by offering
big cost savings to buyers.
• Risk of focus-A focus strategy is vulnerable to the following risks:
Increasing cost differentiated between broad-range competitors and the focus firm
might offset the differentiation achieved through focus and turn the customers
towards firms that offer a broad range of products.
• Perceived or actual differences between products and services might disappear.
Other firms
• Risk of differentiation – A differentiation strategy is vulnerable to
the following risks:
Increased cost differential between low cost producers and the
differentiating firm will motivate brand loyalty customers to
switch brands. Thus, buyers would sacrifice some additional
features and image for huge savings in cost.
Imitation might narrow down the perceived difference.
If a differentiating firm lags behind too much, a low cost firm
may take over the market of the differentiating firm.
Example, the Japanese motor cycle producer Kawasaki, made
inroads into the territory of differentiated players such as Harley-
Davidson and Triumph by offering big cost savings to buyers.
• Risk of focus-A focus strategy is vulnerable to the
following risks:
Increasing cost differentiated between broad-range
competitors and the focus firm might offset the
differentiation achieved through focus and turn the
customers towards firms that offer a broad range of
products.
• Perceived or actual differences between products and
services might disappear.
Other firms might find submarkets within the target
market of the focus firm and out focus the focuser.
 Growth Strategies

• Organizations usually seek growth in sales,

profits, market share, or some other measure as
a primary objective. The different grand
strategies in this category are:
• 􏰀 Concentration
• 􏰀 Integration
• 􏰀 Diversification
• 􏰀 Mergers and acquisitions
• 􏰀 Joint Ventures
 Concentration

• The most common grand strategy is concentration on the

current business.
• A concentration strategy is one in which an organization
focuses on a single line of business
• The firm directs its resources to the profitable growth of a
single product, in a single market, and with a single technology.
• Some of America’s largest and most successful companies have
traditionally adopted the concentration approach.
• For example, Mc Donald’s concentrates on the fast food
industry and Holiday Inns.
• Other examples include W.K. Kellogg and Gerber Foods, which
are known for their product
• Concentration strategies succeed for so many businesses –
including the vast majority of smaller firms – because of the
advantages of business – level specialization.
• By concentrating on one product, in one market, and with
one technology, a firm can gain competitive advantages over
its more diversified competitors in production skill, marketing
know-how, customer sensitivity, and reputation in the
marketplace.
• The reasons for selecting a concentration grand strategy are
easy to understand. Concentration is typically lowest in risk
and in additional resources required. It is also based on the
known competencies of the firm
On the negative side, for most companies
concentration tends to result in steady but slow
increases in growth and profitability and a
narrow range of investment options.
 Integration
• Integration may take two forms: vertical and horizontal integration.
• Vertical Integration
• Vertical integration strategy involves growth through acquisition of other
organizations in a channel of distribution.
• When an organization purchases other companies that supply it, it engages
in backward integration.
• The organization that purchases other firms that are closer to the end users
of the product (such as wholesalers and retailers) engages in forward
integration.
• Vertical integration is used to obtain greater control over a line of business
and to increase profits through greater efficiency or better selling efforts.

• BHEL had undertaken the path of backward integration for the manufacture
of assorted equipments such as, switchgears and transformers, to the full-
fledged production of thermal, hydel, and nuclear power generation
equipment.
• Horizontal Integration
• This strategy involves growth through the
acquisition of competing firms in the same line
of business. It is adopted in an effort to
increase the size, sales, profits, and potential
market share of an organization. This strategy is
sometimes used by smaller firms in an industry
dominated by one or a few large competitors,
such as the soft drink and computer industries.
 Diversification

• This strategy involves growth through the acquisition of firms in

other industries or lines of business as explained below.
• Organizations in slow-growth industries may purchase firms in
faster-growing industries to increase their overall growth rate.
• Organizations with excess cash often find investment in another
industry (particularly a fast-growing one) a profitable strategy.
• Organizations may diversify in order to spread their risks across
several industries.
• The acquiring organization may have management talent,
financial and technical resources, or marketing skills that it can
apply to a weak firm in another industry in the hope of making it
highly profitable.
 Diversification may be of different types

• Related or concentric diversification

• When the acquired firm has production technology,
products, channels of distribution, and /or markets
similar to those of the firm purchasing it, the
strategy is called concentric diversification.
• This strategy is useful when the organization can
acquire greater efficiency or market impact through
the use of shared resources.
• A case of related or concentric diversification is the
tie-up of McDonald with Coco-cola.
• McDONALD'S India Pvt Ltd (MIPL), the wholly-
owned subsidiary of the US-based fast-food
giant McDonald's Corporation, along with
Coca-Cola, has developed a fruit-based
beverage, to be retailed exclusively at
McDonald's outlets. The is vailable under the
Maaza brand name, but is different from the
regular Maaza brand.
• . Apart from Coca-Cola, in India, McDonald's
has an existing tie-up with Cadbury India, for
McSwirl ice- cream cones.

• McDonald's India is also running a promotion

with foods major Nestle, specific to the KitKat
chocolate brand.
• Unrelated or conglomerate diversification
• When the acquired firm is in a completely different line of business,
the strategy is called unrelated or conglomerate diversification
• An example of unrelated conglomerate diversification is Marico’s
venture into cooling oil segment.
• TAKING a cue from Dabur's recent entry into the cooling oil segment
with its Himsagar brand, the market leader in hair oils, Marico
Industries, has decided to venture into the same segment with its
Shanti brand. Under the sub brand of `Thanda Tel', the Shanti brand
will soon see an extension from its existing Amla hair oil. Pegged at
Rs 38 for 100 ml, the `value-added' oil will have ingredients such as
neem and camphor to induce the cooling effects.
• Cooling oil is the fastest growing segment under
hair oils pegged at 16 per cent. It is a category that
is growing even faster than shampoos." Even the
coconut oil market is pegged to grow at 0-2 per
cent while the hair oil segment has been generally
stagnant. The market leader in hair oils with its
leading brand of Parachute has thus decided to
venture into the category previously untapped
except for a few players with brands such as
Himsagar, Himtej and Navratan
• . They intend spending heavily behind this brand and the ad
agency Triton is developing a new campaign for the brand. Its
existing Shanti Amla brand of hair oil enjoys a 13 per cent volume
and has a second position in the amla segment after Dabur Amla.
Besides, in the overall non-coconut oil segment, the company
enjoys a 15 per cent share together with its brands such as
Mediker. In fact, in the recent past, Mediker did stretch the
franchise of its Mediker shampoo with an anti-lice oil, including
the same cooling ingredients such as neem and camphor. Marico
claims it has made a success of its Parachute Jasmine variant with
a turnover of Rs 23 crore. It also withdrew Parachute anti-
dandruff hair oil since it was not generating the necessary
volumes
 Mergers
• In a merger, a company joins with another
company to form a new organization.
• There are several examples of mergers. Ponds,
Lakme, Lipton, Brooke bond India, Milk food
ice creams etc have merged with Hindustan
Lever Ltd.
 Joint Ventures

• In a joint venture, an organization works with

another company on a project too large to handle
by itself, such as some elements of the space
program. Similarly, organizations in different
countries may work together to overcome trade
barriers in the international market or to share
resources more efficiently.
• For example, GMF Robotics is a joint venture
between General Motors Corporation and Japan’s
Fanuc Ltd. to produce industrial robots.
 Corporate Level Strategy
• Stability Strategy
• Expansion Strategy
• Retrenchment Strategy
• Combination Strategy
 Stability Strategy

• The organization that adopts a stability strategy

focuses on its existing line or lines of business
and attempts to maintain them through one of
the following ways.
• 􏰁 Maintaining status quo-continue to do what it
has been doing
• 􏰁 Sustainability- reinforcing the organization
with more competencies
• to carry on things in a better or innovative way.
This is a useful strategy in several situations.

– 􏰀 An organization that is large and dominates its

market(s) may choose a stability strategy in an
effort to avoid government controls or penalties
for monopolizing the industry.
– 􏰀 Another organization may find that further
growth is too costly and could have detrimental
effects on profitability.
– 􏰀 Finally, an organization in a low- growth or no-
growth industry that has no other viable options
may be forced to select a stability strategy.
• Hindusthan Lever keeps its Lux soap updated to retain
its hold in market. According to a press release, recently
the soap has been enriched with nourishing natural
ingredients, which are visible in the soap. There are four
variants - Rose extracts, Almond oil, Fruit extracts and
Sandal saffron with a base of rich milk cream. The last is
a completely different and new variant. These soaps are
packed in a metallic wrapper to retain the freshness and
fragrance for a longer period than usual, the press
release said. The content of TFM (Total fatty matter) has
been raised from 60 per cent to 71 per cent.
 Stability Strategies
• No change Strategies: No considerable changes to
its objectives and or operations

• Profit Strategies: Strategies to improve profitability

such as cutting costs, selling assets, raising prices,
increasing sales etc

• Caution Strategies: A companies waits to assess the

market before employing any particular strategy.
 Expansion Strategy
• Synonymous with growth strategy

• Expansion through Concentration

• Expansion through Diversification
• Expansion through Integration
 Retrenchment Strategies

• When an organization’s survival is threatened

and it is not competing effectively,
retrenchment strategies are often needed.
The three basic types of retrenchment are
• 􏰀 Turnaround,
􏰀 Divestment, and 􏰀 Liquidation.
 Turnaround

• This is a restructuring strategy

• Strategy is used when an organization is performing
poorly but has not yet reached a critical stage.
• It usually involves getting rid of unprofitable
products, pruning the work force, trimming
distribution outlets, and seeking other methods of
making the organization more efficient.
• If the turnaround is successful, the organization
may then focus on growth strategies.
 Divestment

• Strategy involves reducing operations or getting

rid of a business unit.
• Divestment is used when a particular business
doesn’t fit well in the organization or consistently
fails to reach the objectives set for it.
• Divestment can also be used to improve the
financial position of the divesting organization.
• The resources may be now allocated to a more
profitable business unit
 Liquidation

• Liquidation is similar to divestment

• Strategy involves closure of the business,
which is no longer profitable. It may be
technologically obsolete or out of times with
market trends.

• Unlike divestment which seeks to streamline

operations, and focus on resource allocation;
liquidation sees business unit as a failiure
 Combination Strategy
The three generic strategies can be used in combination; they
can be sequenced, for instance growth followed by stability, or
pursued simultaneously in different parts of the business unit.
Combination Strategy is designed to mix growth, retrenchment,
and stability strategies and apply them across a corporation’s
business units. A firm adopting the combination strategy may
apply the combination either simultaneously (across the
different businesses) or sequentially. For instance, Tata Iron &
Steel Company (TISCO) had first consolidated its position in the
core steel business, then divested some of its non-core
businesses. Reliance Industries, while consolidating its position
in the existing businesses such as textile and petrochemicals,
aggressively entered new areas such as Information Technology.
 Strategic Models for external environment crisis management
are:

• GE-Mckinsey Matrix
• BCG Matrix
Porter‟s five force model
• Porter‟s Generic Strategic Model
• PESTL
Strategic Models for internal environment crisis management are:

• SWOT
Value Chain Analysis
• Balanced Scorecard
• Mckinsey 7S Model
 Portfolio Restructuring

• Large, diversified organizations commonly use

a number of these strategies in combination.
For example, an organization may
simultaneously seek growth through the
acquisition of new businesses, employ a
stability strategy for some of its existing
businesses, and divest itself of other
businesses.
 Portfolio Restructing
• Clearly, formulating a consistent organizational
strategy in large, diversified companies is very
complicated, because a number of different
business – level strategies need to be
coordinated to achieve overall organizational
objectives. Business portfolio models are
designed to help managers deal with this
problem.
• Business portfolio models are tools for analyzing
(1) the relative position of each of an
organization’s businesses in its industry and (2)
the relationships among all the of the
organization’s businesses. Two well- known
approaches to developing business portfolios
include:
• 􏰀 Boston Consulting Group (BCG) growth – share
matrix 􏰀 General Electric’s (GE’s) multi-factor
portfolio matrix.
 BCG’s Growth – Share Matrix

• The Boston Consulting Group, a leading management consulting firm,

developed and popularized a strategy formulation approach called the
growth – share matrix.

• The basic idea underlying this approach is that a firm should have a
balanced portfolio of businesses such that some generate more cash
than they use and can thus support other businesses that need cash to
develop and become profitable.

• The role of each business is determined on the basis of two factors: the
growth rate of its market and the share of that market that it enjoys.
• Developed by Bruce Henderson of the Boston Consulting Group in the
early 1970’s
The Boston Consulting group’s product portfolio matrix (BCG
matrix) is designed to help with long-term strategic planning, to
help a business consider growth opportunities by reviewing its
portfolio of products to decide where to invest, to discontinue
or develop products. It's also known as the
Growth/Share Matrix.
 Relative Market Share

• The vertical axis indicates the market growth

rate, what is the annual growth percentage of
the market (current or forecasted) in which
the business operates. The horizontal axis
indicates market share dominance or relative
marker share. It is computed by dividing the
firm’s market share (in units) by the market
share of the largest competitor).
• The growth – share matrix has four cells,
which reflect the four possible combinations
of high and low growth wit high and low
market share. These cells represent particular
types of businesses, each of which has a
particular role to play in the overall business
portfolio. The cells are labeled:
 . Question marks (sometimes called
problem children)
• Company business that operate in a high-growth market but have
low relative market share.

• Most businesses start off as question marks, in that they enter a

high – growth market in which there is already a market leader.
• A question mark generally requires the infusion of a lot of funds.
It has to keep adding plant, equipment, and personnel to keep up
with the fast – growing market, and it wants to overtake the
leader.
• The term question mark is well chosen, because the organization
has to think hard about whether to keep investing funds in the
business or to get out.
 Question Marks
They are called Question Marks, because of the organization
must decide whether to build up them by practicing a rigorous
strategy (market access, market development, or product
development) or to sell them, i.e., it is not known if they will
become a Star or drop into the Dog.

The question marks may become dogs if they are ignored

while huge investment is made.
On the other hand, they have potential of becoming stars and
eventually a
cash cow when the market growth slows (Mohajan, 2015).
 Question Marks

They have the worst cash characteristics of all, because they

have high cash demands, and generate low returns due to low
market share.

If its market share remains unchanged, it will simply absorb

great amounts of cash (Mohajan, 2015).

Question mark examples: Mac Book Air of Apple, FUZE Healthy

Infusions of Coca-Cola.
 Stars
• They are question – mark businesses that have become
successful.
• A star is the market leader in a high – growth market,
but it does not necessarily provide much cash.
• The organization has to spend a great deal of money
keeping up with the market’s rate of growth and
fighting off competitors’ attacks.
• Stars are often cash – using rather than cash –
generating Even so, they are usually profitable in time.
 Stars
They are indicated by achieving a large market share in a fast
growing market.

They are considered as the best opportunities for the growth

and benefits of the company (Thompson and Strickland,
1995).

They are the leaders in the business, but still need a lot of
support for promotion a placement. In this situation they
create large sums of cash to support strong market share.

They also consume large amounts of cash due to their high

growth rate. They have a tendency to make a large profit
from their business.
 Stars
When the market share becomes very large, the industry matures,
and the market growth rate declines; the star transform to a cash
cow (Mohajan, 2015).

Stars tend to have new plant and equipment, high capacity

utilization, high R&D expenses, broad domains, high sales per
employee, high value added, and superiority on a number of
competitive devices (Hambrick et al., 1982).

Star examples: iPhone of Apple, Vitamin Water of Coca-Cola

 Cash cows
• Businesses in markets whose annual growth rate is less than 10
percent but that still have the largest relative market share.
• A cash cow is so called because it produces a lot of cash for the
organizations.

• The organization does not have to finance a great deal of expansion

because the market’s growth rate is low.

• And the business is a market leader, so it enjoys economies of scale

and higher profit margins.

• The organization uses its cash-cow businesses to pay its bills and
support its other struggling businesses.
 Cash Cows

They are called Cash Cows, because they generate cash in excess
of their needs, they often are milked (milk these products as
much as possible without killing the cow!).

They need very little investment, and create significant cash to

utilize for the investment in other business units.

Product development is considered as attractive strategies for

strong cash cows. After the achievement of
a competitive advantage, cash cows have high profit margins,
and generate a lot of cash flow.
 Cash Cows
As the growth of industry is low, so that promotion and
placement investments are also low.
As a result capital
reinvestment and competitive maneuvers are needed to
maintain present market share of cash cows.
Many of today‟s cash cows were yesterday‟s stars (figure 2).
Although Cash cows are less
attractive from a growth standpoint, they are valuable in
businesses (Mohajan, 2015).

Example: iPods of Apple, Coca-Cola Classic of Coca-Cola, Procter

and Gamble which manufactures Pampers nappies to Lynx
deodorants.
 Dogs
• Businesses that have weak market shares in low-growth
markets.
• They typically generate low profits or losses, although they
may bring in some cash.

• Such businesses frequently consume more management

time than they are worth and need to be phased out.

• However, an organization may have good reasons to hold

onto a dog, such as an expected turnaround in the market
growth rate or a new chance at market leadership.
 Dogs
They represent businesses procedures which have weak
market shares in low growth, or no market
growth mature industries.
They can neither generate nor consume a large amount of
cash due to their weak business strategy They are called
Dogs, because of their weak internal and external
position.
The businesses of Dogs often are liquidated, divested, or
trimmed down through the economization.
These business units face cost disadvantages due to their low
market share. They have weak market share due to high costs,
poor quality, ineffective marketing, etc.
 Dogs
. Dogs must distribute cash to avoid liquidity (Mohajan, 2015).

Dogs have a tendency to achieve medium capital intensity,

dated plant and equipment, low R&D expenses, narrow
domains, high inventory levels, moderate marketing expenses,
low value added, and competitive devices that lag Cow
competitors on all fronts (Hambrick et al., 1982).

New Coke of Coca-Cola.

• After each of an organization’s businesses is plotted on the growth –
share matrix, the next step is to evaluate whether the portfolio is
healthy and well balanced.

• A balanced portfolio has a number of stars and cash cows and no too
many questions marks or dogs.

• This balance is important because the organization needs cash not

only to maintain existing businesses but also to develop new
businesses.

• Depending on the position of each business, four basic strategies can

be formulated:
• Build market share This strategy is appropriate for
question marks that must increase their share in order to
become stars. For some businesses, short-term profits
may have to be forgone to gain market share and future
long-term profits.
• Hold market share This strategy is appropriate for stars
with strong share positions. The cash generated by
mature cash cows is critical for supporting other
businesses and financing innovations. However, the cost
of building share for cash cows is likely to be too high to
be a profitable strategy.
• Harvest Harvesting involves milking as much short-term
cash from a business as possible, even allowing market
share to decline if necessary. Weak cash cows that do
not appear to have a promising future are candidates
for harvesting, as are question marks and dogs.
• Divest Divesting involves selling or liquidating a
business because the resources devoted to it can be
invested more profitably in other businesses. This
strategy is appropriate for those dogs and question
marks that are not worth investing in to improve their
positions
 However the growth share matrix is not fool
proof. It has the following loopholes.

• Focuses on balancing cash flows only but organizations are mostly

interested in return on investments.
• 􏰂 Is not always clear what share of what market is relevant in the analysis.
• 􏰂 Believes that there is a strong relationship between market share and
return on investment. But research proves that only a 10% change in market
share is associated with only ‘percent change in return on investment.
• 􏰂 The other factors like size and growth profile of the market and distinctive
competences of the firm, competition etc is not considered.
• 􏰂 It does not provide direct assistance in comparing different businesses in
terms of investment opportunities. For example it is difficult to decide
between two question marks and decide which should be developed into a
star.
• 􏰂 Offers only general strategy recommendations without specifying how to
implement them.
 Ge Multi-Factor Port Folio Matrix

• This approach has a variety of names,

including the nine -cell GE matrix, GE’s nine-
cell business portfolio matrix, and the market
attractiveness – business strengths matrix.

• Each circle in this matrix represents the entire

market, and the shaded portion represents
the organization’s business market share
 GE-Mckinsey Matrix (9 Cell Model)

• GE Matrix is a derivation of BCG Matrix.

• It was developed by Mckinsey & Co. for General Electric
Company.
BCG Matrix is not flexible where as GE 9 cell model consider
all the factors related to market attractiveness.
• A large corporation may have many SBU‟s, which are
distinctive and individual.
• Overall strategy decision about development of Market and
further investment decisions is based on GE 9 cell Model.

• GE Matrix refers to Market attractiveness Vs Business position

in terms of strength and weakness and further this is divided
into three categories Low, Medium and High, forming 9 cells.
• Each of the nine cells is indicative of decisions regarding market and
investment.

• This model is used to manage crisis related with external business

environment especially for crisis related with the market for
products and services offered by company.

• In automobile industry and subsequently for auto component

manufacturing companies, these market force play a dominating
role and can create a severe crisis.

• Growth of market is a function of industry attractiveness, i.e.

possibility of generating higher revenues.

• Industry attractiveness depends upon the response of customer for

specific products. Determinants of industry attractiveness are,
Market Growth rate, Market size, Demand Variability, Industry
Profitability, Industry Rivalry, Global Opportunities, Macro
environment factors [PEST]
• Each of an organization’s businesses is plotted in the
matrix on two dimensions, industry attractiveness and
business strength. Each of these two major dimensions
is a composite measure of a variety of factors.

• To use this approach, an organization must determine

what factors are most critical for defining industry
attractiveness and business strength. Table below lists
some of the factors that are commonly used to locate
businesses on these dimensions.
• The next step in developing this matrix is to
weight each variable on the basis of its
perceived importance relative to the other
factors (hence the total of the weight must be
1.0). Then managers must indicate, on a scale
of 1 to 5, how low or high their business
scores on that factor.
• Decisions required to manage crisis related to market can
be derived by application of this matrix. Nine cells give
various combinations of business strength and market
attractiveness. These combinations also suggest probable
strategic actions to overcome the crisis. Company can
change a product portfolio by selecting appropriate
strategy related to a specific cell of model.
• To overcome the crisis, company should focus on its
strengths such as Market share, Productive Capacity,
Profit Margin relative to competitor etc and develop a
solution to avert the crisis.
Factors Contributing to Industry Attractiveness and Business
Strength.