INTRODUCTION TO BUSINESS STRATEGY

[Discover New Opportunities. Manage and Eliminate Threats.]
The aim of this paper is to provide a summary of those models from Management literature most often used in student assignments, management activities & business consultancy.

Table of Contents
INTRODUCTION TO BUSINESS STRATEGY....................................................................1 [Discover New Opportunities......................................................................................1 Manage and Eliminate Threats.].................................................................................1 The aim of this paper is to provide a summary of those models from Management literature most often used in student assignments, management activities & business consultancy. ................................................................................................1 Table of Contents......................................................................................... ...............2 MAIN REFERENCES.....................................................................................................3 FEW WORDS ON MODEL.............................................................................................4 INTRODUCTION TO STRATEGY....................................................................................6 Five Ps for strategy................................................................................. ....................8 INTRODUCTION TO BUSINESS STARTEGY..................................................................11 INTRODUCTION TO ENVIRONMENT ANALYSIS...........................................................13 PESTLIED.................................................................................... ..............................14 GEO BUSINESS MODEL.............................................................................................17 PORTER’S DIAMOND.................................................................................................20 STRATEGIC MODELS USED IN INDUSTRY ANALYSIS...................................................24 Barriers & Profitability............................................................................................ ...24 Porter's Five Forces...................................................................................... .............26 SWOT ANALYSIS.......................................................................................... ..............30 STRATEGIC TRIANGLE...............................................................................................33 PRODUCT PORTFOLIO STRATEGY..............................................................................36 The Boston Matrix................................................................................................. ....37 (Also called the BCG Matrix, the Growth-Share Matrix and Portfolio Analysis)......37 Focusing effort to give the greatest returns..........................................................37

RELATED DIVERSIFICATION GRID..............................................................................40 GENERIC STRATEGIES...............................................................................................42 FOUR ROUTES TO STRATEGIC ADVANTAGE...............................................................46

MAIN REFERENCES
• • • • • • • THE MIND OF THE STRATEGIST (1982) K.OHMAE COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE INDUSTRIES & COMPETITIORS BY MICHAEL PORTER SIMON & SCHUSTER FROM DIVERSIFICATION THROUGH ACQUISTION (1979) COMPETITVE ADVANTAGE: CREATING & SUSTAINING SUPERIOR PERFORMANCE BY PORTER (1985) THE COMPETITIVE ADVANTAGE OF NATIONS BY MICHEAL PORTER (1990) INTERNATIONAL BUSINESS & MULTINATIONAL ENTERPRISE, ROBOCK & SIMMONDS, RICHARD D.IRWIN INC. 1989. PROVEN BUSINESS MODEL BY GROWER.

FEW WORDS ON MODEL
The term “model” is often used to describe a pictorial summary of principal Challenges within a particular domain. A model is a representation of reality. It seeks to encompass all the essential elements of a particular domain but, in so doing, it simplifies & generalizes. A model is a framework, identifying the broadest Challenges & considerations. Models aim to clarify the relationship between different elements, indicating causal & effective interaction. They often try to show how a change in one part of a system or process may impact other parts. As such, a model is a dynamic representation of reality, demonstrating how different forces from inside or outside the system may change the whole.

Since models simplify reality they exclude specific consideration of particular Challenges, they cannot contain all the detailed elements required for a particular analysis. Therefore models should not me used as a complete analysis in them but to help stimulate broader thinking about an area of interest in an analytical process. The representation of models The models in this paper are presented in a way that most effectively summarizes the interaction of main elements & usually follow the form produced by the original author. Each model is accompanied by explanatory text which is in following sections:
• •

Principle: the basis or purpose of the model. Assumption: underpinning the ideas without which the model would not hold true.

case studies or dissertation Those generic models which provide the most useful conceptual framework on which to build more specific & detailed understanding Those models which are most useful to relation to the normal activities of today’s organization Models which are included in most high-level management courses. Criteria of selecting models are: • • • • Those models which most often help. & are expected to used. in written student assignments.• • • Elements: a description or definition of the identifiable parts of the model. Application: how the model may be used. Selection of models I have not included all the possible models. projects. Challenges: a summary of significant topics or points intended to give further explanation & ideas concerning the context & analysis of the model. .

exploiting or creating new opportunities etc. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. gaining advantage over competitors. . meeting needs of customers. It concerns strategic decisions about choice of products. Strategy can also be defined as “the determination of the basic long-term goals & objectives of an enterprise & the adoption of courses of action & the allocation of resources necessary for carrying out those goals”. Strategy at Different Levels of a Business Strategies exist at several levels in any organization . Corporate strategy is often stated explicitly in a "mission statement".ranging from the overall business (or group of businesses) through to individuals working in it. The word “strategy” derives from the Greek word stratçgos. Business Unit Strategy .is concerned with the overall purpose and scope of the business to meet stakeholder expectations. * "ago" – which is the ancient Greek for leading/guiding/moving.INTRODUCTION TO STRATEGY Definition: Strategy is the means by which objectives are consciously pursued and obtained over time. which derives from two words: * "stratos" – meaning army.is concerned more with how a business competes successfully in a particular market. Corporate Strategy .

but also by the values & expectations of those who have power in & around the organization. Strategic decisions What are strategic decisions? Johnson & Scholes (2002) suggest that strategic decisions are all about some of the following: • Long-term direction of an organization. Strategic thinking In thinking about strategy. • Securing advantage – strategic decisions also concern effective positioning in relation to competitors to achieve advantage in the market. • Scope of an organization’s activities – strategies decisions are likely to be concerned with the scope of an organization’s activities. processes. • Major resource change. Tests of good strategy Tests of good strategy in application include the following: . people etc.strategic decision is likely to be concerned with the long-term survival of an organization. • Big Challenges – strategic thinking means converting an awareness of trends into an overall picture of the environment & how the organization should relate to it. Operational strategy therefore focuses on Challenges of resources.Operational Strategy . • Interdependency – understanding the way that each of the big Challenges links to the others enables the strategist to see the map as it changes.strategies may require major resource changes for an organization. • Values & expectations – the strategy of an organization is affected not only by environmental forces & resource availability. • Using the links between the organization & the environment – strategy can be seen as matching the activities of an organization to the environment in which it operates.is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. three themes can be picked out: • The long-term plan – thinking strategically mean’s raising one’s eyes from day-to-day problems to consider how the relationship between the organization & its environment is shaping up for the long term. • Strategic decision affects operational decisions.

& its organizational ability to cope with the circumstances of that time. • Competitive advantage: For most organizations. innovative ability & satisfaction for employees. He suggested that there are fives ways in which the term ‘strategy’ used. • Consistency: A good strategy will be consistent with the circumstances that surround a business at any point in time. This might show itself in increased profitability. one of the standard models for defining strategy is Five’s P for Strategy.Value added: A good strategy will deliver increased value in the market place. Pattern Position Ploy Perspective Plan . unless these have been deliberately decided upon. a copying a competitor’s strategy or carrying on the same as before. but might also be visible in gains in longer-term measures of business performance such as market share. which may be changing fast or slowly. It will take into account its ability to use its resources efficiently. its environment. After going through the above discussion. • Five Ps for strategy Mintzberg (1991) makes it clear that strategic thinking involves more than just following an ‘industry recipe’. a good strategy will increase the sustainable competitive advantage of the organization.

often depending on the specific requirements at that time. Perspective The Perspective is the concept or character of an organization. intentional or unintentional pattern of behavior within a stream of actions.its collective mind. it is possible to consider & define strategy in different ways. Ploy The ploy is a specific man oeuvre intended to directly outwit a competitor. Pattern A pattern is a consistent. Assumption Strategy is implemented in many different ways. a guideline (or set of guidelines) to deal with a situation. Elements Plan Some sort of consciously intended course of action.Principle There is no single definition of strategy. Position The Position is a means of defining an organization in relation to its competitive environment. intention or behavior. .

Flexibility Plans.might be added. Assessment of strategy The definitions can be used to analyze the breadth of strategic Challenges faced by an organization & to help assess strategy from different viewpoints. Programme A sixth “P” programme. Appreciation of strategy Challenges The model can help to define both the formal & informal Challenges impacting on strategy & its development. They should not define or restrict our thinking but should act as an aid to unravel the complexity implicit in strategy. Compatibility The 5P approaches are not mutually exclusive. Position & ploys may be easily changed whereas Perspectives & Patterns are longer term & more fundamental. Use of the five definitions helps to prevent confusion & aids strategy formulation.Challenges Understanding The five Ps are simply labels to help develop appropriate strategic thinking.an iterative process that aids progress towards achievement of a vision. . Applications As a definition & as an aid to strategy formulation The term ‘strategy’ is sometimes ill-used. As a stimulus to lateral thinking Consciously considering strategy in different ways can help people to think laterally & creatively about range of Challenges.

Basic idea is used behind the formulation of ENVIRONMENT STRATEGY is to exploit opportunities in the environment by drawing its competitive strengths. Business level strategy is the firm specific strategy that facilitates in gaining competitive advantage in the market. . INDUSTRY which it competes & PRODUCT which it produces.INTRODUCTION TO BUSINESS STARTEGY Any business has to deal with three things ENVIRONMENT which it operates. The business level strategy of the organization outlines the methodologies of the organization regarding competing with rival firms in the market. The models discussed in this topic are: • Geo business model • • PESTILED Porter’s Diamond.

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BUSINESS UNIT COMPETITIVE ENVIRONMENT THE INDUSTRY ENVIRONMENT FIRM ENVIRONMENT . The external environment we are concerned with comprises the whole set of relevant strategic conditions surrounding the firm. If in discussing the environment we take the individual organization or firm as our reference point. This can be termed as the strategic environment. the boundaries of the firm conveniently define on the one side an internal environment within which its members work & the firm’s resources are organized & the other the external environment outside those firm boundaries.INTRODUCTION TO ENVIRONMENT ANALYSIS In the very broadest sense ‘the environment means that which is external to & within which some entity exists’.

rule of law and levels of bureaucracy and corruption Regulation and de-regulation trends Social and employment legislation Tax policy. and trade and tariff controls Environmental and consumer-protection legislation . Elements Political Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. • • • • • • Government type and stability Freedom of press.PESTLIED ECONOMICAL TECHNICAL POLITICAL LEGAL DEMOGRAPHIC INTERNATIONAL ENVIRONMENTAL SOCIAL ORGANISA Principle PESTLIED is a mnemonic which represents various environmental factors that can be addressed when analyzing an organization. Assumption Various factors in the environment can have significant impact on the performance of organization operating within their sphere of influence.

public opinion. and attitudes to these • Population employment patterns. • Legal matters Legislation may affect the organization & can inhibit or enhance its performance. inflation and interest rates Unemployment and labor supply Labor costs Levels of disposable income and income distribution Impact of globalization Likely impact of technological or other change on the economy Likely changes in the economic environment Social: Population growth rate and age profile • Population health. Environmental . access to technical know-how. foreign as well as indigenous. • Technological: Impact of emerging technologies • Impact of Internet. education and social mobility. job market freedom and attitudes to work • Press attitudes.• Likely changes in the political environment Economic: • • • • • • • • Stage of business cycle Current and project economic growth. reduction in communications costs and increased remote working • Research and Development activity • Impact of technology transfer These factors include emergence of new technologies. social attitudes and social taboos • Lifestyle choices and attitudes to these • Socio-Cultural changes These factors comprise social trends & tolerance towards the organization & its product.

Applications Analysis & audit PESTLIED may be used in the analysis & audit of organization. there are other factors or environments that affect the organization. which impinge upon organizational performance. Management development The use of the list of PESTLIED factors encourages managers to become less insular & to consider the impact of external influences upon their organizations. Other factors Besides PESTLIED factors. the competitive environment. .-for example. Planning The model may be used as a checklist in the planning process to ensure that the forecast effects of PESTLIED factors are taken into account. Relative importance of factors The importance of the various PESTLIED factors varies according to the nature of the organization. & age difference.These factors are environmental constraints on factory operation such as ‘green Challenges’ Demographic Demographic factors comprise the availability of workforce. Challenges Negative & positive factors Several PESTLIED factors may interact negatively or positively.

1989. ROBOCK & SIMMONDS.IRWIN INC. Principle There is a comprehensive framework for explaining & predicting international business. Assumptions .GEO BUSINESS MODEL CONDTIONING MOTIVATIONAL VARIABLES VARIABLES CONTROL VARIABLES SOURCE: INTERNATIONAL BUSINESS & MULTINATIONAL ENTERPRISE. RICHARD D.

Technology-seeking measures: securing access to foreign technology or skilled labour. product differentiation. lower resource cost. Country-specific characteristics: helping to sustain competitive advantages of firms. economics size of home market. Exchange-of-threat measures: waging a counter-offensive strategy to disarm a competitor. know.There are three main interacting forces that affect firm’s international business action. product processing. minimizing possibilities of production interruption. resource scarcity or surplus. international finance. especially in their home market. Inter-nation variables: for example. economics of scale. management skills. strategic alliances. Motivational variables This category of variable is concerned with competitive strategy. Control variables . Elements Conditioning variables Product-specific variables: conferring competitive advantages for the foreign investor for example. Risk avoidance measures: for example. nature of domestic competition. For example. Resource-seeking measures: vertical/backward integration. improving market control. R&D. Market-seeking measures: horizontal/forward integration.how. tariffs. Production efficiency-seeking measures: for example.

low labour costs in a particular country may be classified as a country-specific variable (conditioning) & a production-efficiency seeking measures (motivation). responds appropriately (motivational variablescompetitive strategy) but has no influence over control variables. Wage control would also be a control variable.e. Evaluation The model can help in the evaluation of international competitors & markets. Challenges International relevance The model applies to the international business action of all firms.for example. Interdependence The variables are interlinked. . laws & policies of home & host governments that directly or indirectly influence international business through positive incentives & or negative controls. depending on the organization’s specific activities. Applications Growth strategies The model may be used in the assessment & development of international business growth strategies. not just those classified as multinationals. Growth potential assessment Another application lies in the assessment of the potential for growth given a change in international conditions. wage controlled. Influence of variables The organization perceives the conditioning variables (opportunities for competitive advantage). Effect on organizations The variables will impact in different ways.These comprise administrative actions-i.

Assessment The model may be used to assess the relative importance & interaction of the different variables to the organization. FIRM STRATEGY.Decision-making The model is an aid in deciding whether or not to embark upon international business activities. STRUCTURING & RIVALRY FACTOR CONDITIONS DEMAND CONDITIONS RELATED & SUPPORTING INDUSTRIES . The book was the first theory of competitiveness based on the causes of the productivity with which companies compete instead of traditional comparative advantages such as natural resources and pools of labor. This book is considered required reading for government economic strategists and is also highly recommended for corporate strategist taking an interest in the macro-economic environment of corporations. PORTER’S DIAMOND Porter introduced this model in his book: the Competitive Advantage of Nations. after having done research in ten leading trading nations.

the availability of resources and skills. capital.SOURCE: THE COMPETITIVE ADVANTAGE OF NATIONS BY MICHEAL PORTER (1990) Principle The model shows how a nation’s international success within a specified industry depends upon four specific attributes which promote or impede competitive advantage. natural resources & infrastructure. These ingredients are: 1. the goals of individuals in companies. Elements Factor conditions Factor’s conditions are the state of the nation’s factors of production. energy) D. Land B. Assumption The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage. economic theory mentions the following factors for comparative advantage for regions or countries: A. Local population size. 2. and E. Location C. Natural resources (minerals. information that firms use to decide which opportunities to pursue with those resources and skills. Labor. Traditionally. The pressure on companies to innovate and invest. such as labour. Demand conditions . 4. land. 3.

managed & compete within the industry. When the market for a particular product is larger locally than in foreign markets. trend-setting local market helps local firms anticipate global trends. leading to a competitive advantage when the local firms begin exporting the product. A strong. the local firms devote more attention to that product than do foreign firms. A strong. Relationships between attributes Increase in one attribute can stimulate other attributes. the local firms devote more attention to that product than do foreign firms. A more demanding local market leads to national advantage. trend-setting local market helps local firms anticipate global trends. firms enjoy more cost effective and innovative inputs. Prosperity . Challenges Competitive environment The four attributes interact to create the competitive environment in which the organizations operate.• When the market for a particular product is larger locally than in foreign markets. A more demanding local market leads to national advantage. structure. • • • • Related & supporting industries • • When local supporting industries are competitive. This effect is strengthened when the suppliers themselves are strong global competitors. Strategy. rivalry Firm’s strategy. leading to a competitive advantage when the local firms begin exporting the product. structure & rivalry describes how organizations are created.

best information. Strategy review Strategy may be reviewed to improve utilization of factors of production & so contribute towards improving competitive advantage of the organization or business unit. effective management. Applications Audit The model may be applied to individual industries. .Organizations prosper particularly with access to specialized assets & skills. Investment & innovation. Strategic alliances Understanding the model can encourage the formation of strategic alliance between the industries to improve the state of related & supporting industries. & government actions (such as investment & taxation). chance events an organization’s control (such as technological innovations). organizations or business units in order to audit strength of the four attributes & so assess competitive advantage. Reasons for failure Even when the four attributes are strong some organizations fail because they either do not take advantage of opportunities or they possess relatively low levels of skills & resources. Industry clusters Nations succeed not in individual industries but in clusters of industries whose performance reflects the state of the national economy. Further attributes Two further attributes can influence national competitive advantage.

STRATEGIC MODELS USED IN INDUSTRY ANALYSIS Barriers & Profitability EXIT BARRIERS LOW PROFITS =LOW =LOW RETURNS = STABLE RISKY ENTRY BARRIERS LOW HIGH PROFITS = HIGH HIGH HIGH PROFITS RETURNS PROFITS = .

Elements Exit barriers • • • • • Specialized assets such as low liquidation values Fixed costs of exit Strategic interrelationships & alliances Emotional barriers Government & social restrictions Entry barriers • Economies of scale • Product differentiation • Capital requirement • Supplier switching costs • Access to distribution channels • Cost disadvantages independent of scale • Government policy Challenges Best position High entry barriers with low exit barriers can be the best position for the established organization. Assumption The magnitude of organizations’ returns depends significantly upon the strength of the market exit & entry barriers.SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE INDUSTRIES & COMPETITIORS BY MICHAEL PORTER Principle The model shows how organizations’ returns vary with the strength of market exit & entry barriers. stable returns can be achieved & unsuccessful firms may readily exit market. In this way high. New entrants are attracted into the market by upturns in the economy but cannot leave when conditions deteriorate. This leads to poor profits caused by surplus capacity. Applications . Worst position The worst position for organization can be in a market exhibiting low entry barriers & high exit barriers.

Selecting markets The model may be used to help the organization select markets that will give better returns with the desired order of risk. Predicting behavior The model may be used to predict competitor behavior with regard to a new or existing market. giving entry & exit barriers. Porter's Five Forces THREAT OF NEW ENTRA NT INDUSTRY COMPETITIOR S SUPPLIER POWER RIVALRY AMONG BUYER POWER . Choice of markets The audit & improved control of entry & exit barrier features impinging upon the organization gives it a wider choice of markets.Lateral thinking Understand the model promotes outward thinking & an understanding of the environment in which the organization operates & competes.

Buyers Buyers are the customers of firm products. Suppliers 1 Industrial organization is a field of economics that studies the strategic behavior of firms. Substitutes These are competitor’s products (services) which may be alternatives to those supplied by the firm. the structure of markets and their interactions. Assumption The five forces can act continuously & adversely against the firm unless it depends itself or influences them in its favor. It uses concepts developed in Industrial Organization (IO) economics1 to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market.THREAT OF SUBSITU TION SOURCE: COMPETITVE ADVANTAGE: CREATING & SUSTAINING SUPERIOR PERFORMANCE BY PORTER (1985) Principle Porter's 5 forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Attractiveness in this context refers to the overall industry profitability It is possible to classify forces acting against a firm into five main categories. Porter of Harvard Business School in 1979. . Elements Potential entrants These are new players which threaten the livelihood of firms already in the market.

Suppliers provide raw materials & other resources. Industry competitors These are firms which compete in the same market & act as rivals to the organization. Potential entrants • • • • • • Potential entrants may be deterred by: Economies of scale achieved by existing firms Entrenched customer loyalty Capital costs of entry Poor access to distribution channels Cost disadvantages such as licenses & adverse government policy. the nature of the sector & the product. . Buyers Buyers may try to force down prices whilst requiring better quality or service & may play off competitors against one another. The influence of buyer’s groups is greater if: • • • • They are large customers Many substitute products exists Profit margin is low Buyers decide to manufacture their own supplies & thereby replace the supplier. Challenges Effect of the forces The effect of the five forces upon organizations may vary depending on the strengths of the firm. Substitutes The number of perceived substitutes deters existing firms from increasing prices & profits.

Applications Strategy development This model could be used to develop a strategy to counter competitive forces. Enhancing competitive advantage The model could be applied in anticipating & exploiting changes in the forces ahead of competitors.Suppliers Supplier groups are powerful if: • • • • They are well integrated They supply small customers Their group’s products are differentiated They integrate forward Competition Competitive rivalry may increase where one or more of the competitors are under threat. . Positioning Ideally a firm would aim for a position in which it could counter potential competitive forces. It might also attempt to influence those forces in order to strengthen its position.

SWOT ANALYSIS Principle SWOT is a frame work that can be used to evaluate a company. Opportunities Opportunities are the scope for taking advantage of external possibilities for growth. Elements Strengths These comprise any positive internal attributes of an organization. Assumption The internal positive & negative attributes of an organization in relation to its external environment are central to its success. . Weakness These comprise any negative internal attribute of the organization.

Quantitative evaluation enhances its values.Threats Threats are those external influences which can negatively impact on the organization’s growth. Other techniques SWOT would normally be used as part of a process involving other analytical techniques. Strengths An organization can take advantage of strengths for future growth & can use them to better withstand adverse environmental forces. Threats What may be a threat for one organization would be seen as an opportunity for another. Challenges Context SWOT analysis requires an understanding both of the organization’s environment & of its resources capabilities. Applications Analysis • • Of an existing organization or part of an organization Of processes . Analysis The model tends to be sued for qualitative analysis. Weakness An organization may move away from activities that involve areas of weakness or may adopt a strategy to improve in weak areas.

Strategy formulation SWOT analysis can be used in the development of organizational strategy. . Self-assessment The model may also be used for individual’s self-assessment.• Of organizational problems as they arise.

Principle There are three main interest groups in the development of any business strategy. In the construction of a business strategy. three main players must be taken into account: A. OHMAE 1982. The Customer VA UE L V LU A E COST COMPETITIOR S . The Corporation B. The 3C’s model points out that a strategist should focus on three key factors for success.STRATEGIC TRIANGLE MULTIPLE MARKET SEGMENTS TARGET SEGMENTS CUSTOMER S CORPORATIO N PRODUCT/SERVICE DIFFERENTIATION SOURCE: THE MIND OF THE STRATEGIST K.

Ohmae refers to these key factors as the three C’s or strategic triangle. a sustained competitive advantage can exist. Customer. The Competitors Only by integrating these three C’s (Corporation. service & price. Competitors) in a strategic triangle. the primary goal supposed to be the interest of the customer Corporation The Corporation needs strategies aiming to maximize the corporation’s strengths relative to the competition in the functional areas that are critical to achieve success in the industry. Cost The relative costs of production between a corporation & its competitors which may differentiate the product/service. Elements Customers Clients are the base of any strategy according to Ohmae. Challenges Performance . Therefore.C. This can be achieved by: • • • Selectivity and sequencing Make or buy Cost-effectiveness Competitors Competitor based strategies can be constructed by looking at possible sources of differentiation in functions Value This is the benefit added to customers from the corporation & competitors in terms of quality.

Choice of strategists Strategists are best placed where they are able to deal with all of the organization’s key customer segments. Thus a strategy for achieving a higher price through a differentiated product may lead to better performance. Functional analysis The model may be used to analyze the interaction of different functional units within an organization. Choice of strategists Different strategist may result from focusing on different points of the strategic triangle: customer. . Assessment of strengths & weakness The model may be applied to assess the organization’s activities.Superior performance can be achieved by an organization differentiating itself from its competitors using its relative corporate strengths to better satisfy customers needs. Developing competitor based strategies Differences between the company & its competitors are linked to one or more of the elements which determine: price. customer mix & other product attributes may be engineered using this model to satisfy customer trends. A powerful image may be reflected in a price premium. all key functions of the corporation & all the key aspect of competitors. select & sequence key functions in order to optimize. volume or cost. Applications Developing customer based strategies The market is segmented & changes to product applications. Developing corporate based strategies The model may be used to identify. corporation & competitors.

An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. and (2) Develop growth strategies for adding new products and businesses to the portfolio.it all depends on how the company is organized. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. a product line or even individual brands .PRODUCT PORTFOLIO STRATEGY Introduction The business portfolio is the collection of businesses and products that make up the company. The models included are: • • Boston Consulting Group Matrix Related Diversification Grid . Methods of Portfolio Planning In each method. The company must: (1) Analyze its current business portfolio and decide which businesses should receive more or less investment. An SBU can be a company division. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. whilst at the same time deciding when products and businesses should no longer be retained.

the Growth-Share Matrix and Portfolio Analysis) Focusing effort to give the greatest returns The origin of the Boston Matrix lies with the Boston Consulting Group in the early 1970s. it’s become much easier to borrow money cheaply (in many parts of the world) making this less of an issue. Since the 1970s. It was devised as a clear and simple method for helping corporations decide which parts of their business they should allocate cash to.• • Generic strategies Four routes to strategic advantage The Boston Matrix (Also called the BCG Matrix. MARKET SHARE LOW HIGH HIGH MARKET GROWTH QUESTION MARKS STARS LOW DOGS CASH COWS .

measured either in revenue terms or unit volume terms. because the market isn't growing and your opportunities are limited. a company should have a portfolio o of products that contains both high-growth products in need of cash inputs and lowgrowth products that generate a lot of cash. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows the better it is for the company. Markets experiencing high growth are ones where the total market share available is expanding. T ensure long-term value creation. you won't enjoy the scale economies of the larger players. Stars: High Market Share / High Market Growth . However it's only worth expending a certain amount of effort. and there's plenty of opportunity for everyone to make money. so it's easy to get attention and exploit new opportunities. It has 2 dimensions: market share and market growth. Market Growth Market growth is used as a measure of a market's attractiveness. you're well-established. Elements Market Share Market share is the percentage of the total market that is being serviced by your company. the higher proportion of the market you control. your market presence is weak. so it's going to be difficult to make a profit. Dogs: Low Market Share / Low Market Growth In these areas. so it's going to take a lot of hard work to get noticed. Cash Cows: High Market Share / Low Market Growth Here. PRINCIPLE The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.. Also. The higher your market share.

Challenges Product position A company can increase market share & exploit market growth rate in order to move into a more attractive product position. the model required amount of investment for product development decreases. and you should work hard to realize them. Competition The importance of competitive forces must be assessed when seeking to reposition products using this model. Applications Strategy evaluation • • • Resource allocation Resources should be allocated appropriately to the type of products. Investment Higher marketing investing would normally be required for question marks (low market share) than for cash cows or stars. Encouraging growth . As experience increases. They aren't generating much revenue right now because you don't have a large market share.Here you're well-established. But. Question Marks (Problem Child): Low Market Share / High Market Growth These are the opportunities no one knows what to do with. they are in high growth markets so the potential to make money is there. Experience The model relates to the ‘experience curve’. and growth is exciting! These are fantastic opportunities.

• Market share & growth rate opportunities may be exploited through product portfolio planning to aim for stars (high profit). cash cows (cash generation) & question marks (future cash cows/stars). RELATED DIVERSIFICATION GRID BUSINESS POSITION HIGH MEDIUM R-CD LOW R-CD HIGH NO DIVERSIFICATI ON R-SD INDUSTRY ATTRACTIVENESS MEDIUM NO DIVERSIFICATI ON R-SD R-CD LOW R-SD NO DIVERSIFICATI ON KEY R-CD = RELATIVE-COMPLEMENTARY DIVERSIFICATION . As an analysis tool The model may be used to analyze resources & other organizational factors in addition to products.

Related acquisitions Related acquisitions are normally less problematic than unrelated acquisitions.R-SD = RELATIVE-SUPPLEMENTARY DIVERSIFICATION SOURCE: SIMON & SCHUSTER FROM DIVERSIFICATION THROUGH ACQUISTION (1979) Principle An organization considering ‘related’ diversification through acquisition should appraise the target company’s strengths within its particular industry sector. Assumption The degree of compatibility of critical success factors between an organization & a target acquisition will significantly affect the success of the acquisition. but the degree & area of relationship are critical. Compatibility . Related-complementary diversification(R-CD) This occurs when a company adds key functional activities & skills to those it already has. Challenges Purpose of acquisition The purpose of the acquisition should be evaluated & Cleary defined before going ahead. Elements Related.supplementary diversification(R-SD) This occurs when a company expands by entering product markets that call for functional skills identical to those it already possesses. but does not substantially change its final product market.

A good fit with respect to culture. Applications Strategy development The model may assist with the development of strategic actions designed to overcome weakness & or capitalize on strengths the parent company through acquisitions. Targeting acquisition The model may help with the identification of candidate acquisitions with high potential through an analysis of acquiring company strengths. Portfolio analysis Analysis of the portfolio of business units of a diversified company is facilitated by the model. management style & cash flow between the company & the target acquisition is essential if the acquisition is to succeed. Related diversification & synergy Related diversification can result in lower unit costs & improved margins through synergy. DIFFERENTAITION LEADERSHIP COST GENERIC STRATEGIES FOCUS .

If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates. The organization also wishes to grow continuously in a changing & uncertain environment. differentiation. These strategies are applied at the business unit level. By applying these strengths in either a broad or narrow scope. Assumption The organization has sufficient control to be able to make fundamental choices about its strategic direction. three generic strategies result: cost leadership. A firm positions itself by leveraging its strengths. They are called generic strategies because they are not firm or industry dependent. and focus. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. an important secondary determinant is its position within that industry. Elements Cost leadership .SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE INDUSTRIES & COMPETITIORS BY MICHAEL PORTER Principle An organization should identify a strategic direction which is fundamental to establishing & maintaining a strong competitive position.

Differentiation The firms offer a product or service which is different in some way that is valued by customers. Development Cost leadership may be gained as organizations become more experienced than competitors in technical process & marketing activities. Margins Differentiation can yield higher margins with which to offset the power of suppliers. Cost leadership risks These include obsolescence & new entrants to the market copying in the leading organization’s processes. Flexibility Cost leadership firms can better cope with cost increases from suppliers & are well placed to combat entry barriers because of economies of scale. & also reduces the threat posed by substitutes once the customer loyalty is achieved.The firm’s strategy is to minimize costs. giving greater flexibility over pricing decisions. Challenges Prices Cost leadership firms may offer average or just below average prices in the industry or market thereby remaining competitive & gaining high margins. Focus The organization targets products or services in a particular market sector or market segment. Differentiation risks .

. Focus risks The organization may become short-sighted & fail to perceive a broader market opportunity or equally. concentrate too heavily on a volatile market. As industries mature. competitive pricing & achieving economies of scale. Focus niche strategy This strategy has the elements of cost leadership or of differentiation but relates to a particular market segment. Differentiation Differentiation involves the development of unique product characteristics improved branding & increased customer loyalty. Applications Cost leadership Achieving cost leadership includes setting up & implementing an effective cost structure.The cost of remaining differentiated may push prices too high even for loyal customers. Focus A focus strategy helps to determine the specific competitive advantage that may be gained within a particular market segment. imitations which reduce the perceived differentiation may come on to market.

. Assumptions A firm would often perform better if it focused its efforts on improving technological & organizational strengths & satisfying customers rather than on beating its customers.OHMAE Principle Improved strategic advantage is a function of the nature of the business or product offered & the way in which the organization seeks to compete.FOUR ROUTES TO STRATEGIC ADVANTAGE BUSINESS / PRODUCT OFFERED OLD/EXISTING KFS NEW/CREATIVE AGGRESSIVE INTIATIVES COMPETITVE WISELY INTENSIFY FUNCTIONAL DIFFERENTIATION ASK ‘WHY-WHY’ RELATIVE SUPERIORITY AVOID HEAD-ON COMPETITION STRATEGIC DEGREES OF FREEDOM EXPLOIT COMPETITIORS MAXIMIZE USER BENEFIT SOURCE: THE MIND OF THE STRATEGIST (1982) K.

Route 4: strategic degrees of freedom These embrace innovations in products or markets where no competition exists. Route 3: aggressive initiatives This is unconventional strategy that analyses in detail the established assumptions of an industry or an organization in order to change the direction of strategic thinking. Route 3: aggressive initiatives These include direct competition with the new business or new products. such as an effective sales force. Route 4: strategic degrees of freedom Innovation in products or markets where advantage may be gained can be achieved by first determining the extent & scope of potential changes that might maximize customer satisfaction. Route 2: relative superiority A company may exploit any difference in competitive conditions by analyzing competitor’s products in detail to determine where it might gain price or cost advantage. Challenges Route 1: KFS An effective short-cut to success is to concentrate principal resources early within a single strategically significant organizational function. . Route 2: relative superiority Competitors’ weaknesses are exploited using new technology or other strengths.Elements Route1: key factors for success (KFS) Resources are allocated where they will be most effective in relation to the identified key success factors.

Product portfolio planning The model aids product portfolio planning where customer’s expectations are paramount.Applications Strategy formulation • • • Assessment of KFS & organizational functions assists strategy formulation. Analysis of strengths & weakness Organization may use this model to dissect the market imaginatively in order to identify key segments. discover the particular strengths of winning companies & analyses differences from losing companies. **THE END ** .

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