CHAPTER FOUR

STRATEGY FORMULATION, ANALYSIS AND CHOICE

 INTRODUCTION

Strategic alternatives are the possible strategies that an organization can consider for
adoption. The choice of strategies is wide and much would depend on how an organization
perceives its strengths and weaknesses vis-à-vis the opportunities and threats the external
environment presents Strategies can be formulated at different levels; corporate, business
[SBU], and functional level strategies.

1. CORPORATE LEVEL STRATEGY

 In what industries and markets should we compete?
Corporate level strategies are basically about the choice of direction that a firm
adopts in order to achieve its objectives. Corporate level strategies are basically about
decisions related to allocating resources among the different businesses of a firm,
transferring resources from one set of businesses to others, and managing and
nurturing a portfolio of businesses in such a way that the overall corporate objectives are
achieved. An analysis based on business definition provides a set of strategic alternatives
that an organization can consider. According to Glueck (1988), there are three grand
strategies alternatives: Growth/ Expansion, Stability, and Retrenchment. These strategic
alternatives termed as grand strategies. Other intellectuals refer to them as basic strategies
or generic strategies.
 Growth/ Expansion strategy

The expansion grand strategy is followed when an organization aims at high growth
by substantially broadening the scope of one or more of its businesses in terms of
their respective customer groups, customer functions and alternative technologies
singly or jointly in order to improve its overall performance. Expansion strategy is
adopted because of the following reasons:

 It may become important when environment demands increase in pace of

activity.
 Psychologically, strategists may feel more satisfied with the prospects of
growth from expansion; chief executive may take pride in presiding over
organizations perceived to be growth oriented.
 Increasing size may lead to more control over the market vis-à-vis
competitors.
 Advantages from the experience curve and scale of operation may accrue.

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 There are four basic types of growth strategies. Let us describe the four types of
expansion strategies one by one:
1. Expansion through Concentration

This is by far the most frequently selected grand strategy. The firm directs its resources
to the profitable growth of a single product, in single market, or with a single technology.
It involves converging resources in one or more of a firm’s businesses in terms of their
respective customer need, customer functions, or alternative technologies, either singly
or jointly, in such a manner that it results in expansion. In business policy terminology,
concentration strategies are known variously as intensification, focus or specialization
strategies. Excellent firms tend to rely on doing what they are best at doing. For expansion,
concentration is often the first preference strategy for a firm, for the simple reason that it
would like to do more of what it is already doing. A firm that is familiar with an industry
would naturally like invest more in known businesses rather than unknown ones. A growth
strategy of concentration allows for a considerable range of alternative actions. Some of
these options are listed below:

 Increase present customers’ rate of usage: increase unit of purchase, increase rate
of product obsolescence, advertise other uses, and give price incentives to
increase usage.
 Attract competitors’ customers: establish sharper brand differentiation and
increase promotional effort, initiate price cuts.
 Attract non users to buy product: induce trial use through sampling, and price
inducements, price up or down, advertise new uses.
2. Expansion through Integration

Integration is an expansion strategy as its adoption results in a widening of the scope of the
business definition of a firm. Integration is also a subset of diversification strategies as it
involves doing something different from what the firm has been doing previously.
Among the integration strategies we shall see two types: vertical and horizontal
integration. Any new activity undertaken with the purpose of either supplying inputs
(such as raw materials) or serving a customer for outputs (such as marketing of firm’s
product) is vertical integration.

i. Vertical Integration: Vertical integration could be of two types: backward and

forward integration.
o Backward Integration: means retreating to the source of raw materials. Here,
the firm seeks growth by acquiring ownership or increased control of supply
sources. In internal backward integration, the firm creates its own
source of supply, perhaps by establishing a subsidiary company. The

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 external backward integration approach entails the purchase or acquisition of
an existing supplier.
o Forward Integration: here the organization moves nearer to the ultimate
customer. In this regard, the firm seeks growth by acquiring ownership or
increased control of channel functions closer to the ultimate market, such as
sales and distribution systems. A firm can accomplish forward integration
internally by establishing its own distribution/sales facilities or externally
by acquiring firms that already perform the desired function.
ii. Horizontal Integration: When an organization takes up the same type of products at
the same level of production or marketing process, it is said to follow strategy of
horizontal integration. When a luggage company takeovers its rival luggage
company, it is horizontal integration. This will expand the business geographically
and there is a benefit of economics of scale. Almost all horizontal integration is
accomplished by buying another company in the same business.
3. Expansion through Diversification

This strategy may be appropriate for firms that cannot achieve their growth objectives in their
current industry with their current products and markets. Diversification occurs when an
organization moves into areas that are clearly differentiated from its current business. It is
adopted for the following reasons among others:

 To minimize risk by spreading it over several businesses

 To capitalize on an organization’s strengths and minimize weaknesses
 Can be the only way out if growth in existing businesses is blocked due to
environmental and regulatory factors

Generally, diversification strategy can be divided in to two: one is concentric

diversification and another one is conglomerate diversification.

 Concentric Diversification: When an organization takes up an activity in such

a manner that it is related to the existing business definition of one or more of a firm’s
business, either in terms of customer groups, customer functions or alternative
technologies, it is called concentric diversification. Here, it is worth differentiating
between concentric diversification and concentration strategy. Concentric
diversification strategy involves expansion into related but distinct area whereas
concentration strategy involves adding products or services that lie within the
organization’s know how and experience in terms of technology employed, product
line, distribution system or customer base.
 Conglomerate Diversification: When an organization adopts a strategy which
requires taking up those activities which are unrelated to the existing business

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 definition of one or more of its businesses, either in terms of their respective customer
groups, customer functions or alternative technologies, it is called conglomerate
diversification.
4. Expansion through Cooperation

Corporate strategies could take into account the possibility of mutual cooperation with
competitors while competing with them at the same time so that the market potential could
expand. The term “Co-operation” expresses the idea of simultaneous competition and co-
operation among rival firms for mutual benefit. The central point is of complementing among
the interests of rival firms. Cooperative strategies could be of the following types:

a. Merger: (may be horizontal, vertical, concentric, conglomerate): occurs when two or

more firms combine to form a single or a new company. Mergers are often the results
of the firms mutually agreeing to combine and create a new name and a new
organizational structure and make other changes.
b. Takeovers or Acquisitions: (may be friendly or hostile): is a ‘marriage’ of two
unequal partners with one organization buying and subsuming the other party. In such
a transaction the shareholders of the smaller organization ceases to be owners of the
enlarged organization unless payments to the shareholders is paid partly in shares in
the acquiring company. The shares in the smaller company are bought by the larger. It
is concerned with the purchase of another company and absorbs its existing operations
often as operating subsidiary or division. A takeover is technically the same as an
acquisition, but the term is often taken to mean that the approach of the larger
acquiring company is unwelcome from the view point of the smaller target company.
c. Strategic Alliances: the term strategic alliance is used to describe a range of
collaborative arrangements between two or more organizations. These agreements can
vary from a much formalized agreement which could see the creation of a new jointly
owned limited company to informal arrangements for a short term project. It refers to
arrangements in which two or more corporations combine forces to form
cooperative/partnership to accomplish something for which single organization is not
suited.
 Stability Grand strategy

A corporation may choose stability over growth by continuing its current activities without
any significant change in direction. Although sometimes viewed as lack of strategy, the
stability family of corporate strategies can be appropriate for a successful corporation
operating in a reasonably predictable environment. Three alternatives are outlined below, in
which the actual strategy actions are similar, but differing primarily in the circumstances
motivating the choice of a stability strategy and in the intentions for future strategic actions.

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 Pause and Then Proceed: In effect, a time out or an opportunity to rest before continuing a
growth or retrenchment strategy. It is a very deliberate attempt to make only incremental
improvements until a particular environmental situation changes. It is typically conceived
as a temporary strategy to be used until the environmental becomes more hospitable or to
enable a company to consolidate its resources after prolonged rapid growth.
 No Change: Is a decision to do nothing new (a choice to continue current operation and
policies for the foreseeable future). Rarely articulated as a definite strategy, a no change
strategy’s success depends on a lack of significant change in a corporation’s situation. The
relative stability created by the firm’s modest competitive position in an industry facing
little or no growth encourages the company to continue on its current course. Making only
small adjustments for inflation in the sales and profit objectives, there are no obvious
opportunities or threats nor much in the way of significant strengths of weaknesses. Few
aggressive new competitors are likely to enter such an industry.
 Profits Strategy: Is a decision to do nothing new in worsening situation but instead to act
as though the company’s problems are only temporary. The profit strategy is an attempt to
artificially support profits when a company’s sales are declining by reducing investment
and short term discretionary expenditures. Rather than announcing the company’s poor
position to shareholders and the investment community at large, top management may be
tempted to follow this very seductive strategy. Blaming the company’s problems on a
hostile environment (such as anti-business government policies) management defers
investments and / or buts expenses to stabilize profit during this period.
 Defensive/ Decline /Retrenchment Strategies

Many organizations decline due to falling sales, declining profits and more importantly
declining demand. Demand in an industry declines for a variety of reasons such as
emergence of new substitutes often with higher quality and lower price, changing
customer needs, life styles, and tastes. The following are some the retrenchment strategies:

o Turnaround: This strategy, deals with a company in serious trouble, attempts to

resuscitate or revive the company through a combination of contraction (general, major
cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner
company). Although difficult, when done very effectively it can succeed in both
retaining enough key employees and revitalizing the company.
o Captive Company Strategy: Is the giving up of independence in exchange for
security. A company with a weak competitive position may not be able to engage in
a full blown turnaround strategy. The industry may not be sufficiently attractive to
justify such an effort from either the current management or from investors.
Nevertheless a company in this situation faces poor sales and increasing losses
unless it takes some action. Management desperately searches for an “angel” by

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 offering to be a captive company to one of its larger customers in order to guarantee
the company’s continued existence with a long term contract. In this way, the
corporation may be able to reduce the scope of some of its functional activities, such
as marketing, thus reducing costs significantly.
o Sell Out: If a company in a weak position is unable or unlikely to succeed with a
turnaround or captive company strategy, it has few choices other than to try to find a
buyer and sell itself (or divest, if part of a diversified corporation).
o Liquidation: When a company has been unsuccessful in or has none of the previous
three strategic alternatives available, the only remaining alternative is liquidation, often
involving a bankruptcy. There is a modest advantage of a voluntary liquidation over
bankruptcy in that the board and top management make the decisions rather than
turning them over to a court, which often ignores stockholders' interests.
2.BUSINESS LEVEL STRATEGIES
 How are we going to compete for customers in this industry and market?

Business level strategies are the courses of action adopted by a firm for each of its
businesses separately to serve identified customer groups and provide value to the
customers by satisfying their needs. According to porter (1958), competitive advantage
arises from selection of the generic strategy that best fits the organization’s competitive
environment and then organizing value adding activities to support the chosen strategy.
Porter uses the following matrix to suggest that there could be basically three types of business
level strategies.

 Porter’s Generic Business Level Strategies

Relying on the typology suggested by porter, we could classify business level strategies into
the following three types:

 Cost leadership (Lower cost / broad target)

 Differentiation (Differentiation / broad target).
 Focus (Lower cost or differentiation / narrow target).
A. Cost Leadership Business Strategy

Value chain analysis is central to identifying where cost savings can be made at various stages
in the value chain and its internal and external linkages. A successful cost leadership strategy
is likely to rest upon a number of organizational features. Attainment of a position of cost
leadership depends on the arrangement of value chain activities so as to:
 Reduce unit costs by copying rather than originating designs, using cheaper materials
and other cheaper resources, producing products with no frills, reducing labor costs
and increasing labor productivity.

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  Achieving economies of scale by high-volume sales perhaps based on advertising and
promotion, allowing high fixed costs of investment in modern technology to be spread
over a high volume of output
 Using high volume purchasing to obtain discounts for bulk buying of materials
 Locating activities in areas where costs are low or government help is available
When the competitive advantage of a firm lies in a lower cost of products or services relative to
what the competitors have to offer, it is termed as cost leadership. The firm outperforms its
competitors by offering products/services at lower cost than they can. Customers prefer a
lower cost product particularly if it offers the same utility to them as the comparable products
available in the market offer.

 Benefits associated with cost leadership strategy

 Defend market share: cost leadership enables the firm to defend itself against
powerful buyers because buyers only have power to drive the price down to the
level of the next most efficient competitor
 Defend supply: in the same way a low cost position enables the company to cope
with any price increase imposed by powerful suppliers.
 Build entry barriers: the factors that lead to a low cost position such as scale of
economy, the use of advanced manufacturing technologies, quality systems and
synergies provide the company with substantial entry barriers.
 Increase market share: cost leadership allows the company to provide its targeted
customer groups with the best price to quality relationship.
 Enter new markets: a cost leadership strategy position allows the company
to successfully penetrate new domestic and foreign markets often by brand
extension or brand stretch strategy. Its low cost and high quality position permits it
to be selective when targeting markets.
 Reduce the cost of capital: the benefits described above allow a firm to maintain a
strong financial position and to generate superior returns to its shareholders. These
in turn reduce the firm’s cost of capital of both borrowed and the cost of rising
funds from the equity market.
 The business can earn higher profits by charging a price equal to, or even below,
that of competitors because its unit costs are low.
Achieving a low cost position thus protects a firm against all the five competitive forces
forwarded by Porter. However, a low cost position requires sustained commitment
throughout the organization from senor exceptive to the line employees.

 Risks faced under cost leadership strategy

The risks faced under the cost leadership business strategy are several. The major ones of such

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risks are discussed below:
Cost advantage is ephemeral. It does not remain for long as competitors can
imitate the cost reduction techniques easily. The duplication of cost reduction
techniques makes the position of the cost leader vulnerable from competitive
threats.
Cost leadership is obviously not a market friendly approach. Often, severe cost
reduction can dilute customer focus and limit experimentation with product attributes.
This may create a situation where cost reduction is done for its own sake
and the interests of the customers are ignored.
Depending on the industry structure, sometimes less efficient producers may not
choose to remain in the market owing to the competitive dominance of the cost
leader. In such a situation the scope for products/services may get reduced
affecting even the cost leader adversely.
Technological shifts are a greater threat to a cost leader as these may change the
ground rules on which an industry operates. For instance, technological
developments may lead to the creation of a cheaper process or product which may be
adopted by newer competitors. The older players in the industry may be left with an
obsolete technology that now proves to be costlier. In this way, technological
breakthrough can upset cost leadership strategies.

B. Differentiation Business Strategy

A differentiation strategy is based on persuading customers that a product is superior to that

offered by competitors. Differentiation can be based on premium product features or simply
upon creating consumer perceptions that a product is superior. A differentiation strategy is
likely to necessitate emphasis on innovation, design, research and development,
awareness of particular customer needs and marketing. A strategy of this type is employed
in order to reduce price elasticity of demand for the product so that its price can be raised
above that of competitors without reducing sales volume. This, in turn, will generate above
average profits when measured against sales. Stated the other way, when the competitive
advantage of a firm lies in special features incorporated into the product/service, which are
demanded by the customers who are willing to pay for those, and then the strategy adopted
is the differentiation business strategy. Mitizberg has provided a series of categories within
which firms can differentiate as described below:

o Design Differentiation: where the product is designed so fundamentally differently

that it is almost a unique product category. Sony, for example, has been
particularly good at producing products of this kind. Of course, they are easy to
copy and the firm must be ready to follow each success with others.

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 o Quality Differentiation: when buyers believe that a product is reliable, durable, or
has superior performance. This type of differentiation is difficult to achieve, but is
commonly associated with high profits in an industry.
o Price Differentiation: where a lower price makes the products offered to the
market difficult to other competitors in the industry. To be successful, this strategy
requires that the market is price sensitive and the firm has or is capable of getting a
cost advantage.
 By creating a strong brand name through design, innovation, advertising, etc.
 By offering after sales service
 By distinctive or superior product packaging, distribution channels, etc
 Benefits Associated With Differentiation Strategy
 Firms distinguish themselves successfully on the basis of differentiation can be
safe from competitive rivalry. Customer brand loyalty to acts as a safeguard
against competitors. Brand loyal customers are also generally fewer prices
sensitive.
 Powerful suppliers can negotiate price increase that the firm can absorb to some
extent as it has brand loyal typically less sensitive to price increase
 Powerful buyers do not usually negotiate price decrease as they have fewer
options with regard to suppliers and generally have no cause for complain as
they get the special features and attributes demanded. Owing to this nature,
differentiation is a market and customer focused strategy.
 Differentiation is an expensive proposition. Newer entrants are not normally in
a position to offer similar differentiation at a comparable price. In this
manner, differentiation acts as a formidable entry barrier to new entrants.
 For similar reasons as in the case of newer entrants, substitute product/service
suppliers to pose a negligible threat to established differentiation firms.
 The firm can earn above average profits.

 Risks Faced Under Differentiation Strategy

o In a growing market, as the case with markets with most industries, products tend to
become commodities. Long term perceived uniqueness-the basis for differentiation- is
difficult to sustain. There is an imminent threat from competitors who can initiate the
differentiation strategy.
o In the case of several differentiators adopting similar differentiation strategies the basis
distinctiveness is gradually lessened and ultimately lost.

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o Differentiation fails to work if its basis is something that is not valued by the customers.
This often happens in a case where unnecessary features are added for differentiation. Such
tings also occur when over differentiation is done, carrying little tangible benefits for the
customers.
o Price premiums to have a limit. Charging too high a price for differentiated features may
cause the customers to forego the additional advantages from a product/service on the
basis of their own cost-benefit analysis.
o Failure on the part of the firm to communicate the benefit arising out of
differentiation adequately, or over relying on the intrinsic product attributes not readily
apparent to a customer, may cause the differentiation strategy to fail.

C. Focus Business Strategy

 Employing a focus strategy requires the following circumstances:
 Identification of a suitable target customer group which forms a distinct market
segment
 Identification of the specific needs of that group
 Establishing that the segment is sufficiently large to sustain the business
 Establishing the extent of competition within the segment
 Production of products to meet the specific needs of that group
 Deciding whether to operate a differentiation or cost leadership strategy within
the market segment
 The major players in the niche are not interested in the niche as it may not be
crucial to their own success.
 The focusing firm has the necessary skills and expertise to serve the niche segment
 The focusing firm can guard its territory from other predator firms on the basis of
customer relations and the loyalty it has developed and its acknowledged
superiority in serving the niche segments.
 The major benefits of a focus strategy are:
It requires a lower investment in resources compared to a strategy aimed at an
entire market or many markets.
It allows specialization and greater knowledge of the segment being served
A focused firm is protected from competition the extent that the other forms which

have a broader target do not possess the competitive ability to cater to the niche
markets.
Focused firms buy in smaller quantities, so powerful suppliers may not
demonstrate
much interest. Powerful buyers are less likely to shift as they might not find others

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 willing to cater to the niche markets as the focused firms do.
The specialization that focused firms are able to achieve in serving a niche market
acts as a powerful barrier to substitute products/services that might be available
in
the market.
 Risks Faced Under Focus Strategy

There are several risks associated with focus strategies. Basically, these arise from the small
size of the focused firms and its dependence on the niche markets.

o First of all, serving niche markets requires the development of distinctive

competencies to serve those markets. The development of such distinctive
competencies may be a long drawn and difficult process.
o Being focused means commitment to a narrow marker segment. Once committed, it may
be difficult for the focused firm to move into other segments of the market.
o A major risk for the focused firm lies in the cost configuration. Typically, the costs for the
focused firms are higher as the markets are limited, and the volume of production and
sales are small.
o Niches are often transient. They may disappear owing to technology or market factors.
o Niches may sometimes become attractive enough for the bigger players to shift attention
to them. The rising competition in the market may cause cost leaders and differentiator
firms to look at the niche markets with greater interest thereby posing a threat to the
focused firms.
o Finally, rivals in the market may sometimes out focus the focused firms by devising
ways to serve the niche markets in a better manner.
3.Functional Level Strategies
 How can we best utilize resources to implement our business strategy?

A functional strategy is essentially a strategy confined to a particular functional group

of company like marketing, production, sales etc. and detail out blue print of grand
strategies. These translate the grand strategies decided at corporate level into specific
action plans for each function within a company. The functional strategies must be
coordinated at company level and must support the grand strategies.

 Functional strategy in key Areas

The key decision variables in each functional area are different. Further, in each
functional area, different variables assume different importance during varying
business situations.

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 Marketing: Plans and policies related to marketing have to be formulated
and implemented on the basis of 4 P’s of the marketing mix, that is, product,
pricing, place, and promotion. The major issues and decisions relate to these
marketing mix factors. Questions such as: what types of products to offer? At
what prices? Through which distribution channel? And by the use of which
promotional tool? Have to be answered.
 Finance: Finance is the blood stream of any company since the ultimate
objectives is also to generate profits and create surplus to permit continuation of
company. Financial functional strategies can be viewed in time frame reference
as immediate and long term. For immediate future, the financial strategies are
based on immediate financial resources. The long term strategies account for
investments for longer periods of time, debt financing, allocation of surplus
and using finance, as leverage for company’s performance in competitive
environment.
 Research and Development: Some companies keep on doing research and
developments and spend a fixed percentage of their earnings in research and
development to further enhance their core competencies. We observe that
today rate of change is quite fast and R&D has assumed a key role in functional
area, and also become one of the core areas of thrust, requiring strategic
decisions, clear strategies on basic research and commercial product
development should be spelt out to enable managers to work as per the
guidelines. A company may adopt offensive strategies wherein it would strive
hard to develop new technologies and would innovate because it would be the
basis for future success of the company.
 Production: Production is the key function where value is added to the raw
materials to create a product. This value addition process in any company
should be cost effective, fast and without quality problems like rejections,
reworks etc. The technology followed would reflect on profits and total
operations of a company. The business strategies to reduce cost and enhance
quality are the prime concern of the functional head.
 Personnel: Human capital has gained considerable importance in recent years.
The personnel function effectively helps in integrating the strategies in various
functional areas for a accomplishing the objectives. This is done through
identification and development of required managerial skills and design of
proper remuneration system to motivate employees and also retain them. The
strategies in personnel function concentrate on effective utilization of manpower
for achieving the set targets. The personnel function consist of recruiting,
selecting, orienting, developing, counseling, evaluating, compensating and
maintaining good industrial relations, discipline and control, and these

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 should be performed keeping the organizational objectives and selected grand
strategies in focus.
 Strategic Analysis and Choice

Lawrence R. Jauch and William F. Glueck (1988), strategic choice is the decision to select
from among the alternatives strategy which will best meet the enterprise’s objectives.
The decision involves focusing on a few alternatives, considering the selection factors,
evaluating the alternatives against these criteria and making the actual choice.
An evaluation of strategic choice should lead to a clear assessment of which alternative is
the most suitable under the existing conditions. The final step, therefore, is to make the
strategic choice. One or more strategies have to be chosen for implementation.
 Corporate Portfolio Analysis
Corporate portfolio analysis could be defined as a set of techniques that help strategists’
decisions with regard to individual product or business in a firm’s portfolio. It is
primarily used for competitive analysis and corporate strategic planning in multi-product
and multi business firms. There are a number of techniques that could be considered as
corporate portfolio analysis techniques. Among these techniques, the most popular is the
Boston Consulting Group (BCG) matrix. The general electric nine cell matrix is another
popular tool that can be used to this end. Below, each of these methods is discussed in
greater detail.
 BCG Matrix
The Boston Consulting Group (BCG) matrix is the one which provides graphic
presentation for an organization to examine the different businesses in its portfolio on the
basis of their relative market shares and industry growth rates. It is a way of viewing the
entire product range to see a company’s products as a collection of items in a similar way
that a holder of shares in several companies might consider the decision on what to do
with the shares. The four cells of the BCG matrix have been termed as Stars, Cash cows,
Questions marks (Problem children), and Dogs. Each of these cells represents a particular
type of businesses. These different types of businesses are described below

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a) Stars: stars are high growth- high market share businesses which may or may not
be self-sufficient in terms of cash flow. This cell corresponds closely to the growth
phase of the product life cycle (PLC). A company generally pursues an expansion
strategy to establish a strong competitive position with regard to a “Star” business.
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or strengthen dominant position
Integration strategies, intensive strategies, joint ventures
b) Cash cows: As the term indicates, cash cows are businesses which generate large
amounts of cash but their rate of growth is slow. In terms of PLC, these are
generally mature businesses which are reaping the benefits of the experience curve.
The cash generation exceeds the reinvestments that could profitably be made in to
“Cash cows”. These businesses can adopt mainly stability strategies. Where long-
term prospects are exceptionally bright, limited expansion could be adopted, and
when it tends towards, decline, a phased retrenchment strategy may be feasible.
 High relative market share, competes in low-growth industry
o Generate cash in excess of their needs
o Milked for other purposes

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  Maintain strong position as long as possible
o Product development, concentric diversification
o If weakens—retrenchment or divestiture
c) Question Marks: Businesses with high industry growth but low market share for a

company are “Question marks” or “Problem children”. They require large

amounts of cash to maintain or gain market share. “Question marks” are usually
new products or services which have a good commercial potential. No single
strategy can be recommended here. If the company feels that it can obtain a
dominant market share, it may select expansion strategies, otherwise
retrenchment may be a more realistic alternative. Question marks, therefore,
may become ‘stars’ if enough investment is made or they may become dogs, if
ignored. Holiday resorts, Light commercial vehicles, Home improvement products
are few of the examples.
 Low relative market share – compete in high-growth industry
 Cash needs are high
 Case generation is low
 Decision to strengthen (intensive strategies) or divest
d) Dogs: Those businesses which are related to slow growth in industries and where
a company has a low relative market share are termed as “dogs”. They neither
generate nor require large amounts of cash. In terms of PLC, the “dogs” are
usually products in late maturity or a declining stage. The experience curve for
the company shows that it faces cost disadvantages owing to a low market share.
The only possibility for the company could be to gain market share at the expense
of rival firms, which involves high costs. So, retrenchments strategies are normally
suggested. But, Government policies may prevent retrenchment and the “dogs”
may be artificially sustained. Jute, Shipping, leasing are some of the products and
services that have become “dogs” for quite a few companies.
 Low relative market share & compete in slow or no market growth
 Weak internal & external position
 Liquidation, divestiture, retrenchment
The strategies for the overall portfolio are concerned with balance. A corporate
organization should attempt to have:
o Cash cows of sufficient size and/ or number that can support other products in the
portfolio
o Stars of sufficient size and/or number which will provide sufficient cash generation
when the current cash cows no longer do so.
o Problem children that have reasonable prospects of becoming future stars

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 o No dogs, if there are any, there would need to be good reason for retaining them. In
deciding which strategy to adopt, numerous factors other than those in the matrix
need to be considered such as risk attached to the strategy and nature of the
proudest/ markets.
 Generating Alternative Strategies Using A SWOT Matrix
The formation of SWOT matrix results in four sets of possible strategic alternatives after
matching the company’s internal strengths and weaknesses with the external opportunities
and threats. It forces strategic mangers to create growth as well as retrenchment strategies.
It can be used to generate corporate as well as business strategies.
 In the Strengths (S) block, list the specific areas of current and future strengths for
the company or the unit.
 In the Weaknesses (W) block, list the specific areas of current and future weakness
for the company or the unit.
 In the Opportunities (O) block, list the external opportunities available in the
company’s or business unit’s current and future environment.
 In the Threats (T) block, list the external threats facing the company or unit now
and in the future.
Generate a series of possible strategies for the company or the business unit under
consideration based on particular combinations of the four sets of strategic factors.
SWOT Matrix

 SO Strategies are generated by thinking of ways in which a company or

business unit could use its strengths to take advantage of opportunities.

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  WO Strategies attempt to take advantage of opportunities by overcoming
weaknesses.
 ST Strategies consider company’s or unit’s strengths as a way to avoid
threats.
 WT Strategies are basically defensive and primarily act to minimize
weaknesses.
 Quadrant 1
 Lists the strategies associated with a match between the company's strengths
and its perceived external opportunities.
 It represents the best fit between the company's resources and the options
available in the external market.
 A strategy from this quadrant would be to protect the company's strengths by
shoring up resources and extending competitive advantage. If a strategy in this
quadrant can additionally bolster/ strengthen weaknesses in other areas, such
as in Quadrant 2, this would be advantageous.
 Quadrant 2
Lists the strategies associated with a match between the company's weaknesses
with external opportunities.
Strategies in this quadrant would address the choice of either improving upon
weaknesses to turn them into strengths, or allowing competitors to take
advantage of opportunities in the marketplace.
 Quadrant 3
o Matches the company's strengths and external threats.
o Strategies in this quadrant may aim to transform external threats into
opportunities by changing the company's competitive position through use of
its resources or strengths.
o Another strategic option in this quadrant is for the company to maintain a
defensive strategy to focus on more promising opportunities in other
quadrants.
 Quadrant 4
 Matches a company's weaknesses and the threats in the environment.
 These are the worst possible scenarios for an organization.
 However, because of the competitive nature of the marketplace, any company is
likely to have information in this quadrant.
 Strategies in this quadrant may involve using resources in other quadrants to exploit
opportunities to the point that other threats are minimized. Additionally, some issues
may be moved out of this quadrant by otherwise neutralizing the threat or by
bolstering a perceived weakness.

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Once a strategy is decided on in each quadrant for the issues facing the company, these
strategies require frequent monitoring and periodic updates. An organization is best served
by proactively determining strategies to address issues before they become crises.

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