UNIVERSITY OF LUSAKA

School of Postgraduate Studies

Master of Public Health

GBS750

Strategic Management

Assignment 1

Surname: Nshimbi
First name: Sarah Bwalya
Student number: MPH1611952
Mode of Study: Distance
E-mail: sarahnshimbi@gmail.com
Lecturer: Prof. J. Tembo
Date: 30th March 2017
Question
The Bank of Zambia has determined that the banking industry in Zambia is experiencing
a slow and negative growth rate. However, because of its heavy capitalization from its
being owned and supported by the governments of Zambia and India, Indo-Zambia Bank
Limited finds itself in a rather strong position relative to its rivals and, by industry
estimates, it is estimated to have the largest market share among commercial banks.
Using the Boston Consulting Group Relative Market Share-Industry Growth Rate (BCG)
matrix:
(a) Describe briefly the position Indo-Zambia Bank is in.
(b) Suggest to the bank which strategic option(s) is appropriate.

The BCG Growth-Share Matrix was developed by Bruce Henderson in the 1970s. According
to this technique, businesses or products are classified as low or high performers depending
upon their market growth rate and relative market share[ CITATION cle17 \l 2057 ].

The Market share is the percentage of the total market that is being serviced by a company
measured either in revenue terms or unit volume terms. The higher the market share the
higher proportion of the market one controls[ CITATION Man17 \l 2057 ].

Market Growth rate is used as a measure of a markets attractiveness. Markets experiencing

high growth rate are ones where the total market share available is expanding and there is
plenty of opportunity for everyone to make more earning and often profits[ CITATION
Man17 \l 2057 ].

The matrix is a portfolio planning model which is based on the observation that businesses or
products can be classified into four categories namely stars, question marks, cash cows and
dogs based on the combination of market growth and market share relative to the next best
competitor[ CITATION cle17 \l 2057 ].

Cash cows are characterized by high relative market share in low growth industries. These
typically generate cash in excess of the amount of cash needed to maintain the business. As
the market matures the need for investment reduces. Cash Cows are the most profitable

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products in the portfolio. The situation is frequently boosted by economies of scale that may
be present with market leaders[ CITATION The17 \l 2057 ]

Cash Cows may be used to fund the businesses in the other three quadrants. It is desirable to
maintain the strong position as long as possible and strategic options include product
development and concentric diversification. If the position weakens as a result of loss of
market share or market contraction, then options would include retrenchment or even
divestment[ CITATION Wee17 \l 2057 ].

Question marks are products or businesses, that compete in high growth markets but where
the market share is relatively low. A new product launched into a high growth market and
with an existing market leader would normally be considered as a question mark. Because of
the high growth environment, they can be a “cash sink”. Strategic options for question marks
include; market penetration, market development, product development which are all
intensive strategies or divestment[ CITATION Wee17 \l 2057 ].

Stars are market leaders in high growth industries. However, investment is normally still
required to maintain growth and to defend the leadership position. Stars are frequently only
marginally profitable but as they reach a more mature status in their life cycle and growth
slows, returns become more attractive. The stars provide the basis for long term growth and
profitability. Strategic options for stars include; integration –forward, backward and
horizontal, market penetration, market development, product development and joint ventures[
CITATION Wee17 \l 2057 ].

Dogs describe businesses that have low market shares in slow growth markets. Often they
enjoy misguided loyalty from management although some dogs can be revitalized.
Profitability is, at best, marginal. Strategic options would include retrenchment if it is
believed that it could be revitalized, liquidation, divestment if a buyer can be found.
Successful products may well move from question mark though star to cash cow and finally
to dog. Less successful products that never gain market position will move straight from
question mark to dog[ CITATION Wee17 \l 2057 ].

The position Indo-Zambia Bank is in is the cash cow position, high relative market share but
low market growth rate. This is illustrated in the statement that the Bank of Zambia has

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determined that the banking industry in Zambia is experiencing a slow and negative growth
rate. However, because of its heavy capitalization from its being owned and supported by the
governments of Zambia and India, Indo-Zambia Bank Limited finds itself in a rather strong
position relative to its rivals and, by industry estimates, it is estimated to have the largest
market share among commercial banks.

Indo Zambia Bank is characterized by high relative market share but a low market growth
rate. This means that it is typically generating cash in excess of the amount of cash needed to
maintain the business. As the market has matured the need for investment has reduced. Cash
Cows are the most profitable businesses in the portfolio[ CITATION MBA17 \l 2057 ]. The
situation is frequently boosted by economies of scale that may be present with market
leaders.

Indo-Zambia bank may therefore be used to fund the businesses in the other three quadrants.
It is desirable to maintain the strong position as long as possible and strategic options include
product development and concentric diversification. If the position weakens as a result of loss
of market share or market contraction, then options would include retrenchment or even
divestment.

Indo-Zambia bank should embark on a product development strategy which will involve
focusing on developing new products or services for their existing markets. This strategy
requires continuous research and development as well as the ongoing assessment of customer
needs. This growth strategy requires changes in business operations that is needed to
introduce new products to the existing customer base[ CITATION FME17 \l 2057 ].

For product development to be successful a new emphasis should be placed on marketing.

Indo-Zambia bank can come up with new types of accounts which it can advertise or improve
on its customer service by improving atm banking services to in include features like cash
deposit machines, cheque deposit machines, mobile banking, online banking, Visa services
and MasterCard services are features that can improve customer satisfaction.

Before developing new products research is necessary to investigate and assess the use of
new technologies, processes and materials that would be needed to pursue this strategy.

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Assessing customer need is also important, this can be done by the marketing department in
the form of customer questionnaires and user groups[ CITATION FME17 \l 2057 ].
Customer needs can also become apparent to people who are in customer-facing roles, as
they often are the first to hear about problems or concerns with the product or service. People
in the customer-facing role have the opportunity to gather data that may initially appear
negative but can offer the bank the opportunity to meet customers’ needs more fully.

Understanding what a customer’s real needs are and how these can be interpreted into
product development is essential to success when using this strategy[ CITATION FME17 \l
2057 ]. For example, complaints about long waiting time in the bank for a customer to be
attended to can result in the banking in coming up with technologies that will improve
efficiency such as atms, cash deposit atms, mobile banking and online banking services.

Brand extension is another method of launching a new product by using existing brand name
on a new product in a different category[ CITATION FME17 \l 2057 ]. A company using brand
extension hopes to leverage its existing customer base and brand loyalty. For example, Indo-
Zambia bank launches clothing range, this brand extension is totally unrelated to its main
business.

Brand extension is a high risk strategy as success is impossible to predict and if the brand
extension is unsuccessful, it can harm the parent brand. Common sense would suggest that
for brand extension to be successful there should be some logical association between the
original product and the new one, but there have been many exceptions to this. Whatever
course of action is decided upon must not create confusion among the customer and also
avoid having a detrimental effect on the banks current market share[ CITATION FME17 \l
2057 ].

There are three broad approaches to new product development that Indo-Zambia bank can
use; the new product should be closely associated with current products, the new product
matches current customers’ purchasing habits and the new product reinvents or refreshes the
existing product. Each of these product development approaches involves investment and an
element of risk. One key aspect of this strategy is that the bank will likely have to develop
new skills and specializations within their employees to meet these new requirements. These

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new skills, especially in the initial stages can be met by outsourcing, that is using outside
skills and resources to control the cost and risk of such a venture.

Another strategy that Indo-Zambia bank can use is the diversification strategy. A
diversification strategy achieves growth by developing new products for completely new
markets. As such, it is inherently more risky than product development because by definition
the organization has little or no experience of the new market. In addition, the new skills
needed both in terms of marketing and operations often require substantial investment. This is
usually achieved by acquiring an organization already operating in the new market.

For Indo-Zambia to adopt a diversification strategy, it must have a clear idea of what it
expects to gain in terms of its growth. It also needs to make an honest assessment of the risks
involved. Diversification often fails because organizations that attempt it are doing so
because they have uncompetitive products in shrinking markets and a diversification strategy
represents a desperate attempt to reinvent themselves. However, for those organizations that
find the right balance between risk and reward, m marketing strategy of diversification can be
highly rewarding[ CITATION FME17 \l 2057 ].

Diversification can occur at two levels, either at the business unit level or at an organizational
level. When it happens at the business unit level, the organization will expand into a new
segment of its current market. At the organizational level diversification may mean
integrating a new organization into the existing one.

There are three broad approaches of how Indo-Zambia bank can implement a policy of
diversification; backward diversification and forward diversification and full diversification.
Backward diversification is where an organization decides to diversify by offering a product
or service that relates to the preceding stage of their current product or service. For example,
the bank offers loans to individuals and requires that these should have an account with the
bank. Forward diversification is a situation where the organization diversifies into the
products or services that relate to a later stage that follows their current offering.

A full diversification approach is the most risky as an organization will be offering a totally
new product or service to an unknown market. This will take considerable time to
accomplish. An example of this strategy would be Indo-Zambia bank decides to diversify into

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selling insurance. This is obviously very risky indeed. The bank is not involved in the
insurance business and few of the skills that exist within its existing business will be
transferrable to the new one. This type of radical diversification can work if the bank is cash
rich and feels as though they would benefit from investing in a completely different type of
business.
In conclusion, Indo- Zambia bank according to the boston consulting matrix is at the cash
cow position and its strategic options include product development and diversification.

REFERENCES

Cleverism. (2017, March 27). How to apply BCG matrix to your company. Retrieved from
Cleverism: http://cleverism.com
FME. (2017, March 27). Ansoff Matrix strategy skills. Retrieved from free mangement
ebooks: http://www.free-management-ebooks.com
Managementstudyguide. (2017, March 27). BCG Matix. Retrieved from Management study
guide: http://www.mangementstudyguide.com
MBA tutorials. (2017, March 27). The boston consulting group matrix. Retrieved from mba
tutorials: http://www.mba-tutorials.com
The economist. (2017, March 27). Growth share matrix. Retrieved from The economist:
http://www.economist.com
Weebly. (2017, March 27). Boston Consulting Group Matrix. Retrieved from Weebly:
http://www.weebly.com