INSTITUTE FOR TECHNOLOGY AND MANAGEMENT

Siemens
Strategic Management Report

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 SIEMENS

Siemens AG is a German multinational conglomerate company headquartered in Munich and

the largest industrial manufacturing company in Europe with branch offices abroad.[7]
The principal divisions of the company are Industry, Energy, Healthcare (Siemens
Healthineers), and Infrastructure & Cities, which represent the main activities of the company.
The company is a prominent maker of medical diagnostics equipment and its medical health-
care division, which generates about 12 percent of the company's total sales, is its second-most
profitable unit, after the industrial automation division. The company is a component of
the Euro Stoxx 50 stock market index. Siemens and its subsidiaries employ approximately
379,000 people worldwide and reported global revenue of around €83 billion in 2018 according
to its earnings release.

PRODUCT AND SERVICES

Siemens offers a wide range of electrical engineering- and electronics-related products and
services. Its products can be broadly divided into the following categories: buildings-related
products; drives, automation and industrial plant-related products; energy-related products;
lighting; medical products; and transportation and logistics-related products.
Siemens buildings-related products include building-automation equipment and systems;
building-operations equipment and systems; building fire-safety equipment and systems;
building-security equipment and systems; and low-voltage switchgear including circuit
protection and distribution products.
Siemens drives, automation and industrial plant-related products include motors and drives for
conveyor belts; pumps and compressors; heavy duty motors and drives for rolling steel mills;
compressors for oil and gas pipelines; mechanical components including gears for wind
turbines and cement mills; automation equipment and systems and controls for production
machinery and machine tools; and industrial plant for water processing and raw material
processing.
Siemens energy-related products include gas and steam turbines; generators; compressors; on-
and offshore wind turbines; high-voltage transmission products; power transformers; high-
voltage switching products and systems; alternating and direct current transmission systems;
medium-voltage components and systems; and power automation products.
Siemens is a player in the renewable energy industry, the company provides a comprehensive
portfolio of products, solutions, and services to help build and operate microgrids of any size.
Siemens provide generation and distribution of electrical energy as well as monitoring and
controlling of microgrids.

OPERATIONS
Siemens is incorporated in Germany and has its corporate headquarters in Munich. It has
operations in around 190 countries and approximately 285 production and manufacturing
facilities. Siemens had around 360,000 employees as of 30 September 2011.
Electrification, automation and digitalization are the long-term growth fields of Siemens. In
order to take full advantage of the market potential in these fields, Siemens businesses are
bundled into nine divisions and healthcare as a separately managed business.

 Power and Gas

 Wind Power and Renewables
 Power Generation Services
 Energy Management
 Building Technologies
 Mobility
 Digital Factory
 Process Industries and Drives
 Financial Services
 Healthineers
 Automation and drive system for steel Mills
ETOP Analysis

 Political

Opportunities :
Siemens as a global player is strongly affected by political decisions made in different
countries.
1. Regulatory Practices - The regulatory practices are streamlined with global norms
which have helped the country to improve its “ease of doing business” ranking.
2. Siemens digital industry has a opportunity for digitisation emerging from the
Indian government’s initiatives like ‘Digital India’ and ‘Make in India’.

Threats
1. Heightened political risk in Europe is damping companies’ investment plans.
2. Opposing political powers hold a threat against brand penetration.
3. Siemens products are being sold internationally there will also be import and
export controls that will affect the company such as tariffs that must be paid.

 Economic

Opportunities :

1. Asia to be key market for Siemens Digital Industry as it is a growing market.

2. Growth in government allocations for smart city Projects globally.

Threats:
1. Siemens AG is particularly exposed to fluctuations in the exchange rate between
the US Dollar and the euro, because a high percentage of the company's business
volume is conducted in the US and has exports from Europe.

 Technology
Opportunities:

1. Siemens Healthineers, the medical technology arm of Siemens, is looking to make

India a hub for digital imaging devices.
2. Siemens Digital Industries has Siemens sees huge opportunity for digitisation
emerging from the Indian government’s initiatives like ‘Digital India’ and ‘Make
in India’.
 Threats :

1. In India , Siemens has faced challenges in its traditional business, given the
slowdown in industrial spending, and the thrust on digital business can be a
shot.in the arm for the subsidiary here.

 Social factors

The social factors that impact Siemens are a direct reflection of the society that Siemens
operates in, and encompasses culture, belief, attitudes and values that the majority of the
population may hold as a community. The impact of social factors is not only important for
the operational aspect of Siemens, but also on the marketing aspect of the organization. A
thorough understanding of the customers, their lifestyle, level of education and beliefs in a
society, or segment of society, would help design both the products and marketing
messages that would lead to a venture becoming a success.

Herfindahl-Hirschman Index (HHI)

The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration and is

used to determine market competitiveness, often pre- and post-M&A transactions.

The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market

concentration. It is calculated by squaring the market share of each firm competing in a market
and then summing the resulting numbers.

Market Share

5
5
7
37

20

26

Siemens G.E Philips Toshiba Hitachi Others

A market with an HHI of less than 1,500 is considered to be a competitive marketplace, an
HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or
greater to be a highly concentrated marketplace.

Where:

 sn is the market share percentage of firm n expressed as a whole number, not a

decimal.

The HHI is calculated by taking the market share of each firm in the industry, squaring them,
and summing the result, as depicted in the equation.

HHI=372+262+202+72+52+52
= 2554

Hence, an HHI of 2,500 or greater to be a highly concentrated marketplace. As it is 2554 it will

be highly concentrated marketplace.
The primary disadvantage of the HHI stems from the fact that it is such a simple measure that
it fails to take into account the complexities of various markets.

Limitations of the HHI Index

The basic simplicity of the HHI carries some inherent disadvantages, primarily in terms of
failing to define the specific market that is being examined in a proper, realistic manner. For
example, consider a situation in which the HHI is used to evaluate an industry determined to
have 10 active companies, and each company has about a 10% market share. Using the basic
HHI calculation, the industry would appear highly competitive.
However, within the marketplace, one company might have as much as 80% to 90% of the
business for a specific segment of the market, such as the sale of one specific item. That firm
would thus have nearly a total monopoly for the production and sale of that product.

Another problem in defining a market and considering market share can arise from geographic
factors. This problem can occur when there are companies within an industry that have roughly
equal market share, but they each operate only in specific areas of the country, so that each
firm, in effect, has a monopoly within the specific marketplace in which it does business. For
these reasons, for the HHI to be properly used, other factors must be taken into consideration
and markets must be very clearly defined.

VRIO framework
It is the tool used to analyse firm’s internal resources and capabilities to find out if they can
be a source of sustained competitive advantage. VRIO analysis stands for four questions that
ask if a resource is: valuable? rare? costly to imitate? And is a firm organized to capture the
value of the resources? A resource or capability that meets all four requirements can bring
sustained competitive advantage for the company.
 Value: Do you offer a resource that adds value for customers? Are you able to exploit an
opportunity or neutralize competition with an internal capability?

No: You are at a competitive disadvantage and need to reassess your resources and
capabilities to uncover value.
 Yes: If value is established, move on in your VRIO analysis to rarity.
 Rarity: Do you control scarce resources or capabilities? Do you own something that’s
hard
to find yet in demand?
 No: You have value but lack rarity, putting your company in a position
of competitive
parity. Your resources are valuable but common, which makes competing in the
marketplace more challenging (but not impossible). It’s recommended to go back one
step and reassess.
 Yes: With value and rarity identified, your next hurdle is imitability.
 Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it
difficult to find an equivalent substitute to compete with your offerings?
 No: If your resource has value and rarity, but is affordable or easy to copy, you have
a temporary competitive advantage. It will require considerable effort to stay ahead of
competitors and differentiate your services—go back one step and reassess.
  Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is
on
your organization.
 Organization: Does your company have organized management systems, processes,
structures, and culture to capitalize on resources and capabilities?
 No: Without the internal organization and support, it will be difficult to fully realize
the
potential of your valuable, rare, and costly-to-imitate resources. Your company will have
a unused competitive advantage and will need to reassess how to attain the needed
organization.
 Yes: Your company has achieved the ultimate goal of sustained competitive
advantage when it has successfully identified all four components of the VRIO
framework.

Siemens VRIO Framework

Resource/Capabilities Valuable Rare Inimitable or Organized to Impact on

non- Exploit Competitive
substitutable Advantage

Strong Global Presence Yes Yes Yes Yes Realized

Sustainable
Competitive
Advantage

R&D Yes Yes Yes Yes Sustained

Competitive
Advantage

Brand Management Yes No Yes No Temporary

Competitive
Advanatage

Innovation Yes Yes Yes Yes Sustained

Competitive
Advantage
BCG Matrix

STAR - Products or services with high growth and high market share.
Automation & Drives (A&D)
 Investment for distribution in major growth market.
 No. of suppliers of automation technology worldwide.
 Leader in innovation.

Siemens Building Technologies (SBT)

 Demand for increase safety, security and efficiency in large scale building.
 Increased penetration of their installed base.
 Success in service.

Industrial Solution & Services (I&S)

 Acquisition in metallurgy sector.
 Leader in Airport Solutions.
 Best in parcel sorting system.
 Biggest supplier of water treatment system.
Power Transmission & Distribution (PTD)
 Expending operations in Russia, China, India & USA.
 Ranks First or Second Worldwide.

Field Services
 Service potential for fossil rotating equipment.
 Trained pool of experts.
 Famous in all over world specially ME region.
 Centre of competency.

Medical
 Increasing Demand due to growing and aging world population and investing
combined with high performance IT solutions and technologies.
 Establish business for expansion.

Siemens Business Service (SBS)

 Overall IT industry is booming.
 SAP Implementation.
 Among ten in huge industry.
 Leading E-Government provider in middle east.

CASH COW – Products or services with low growth and high market share.
Power Generation (PG) through wind and solar
 Increasing Demand for wind power and solar power but investment is little.
 Expensive.
 75% of sales but limited future (Pessimism for fossil power)

Water & Waste Water Solutions

 Industry is on its initial stages.
 50% Siemens water technologies provides the most comprehensive, cost effective
reliable water treatment solutions.

QUESTION MARK – Products or services with high growth and low market share.
Transportation System (TS)
 Increase in number and size of mega cities.
 Networking different mode of transports.
 Full range supplier and system integrator.
 Leader in international rail industry.
Siemens Financial Services (SFS) & Real Estate
 Questionable.
 Questionable ability to penetrate and gain leadership position.

DOG –
Siemens Home Appliance
 Expensive products as compare to local industry.
 Market share is very Low.

THE SHELL DIRECTIONAL POLICY MATRIX -

MARKETING MANAGEMENT
Shell's Directional Policy Matrix (DPM) The Shell Directional Policy Matrix (DPM) is another
refinement upon the Boston Consulting Group (BCG) Matrix. Along the horizontal axis are prospects
for business sector profitability, and along the vertical axis is a company's competitive capability.

There follows a description of how to complete the matrix and what each of the horizontal and
vertical axes in the model mean.

The horizontal axis: prospects for sector profitability

This includes criteria of market growth rate, market quality, industry situation and environmental
considerations. On each of these factors an SBU or product is given from one to five stars. For
instance, the factor of ‘market quality’ might be judged on the basis of several criteria such as
pricing behaviour, past stability or profitability of that sector. The qualitative or quantitative
evaluation of market quality is then converted into a rating from nought to four. The same
procedure is followed for each of the other three factors, so the overall score on sector
profitability is the total of the ratings on all four factors.

The vertical axis: company’s competitive capability

The same approach is used here, except that the company’s capabilities are assessed on the basis
of market position, product research and development and production capability. These are
further divided into sub-factors applicable to any particular industry.
Shell emphasize that whatever strategy is eventually selected, the aim is that is should be
‘resilient’, i.e. viable in a diverse range of potential futures. Hence, each strategy ideally should
be evaluated against all future possible scenarios.

Divest: SBU’s running in losses with uncertain cash flows. They should be divested as the situation is
not likely to improve in the near future. These liquidate or move thee assets.

Phased withdrawal: SBU’s with weak competitive position in a low growth market with very little
chance of generating cash flows. They should be phased out gradually. The cash realized should be
invested in more profitable ventures.

Double or quit: Gamble on potential major SBU’s for the future. Either invests more to use the
prospects presented by the market or else better to quit the business.

Custodial: SBU’s are just like a cash cow, milk it and do not commit any more resources. The corporate
has to bear with the situation by getting help from other SBU’s or get out of the scene so as to focus
more on other attractive business.

Try harder: SBU’s could be vulnerable over a longer period of time, but fine for now. They need
additional resources to strength their capabilities. The corporate tries harder to exploit the business
prospects thoroughly.

Cash Generator: Even more like a cash cow, milk here for expansion elsewhere. SBU’s may continue
their operations, at least for generating strong cash flows and satisfactory profits. No further investments
are made.

Growth: Grow the market by focusing just enough resources here. These SBU’s need funds to support
product innovations, R&D activities etc.

Market Leadership: Major resources are focused upon the SBU. It must receive top priority.
 Unattractive Average Attractive

Weak Siemens Digital

Industry

Average Power &gas Transporation

System

Strong Automation & Medical Instrument

Drives Siemens
building
technologies
 ADL Matrix- Arthur D. Little
Siemens Healthineers :

The ADL matrix by Arthur D. Little is a portfolio management matrix which helps managers
discern their SBUs strategic position depending upon 2 dimensions-

1. SBU’s life cycle

2. Competitive position

Each of these dimensions can be further split up into the following categories to better analyse
a firm and accordingly determine the future strategic actions -
Life cycle stages can be
Embryonic stage- The introduction of the product is characterized by a rapid growth
market, very little competition and (still) high sales prices.

Growth stage- The market continues to strengthen and sales increase, there are few (if any)
competitors.

Maturity stage- The market and market shares are stable, there is an established customer base
and the price is lowered because of the growing competition.

Ageing stage- The demand for the product decreases and companies are abandoning the
market. Companies stop consolidating or leave the market.

Competitive position can also be either of the following

Dominant- The position of a company falls into this category if it is a clear market leader or
has a monopoly position. Example, Intel in microprocessors.
Strong- In this case, the company might not be a monopoly but definitely has a strong presence
and loyal customers.
Favourable- Companies with favourable competitive position usually operate in fragmented
markets and no single one controls all market share.
Tenable- Here each company caters to a niche segment defined by a product variety or
segmented demographically.
Weak- In this scenario, the company financials are too weak to gain a strong hold in the market
and is expected to die out within a short span of time.
 Siemens Healthineers in the third quarter of fiscal year 2019

Q3 2019 Q3 2018 Actual change

Revenue 3,569 3,300 8%

Profit 529 503 5%

…Margin 14.8% 15.2% (40) bps

Adjusted profit 543 528 3%

…Margin 15.2% 16.0% (80) bps

Net income 353 293 20%

Basic earnings per share in EUR 0.35 0.29 22%

Free cash flow 227 269 (15)%

Source - https://www.siemens-healthineers.com/press-room/press-releases/pr-20190729029shs.html
Diagnostic imaging market share in 2017 and
2024

Source - https://www.statista.com/statistics/331739/top-global-companies-by-diagnostic-
imaging-market-share/

According to the data of Siemens healthineers,

Industry Life cycle stage - Growth

Competitive position – Favourable

VRIO framework
It is the tool used to analyse firm’s internal resources and capabilities to find out if they can
be a source of sustained competitive advantage. VRIO analysis stands for four questions that
ask if a resource is: valuable? rare? costly to imitate? And is a firm organized to capture the
value of the resources? A resource or capability that meets all four requirements can bring
sustained competitive advantage for the company.
 Value: Do you offer a resource that adds value for customers? Are you able to exploit an
opportunity or neutralize competition with an internal capability?

No: You are at a competitive disadvantage and need to reassess your resources and
capabilities to uncover value.
 Yes: If value is established, move on in your VRIO analysis to rarity.
 Rarity: Do you control scarce resources or capabilities? Do you own something that’s
hard
to find yet in demand?
 No: You have value but lack rarity, putting your company in a position
of competitive
parity. Your resources are valuable but common, which makes competing in the
marketplace more challenging (but not impossible). It’s recommended to go back one
step and reassess.
 Yes: With value and rarity identified, your next hurdle is imitability.
 Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it
difficult to find an equivalent substitute to compete with your offerings?
 No: If your resource has value and rarity, but is affordable or easy to copy, you have
a temporary competitive advantage. It will require considerable effort to stay ahead of
competitors and differentiate your services—go back one step and reassess.
 Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is
on
your organization.
 Organization: Does your company have organized management systems, processes,
structures, and culture to capitalize on resources and capabilities?
 No: Without the internal organization and support, it will be difficult to fully realize
the
potential of your valuable, rare, and costly-to-imitate resources. Your company will have
a unused competitive advantage and will need to reassess how to attain the needed
organization.
 Yes: Your company has achieved the ultimate goal of sustained competitive
advantage when it has successfully identified all four components of the VRIO
framework.

Siemens VRIO Framework

Resource/Capabilities Valuable Rare Inimitable or Organized to Impact on

non- Exploit Competitive
substitutable Advantage

Strong Global Presence Yes Yes Yes Yes Realized

Sustainable
Competitive
Advantage

R&D Yes Yes Yes Yes Sustained

Competitive
Advantage

Brand Management Yes No Yes No Temporary

Competitive
Advanatage

Innovation Yes Yes Yes Yes Sustained

Competitive
Advantage

Hofers Product/Market Evolution Matrix

Hofer matrix is one of the tools used to determine the assessment of the Competitive position of
the company, as determined by its internal and external factors.

Matrix is created on the basis of two criteria: the maturity of the sector, divided into 5 phases
and the competitive position of companies in the sector. In this way circles are created, which
represent different areas of activity in the company, and the size of the circle is proportional to
size of the sector. Sometimes segments could be added to the circle, which reflect
the market share of company in the sector.

Below is a sample matrix constructed according to the principles set out by Hofer. In its
interpretation attention should be paid to possible strategies for products, their life cycle phases
and the markets in different sectors
The strategy of Siemens portfolio is quite clear for the past many years which set the target to
capture and maintain the Number 1 or Number 2 in the future profitable and competitive
markets. By doing that Siemens believe they can survive and get through in the difficult
constantly changed environment. Siemens is concentrating deeply on renewable energy and
organic growth of various products and services. In the past five years they had invested 20
billion Euros in the acquisition of growth business. Siemens has established its leading
position in the attractive growth market working out with its three business sectors Healthcare,
energy, and industry. As a part of DESERTEC a Solar Thermal Power in Sahara and Wind
Farm in Europe are being constructed. They have also been producing Smart Grid Solutions
based Technologies such as Electric Cars and lot more. The best and precise portfolio Analysis
of Siemens is comprised by Boston matrix.
Manufacturers and machine builders are facing tremendous challenges, because electrical
devices enter the market within very short intervals of time. A separate line usually must be
built for each product and then dismantled again after short production cycles. Machine
builders not only need to be able to deliver their new machines in a very short period, they
also have to be able to quickly adapt them to short-term changes. The commissioning phase
of machines and lines as well as changing from manual to automated production both offer
the potential to save a significant amount of time, and to meet challenging time constraints of
electronics companies. Siemens provides an ideal range of automation and digitalization
solutions that can be used to create a digital twin of the machine. It helps to develop new
machines and lines faster and more flexibly.
The digital twin is the precise virtual model of a product (such as a smartphone or tablet) or a
production plant. It displays their development throughout the entire lifecycle and allows
operators to predict behavior, optimize performance, and implement insights from previous
design and production experiences.

Siemens comprehensive concept of the digital twin consists of three forms: the digital twin of
the product, the digital twin of production, and the digital twin of the performance of both
product and production. Thanks to our comprehensive domain expertise and optimized tools,
Siemens is the only company that offers this holistic approach.

Food and beverage manufacturers must consider many factors: a consistently high level of
product quality, maximum plant availability, optimum resource efficiency – and, increasingly,
the greatest possible flexibility in order to meet more and more individual customer
requirements. Mastering all these challenges today and in the future is possible only with
digitalization. We offer the products and solutions you need to fully or gradually integrate and
digitalize your entire value chain.

Bowman Strategic Clock Model

The Bowman Strategy Clock is a marketing model with which a company can analyse its
position in relation to what its competitors have to offer. It was developed by economists
Cliff Bowman and David Faulkner. According to Bowman, competitive advantage is more
powerful as a distinctive element than a cost advantage; it concerns strategic positioning and
the positioning of a product in the market.

2 Dimensions of Bowman Strategic Clock Model

Bowman’s Strategy Clock shows how a company can position a product or service based on
two dimensions. On the one hand, it’s about price and on the other it’s about perceived value.
Looking at the different combinations of these two dimensions within the Bowman Strategy
Clock leads to eight possible strategies, divided over four quadrants. These eight strategies
are displayed in a clock, which this model’s name is based on. A company can choose a
position form the Bowman Strategy Clock which offers the most competitive advantage. If a
company understands these eight fundamental strategic positions, it will enable them to better
analyse and evaluate its current strategy. From this position, it can make changes and
improve its competitive position.
Starting at the top and rotating clockwise, the Bowman Strategy Clock model has 8 positions.

Position I : Low Price and Low Perceived Value

This is not the most competitive position within the Bowman Strategy Clock. The product or
service is not differentiated, and the customer perceives very little value. The price is still
very low. Actually keeping the price low is the only competitive method the company can use
to compete with other suppliers.

Siemens is a global company, all its product are hight price and it has high brand value.

Position II : Low Price

Companies in this position often produce large quantities. Their products are valued. Products
are sold at a low price which leads to low profit margins on individual products. The high
volume of output can still generate high profits. This position regards cheaper market leaders
that focus on cost minimisation; cheap and fast production and using economies of scale.
Possible price wars are often fought at this position.

Position III : Hybrid

On the one hand, this position involves companies which use product differentiation.
Therefore, it’s products are highly valued. On the other hand, the companies focus on a low
price. The customer is convinced there is a good added value which genuinely benefits them.
This position of the Bowman Strategy Clock is very effective, particularly if the added value
is consistently and well-applied and offered.

Position IV : Differentiation

Companies using this differentiation strategy do their best to offer a high as possible quality
at an average price. They wish to offer their customers the highest level of perceived added
value. They not only focus on product quality, but also on so-called branding; putting a
significant and reliable brand on the market that retains customers. Customers remain
sensitive to high quality products of a well-known brand and therefore select these products.
They are even prepared to pay more for these.

Position V : Focused Differentiation

This concerns the positioning strategy on which luxury and exclusive brands focus; a high
quality product at a high price. They use targeted segmentation, promotion and distribution,
which leads to higher profit margins. Their competitors are in the same segment, therefore
they keep each other’s prices high.

Siemens healthineers procduct like X- Ray , Ultrasound Machine.

Position VI : Risky High Margins

Companies using this strategy charge high prices for products of which the customer’s
perceived value is mediocre. In the long-term, this is a significant risk and this position is
likely to fail. Ultimately, the customers will cut their losses and look for a better-quality
product in the same price range or a similar product for a lower price.

Semines Home appliances

Position VII : Monopoly Pricing

The strength of companies that position themselves as a monopoly in the market is that they
are the only business offering the product in their segment. Because of that, they do not have
to fear the competition and they are the only one determining the price. The only choice
customers have is whether to buy the product or not. The customer is basically dependent on
the products or services the monopolist offers. Usually, monopolies are regulated in most
countries, in order to prevent the companies from increasing the prices unnecessarily or
offering faulty goods.

Siemens healthineers - ARTIS pheno

Position VIII : Loss of market share

This is not a very enviable position for any company. It means that the company is not able to
offer a product or service that the customers value. Furthermore, the price is too high and as a
result customers stay away. Often, companies in this segment opt for a standard price for
their products in order to still be somewhat competitive.

Semines Power and gas

GE MATRIX
The GE matrix was developed by Mckinsey and Company consultancy group in the 1970s.
The nine cell grid measures business unit strength against industry attractiveness and this is
the key difference. Whereas BCG is limited to products, business units can be products,
whole product lines, a service or even a brand. You can plot these chosen units on the grid
and this will help you to determine which strategy to apply.

Before we can plot anything on the grid however first we need to decide how we will
determine both industry attractiveness and business unit strength.

Industry Attractiveness
Industry attractiveness indicates how hard or easy it will be for a company to compete in the
market and earn profits. The more profitable the industry is the more attractive it becomes.
When evaluating the industry attractiveness, analysts should look how an industry will change
in the long run rather than in the near future, because the investments needed for the product
usually require long lasting commitment.

Industry attractiveness consists of many factors that collectively determine the competition
level in it. There’s no definite list of which factors should be included to determine industry
attractiveness, but the following are the most common:-

 Long run growth rate

 Industry size
 Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat
of substitutes and available complements (use Porter’s Five Forces analysis to
determine this)
 Industry structure (use Structure-Conduct-Performance framework to determine this)
 Product life cycle changes
 Changes in demand
 Trend of prices
 Macro environment factors (use PEST or PESTEL for this)
 Seasonality
 Availability of labor
 Market segmentation
 Competitive strength of a business unit or a product

Along the X axis, the matrix measures how strong, in terms of competition, a particular
business unit is against its rivals. In other words, managers try to determine whether a business
unit has a sustainable competitive advantage (or at least temporary competitive advantage) or
not. If the company has a sustainable competitive advantage, the next question is: “For how
long it will be sustained?”

The following factors determine the competitive strength of a business unit:

 Total market share

 Market share growth compared to rivals
 Brand strength (use brand value for this)
 Profitability of the company
 Customer loyalty
 VRIO resources or capabilities (use VRIO framework to determine this)
  Your business unit strength in meeting industry’s critical success factors (use
Competitive Profile Matrix to determine this)
 Strength of a value chain (use Value Chain Analysis and Benchmarking to determine
this)
 Level of product differentiation
 Production flexibility

Advantages

Helps to prioritize the limited resources in order to achieve the best returns.

Managers become more aware of how their products or business units perform.

It’s more sophisticated business portfolio framework than the BCG matrix.

Identifies the strategic steps the company needs to make to improve the performance of its
business portfolio.

Disadvantages

Requires a consultant or a highly experienced person to determine industry’s attractiveness and

business unit strength as accurately as possible.

It is costly to conduct.

It doesn’t take into account the synergies that could exist between two or more business units.

Difference between GE McKinsey and BCG matrices

GE McKinsey matrix is a very similar portfolio evaluation framework to BCG matrix. Both
matrices are used to analyze company’s product or business unit portfolio and facilitate the
investment decisions.

The main differences:

Visual difference. BCG is only a four cell matrix, while GE McKinsey is a nine cell matrix.
Nine cells provide better visual portrait of where business units stand in the matrix. It also
separates the invest/grow cells from harvest/divest cells that are much closer to each other in
the BCG matrix and may confuse others of what investment decisions to make.GE-McKinsey
matrix compared to BCG matrix visually

Comprehensiveness. The reason why the GE McKinsey framework was developed is that BCG
portfolio tool wasn’t sophisticated enough for the guys from General Electric. In BCG matrix,
competitive strength of a business unit is equal to relative market share, which assumes that
the larger the market share a business has the better it is positioned to compete in the market.
This is true, but it’s too simplistic to assume that it’s the only factor affecting the competition
in the market. The same is with industry attractiveness that is measured only as the market
growth rate in BCG. It comes to no surprise that GE with its complex business portfolio needed
something more comprehensive than that.

Using the tool

There are no established processes or models that managers could use when performing the
analysis. Therefore, we designed the following steps to facilitate the process:

Step 1. Determine industry attractiveness of each business unit

Make a list of factors. The first thing you’ll need to do is to identify, which factors to include
when measuring industry attractiveness. We’ve provided the list of the most common factors,
but you should include the factors that are the most appropriate to your industries.

Assign weights. Weights indicate how important a factor is to industry’s attractiveness. A

number from 0.01 (not important) to 1.0 (very important) should be assigned to each factor.
The sum of all weights should equal to 1.0.

Rate the factors. The next thing you need to do is to rate each factor for each of your product
or business unit. Choose the values between ‘1-5’ or ‘1-10’, where ‘1’ indicates the low
industry attractiveness and ‘5’ or ‘10’ high industry attractiveness.

Calculate the total scores. Total score is the sum of all weighted scores for each business unit.
Weighted scores are calculated by multiplying weights and ratings. Total scores allow
comparing industry attractiveness for each business unit.
Industry Attractiveness:
Siemens SBU/ MARKET MARKET
Determining GROWTH SIZE
Factors
Rates 6 4

Medical Solutions 4 3.4 24 13.6

Lighting 3.6 3 21.6 12

Information and 1.8 2 10.8 8

Communication
Power 2 2.8 12 11.2
Financial Service 1.5 1 9 4
Real Estate 4.5 4 27 16
Business Service 1 .5 6 2

Business Unit Strength:

Siemens SBU/ MARKET MARKET
Determining GROWTH SIZE
Factors
Rates 6 4

Medical Solutins 4 3.4 24 13.6

Lighting 3.6 3 21.6 12

Information and 1.8 2 10.8 8

communication
Power 2 2.8 12 11.2
Financial service 1.5 1 9 4
Real estate 4.5 4 27 16
Business 1 .5 6 2
Reference
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