BUSINESS POLICY & STRATEGY – BBA VI

Unit IV Part 1 Notes: Strategic Framework: Strategic analysis & choice, Strategic gap analyses, portfolio
analyses – BCG, GE, product market evolution matrix, experience curve, directional policy matrix, life
cycle portfolio matrix, grand strategy selection matrix.

STRATEGIC ANALYSIS AND CHOICE

Strategic analysis and choice is a systematic process that organizations undertake to assess
their current situation, evaluate potential strategies, and make informed decisions about
the direction they should take to achieve their objectives. It involves analysing both internal
and external factors, identifying opportunities and threats, and selecting the most appropriate
strategies to create a competitive advantage. Strategy analysis and choice focuses on
generating and evaluating alternative strategies, as well as on selecting strategies to pursue.

The firm’s present strategies, objectives, and mission together with the external and internal
audit information, provide a basis for generating and evaluating feasible alternative strategies.
Unless a desperate situation faces the firm, the alternative strategies represent incremental
steps that move the firm from its current position to a desired future state. Alternative
strategies are derived from the firm’s vision, mission, objectives, external audit, and internal
audit and are consistent with past strategies that have worked well. Strategic analysis and
choice provide organizations with a structured approach to navigate complexities, align
resources, and make informed decisions about their future direction. It helps organizations
stay competitive, adapt to changing circumstances, and achieve their long-term goals.

The strategic analysis discusses the analytical techniques in two stages i.e. techniques
applicable at corporate level and then techniques used for business-level strategies. The
techniques that can be used by businesses for corporate level strategic analysis and choice
include BCG matrix, GE nine-cell planning grid, Hofer’s matrix, Shell Directional Policy
Matrix. Techniques for business- level strategic analysis and choice include SWOT analysis,
experience curve analysis, grand strategy selection matrix, grand strategy clusters etc. Some
of these major techniques are discussed in this unit.

GAP ANALYSIS

A gap analysis (also known as a needs analysis) is the process of comparing the current
business performance with the desired performance. The "gap" in a gap analysis is where
the business currently stands versus where the owners want the business to be. Gap analysis
is a technique used to assess the current performance or state of an organization, process, or
project and identify the gaps between the current situation and the desired future state. It
involves comparing the present performance or conditions with the desired or ideal state in
order to identify areas where improvements are needed.
Gap analysis helps organizations identify resource gaps, such as skill deficiencies, technology
gaps, or resource constraints, or bottlenecks in existing processes. By analysing these gaps,

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organizations can identify opportunities for streamlining processes, eliminating redundancies,
improving workflow, and enhancing overall operational efficiency. By understanding these
gaps, organizations can allocate resources effectively to address the areas of improvement
and ensure that the necessary resources are available to support strategic objectives.

TYPES OF GAPS
The term ‘strategy gap’ means the inconsistencies between actual performance and the
desired one, as mentioned in the organization’s mission, objectives, and strategy for reaching
them. It is a threat to the firm’s future performance, growth, and survival, which is likely to
influence the efficiency and effectiveness of the company.
There are four types of Gaps:

Fig: Types of Gaps

1. Performance Gap: The difference between anticipated performance and the actual
performance.
2. Product/Market Gap: The gap between budgeted sales and real sales is termed as
product/market gap.
3. Profit Gap: The variance between the targeted and real profit of the company.
4. Manpower Gap: When there is a lag between the essential number and quality of
workforce and actual manpower strength in the organization, it is known as manpower
gap.

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Alternative Courses of Action
For various types of gaps, various types of strategies are opted by the firm to get over it. In
case gaps are discovered, the organization’s management has three alternatives:

i. Do nothing: if the variations are minimal, the organisation can choose not to take any
action.
ii. Redefine the objectives: If there is any variation between objectives and forecast, first
and foremost the organization’s top executives need to check whether the objectives
are realistic and achievable or not. If the objectives are deliberately set at a high level,
the company should redefine them.
iii. Change the Strategy: Finally, to bridge the gap between the organization’s
objectives and forecast, the organisation can go for changing its entire strategy, if the
other two alternatives are considered and rejected.

Gap analysis is a valuable tool for organizations to assess their current state, identify areas
for improvement, set realistic goals, allocate resources effectively, and make informed
decisions to bridge the gaps and move towards desired outcomes. It supports performance
improvement, strategic planning, risk management, compliance, and overall development.

PORTFOLIO ANALYSIS STRATEGIES

Strategic portfolio analysis involves identification and evaluation of all products or service
groups offered by company on the market (also called product mix) and preparing specific
strategies for every group according to its relative market share and actual or projected
sales growth rate. It can be also used to make strategic decision about strategic business units.
Portfolio strategy pertains to the mix of business units and product lines that fit together in a
logical way to provide synergy and competitive advantage for the whole corporation/
organisation.

Portfolio planning is a process that helps executives assess their firms’ prospects for success
within each of its industries, offers suggestions about what to do within each industry, and
provides ideas for how to allocate resources across industries. Portfolio planning first gained

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widespread attention in the 1970s, and it remains a popular tool among executives today.
During the 1960s and 1970s a number of management consulting companies developed a
series of conceptual techniques aimed to help the top officers of diversified corporations to
better manage their portfolio of businesses. Portfolio analysis in strategic management allows
to answer key questions about how to shape the present and future business portfolio (of
product or services) in order to reduce the risk of functioning in a changing environment, and
increase the effects of the implemented strategy.

The two best-known portfolio planning methods are the Boston Consulting Group Portfolio
(BCG) Matrix and the McKinsey / General Electric Matrix. In both methods, the first step
is to identify the various Strategic Business Units (SBUs) in a company’s portfolio. An SBU
has a unique business mission, product line, competitors, and markets relative to other SBUs
in the corporation. Executives in charge of the entire corporation generally define an overall
strategy and then bring together a portfolio for the strategic business units to carry it out.
Popular techniques considered suitable for corporate portfolio analysis are discussed here.
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BCG MATRIX (GROWTH-SHARE MATRIX)

BCG Growth-Share Matrix (also known as BCG matrix, BCG analysis, or Boston Box) was
developed by Bruce Henderson in the early 1970s for Boston Consulting Group, world known
management consulting company. The Boston Consulting Group matrix presents different
business units or major product lines based on their relative market share and the growth rate
of the market. The model is useful in brand marketing, strategic management, production
management and business portfolio analysis.

The BCG (for Boston Consulting Group) matrix is illustrated below. The BCG matrix
organizes businesses along two dimensions—business growth rate and market share.
Business growth rate refers to how rapidly the entire industry is increasing. Market share
defines whether a business unit has a larger or smaller share than competitors. The
combinations of high and low market share and high and low business growth provide four
categories for a corporate portfolio.

Fig: BCG Matrix

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1. Stars: SBUs that are stars have a high share of a high-growth market and typically need
large amounts of cash to support their rapid and significant growth. Stars also generate
large amount of cash for the organization and are usually segments in which management
can make additional investments and earn attractive returns. The star is visible and
attractive and will generate profits and a positive cash flow even as the industry matures
and market growth slows. The star is important because it has huge growth potential, and
profits should be plowed into this business as investment for future growth and profits.

2. Cash Cow: SBUs that are cash cows have a high market share in a market that is not
growing very much. As a result of the strong market position, these SBUs provide the
organization with large amounts of cash, but since their market is not growing
significantly, the cash is generally used to meet the financial demand of the organization
in other areas, such as the expansion of another star SBU.

3. Question Marks: SBUs that are question marks have a small share in a rapidly growing
market. These are also called Problem Children. They are called question marks because
it is uncertain whether management should invest more cash in them to gain a larger share
of the market or eliminate them. The question marks produce little but require a lot of
cash resources. If they are able to strengthen their position, they can become stars and
over time, when market growth decreases, turn into cash cows; or it could fail.

4. Dogs: SBUs that are dogs have a relatively small share in a market that is growing very
little. They may barely support themselves and therefore, they produce little but also
require few investments. In some cases, they actually drain off cash resources generated
by other SBUs. Dogs are worthless cash-traps, they do not bring sufficient profits for a
company. The dog is a poor performer and may be targeted for divestment or liquidation
if turnaround is not possible.

On the basis of the growth-share matrix the following strategic recommendations are
provided:
i. The recommendation for stars is to invest for growth. There are good prospects for
SBUs with have relative high share in a growing market.
ii. There is a potential for question marks, although there is a low market share. There
could be possibilities to make stars out of them, but there is the risk that question marks
degrade into dogs.
iii. The strategic implication of cash cows is to exploit their strong positions, but not to
spend much money on them. The positive cash flows should be invested in stars and
occasionally in problem children.
iv. The strategic conclusion for dogs is to disinvest or withdraw. Earnings will be low and
little or no profit will be made now and in the future.

Saunders (1997: 94) summarizes: ‘Milk the cows, invest in the stars, divest the dogs and
analyze the problem children to determine whether they can be growing into stars or whether
they will degenerate into dogs’.

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 BCG MATRIX FOR AMUL

Amul brand is a prominent and popular name in the dairy industry in India. It produces milk,
butter, and other dairy-related products and successfully caters to the Indian population. The
exercise of BCG Matrix on the brand can furnish critical information about the products and
the product lines that are a pivotal source of revenue for the organization. The BCG matrix for
Amul is as follows:
i. Stars: The products which are considered as Stars of Amul are Amul Ice cream and Amul
Ghee. These two products have a high market share and have adequate possibilities to
grow in the near future. Amul Ghee has also been a Star for the company as the brand has
been able to acquire a 30% hike in its sales while the market share clinged by the product
is around 18% along with a yearly turnover of more than Rs 1,700 Crores.
ii. Question Mark: Amul Lassi is diagnosed as a Question Mark as their capability as a
major derivation of profitability remains quite bleak. Amul lassi has been brought about
in the market with the agenda to magnify the market share and give a tough competition
with the other beverages available in the market. The healthy milk from Amul possesses a
huge potential to swell in the future considering the expansion of interest and demand for
healthy products, refreshments, and beverages.
iii. Cash Cows: There are three products under the umbrella of Amul that come under the
Cash Cow category and they are Amul Milk, Amul Butter, and Amul Cheese. The market
share of these products is not likely to undergo colossal gains but their current spot makes
them a high revenue contributor.
iv. Dogs: Amul has two products that have not been able to generate sales and revenues as
per the estimation. One of the noteworthy examples in this regard is Amul Chocolates and
Amul Pizza. The competitors make it tough to amplify the market shares to a notable degree
which can turn this product to become an outstanding source of sustainable revenues.
However, if the sales figures do not proceed towards betterment, a probable measure
would be to take the path of divestment of the above-mentioned brands.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business
units and makes it possible to compare many business units at a glance. But BCG Matrix is
not free from limitations, such as-
i. This four-celled approach is considered as to be too simplistic.
ii. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.
iii. Market is not clearly defined in this model.
iv. High market share does not always leads to high profits. There are high costs also
involved with high market share.

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 v. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.
vi. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.

GE/ McKINSEY MATRIX

The GE screen matrix is essentially a derivation of the Boston Consulting Groups matrix. It
was developed by McKinsey and Co. for General Electric as it had been recognized that the
Boston Consulting Group matrix was not flexible enough to take broader issues into account.
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. A business can plot these chosen units on the grid to
help it in determining which strategy to apply.

Fig: GE McKinsey Matrix

The GE McKinsey Matrix comprises two axes. The attractiveness of the market is represented
on the y-axis and the competitiveness and competence of the business unit are plotted on the
x-axis. Both axes are divided into three categories (high, medium, low) thus creating nine
cells. The business unit is placed within the matrix using circles. The size of the circle
represents the volume of the turnover. The percentage of the market share is entered in the
circle. An arrow represents the future course for the business unit, as shown above. As can be
seen, the model is very useful for analysing business units against multiple factors rather than
the 2-dimensional approach of the BCG. In doing so, businesses will have a starting point in
which to build their strategy for allocating resources and expanding products.

These Strategies can be:

1. Grow/Invest: (Safe to Invest) Units that land in this section of the grid generally have
high market share and promise high returns in the future so should be invested in.

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 2. Hold/Selectivity (Selective Investment or hold): Units that land in this section of the
grid can be ambiguous and should only be invested in if there is money left over after
investing in the profitable units.
3. Harvest/Divest (Danger Zone): Poor performing units in an unattractive industry end
up in this section of the grid. This should only be invested in if they can make more
money than is put into them. Otherwise they should be liquidated.

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 is a more sophisticated business portfolio framework than the BCG matrix.
• Identifies the strategic steps the company needs to take to improve the performance of
its business portfolio.

Disadvantages
• Requires a consultant or a highly experienced person to determine industry’s
attractiveness and business units’ strength as accurately as possible.
• It doesn’t take into account the synergies that could exist between two or more
business units.

McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:
1. Market attractiveness is used as the dimension of industry attractiveness, instead of
market growth. Market attractiveness includes a broader range of factors other than just
the market growth rate that can determine the attractiveness of an industry / market.
2. Competitive strength replaces market share as the dimension by which the competitive
position of each SBU is assessed. Competitive strength likewise includes a broader range
of factors other than just the market share that can determine the competitive strength of
a Strategic Business Unit.
3. Finally, the GE Matrix works with a 3X3 matrix, while the BCG Matrix has only 2X2.
This also allows more sophistication.

GE MATRIX OF PATANJALI

• Patanjali’s Dantkanti, Honey and Ghee operate in the green segment giving the
organization opportunities to go ahead and grow & build the product. The green zone pushes
an organization for expansion strategies.
• Patanjali’s Candy, Fruit juice, and medicines takes place in yellow category signifying that
brand should hold the product for some time and makes necessary developments. The yellow
area suggests making strategies aimed at maintaining stability.
• Patanjali’s Home care category like agarbatti, dish wash bar etc comes under red area due to
the presence of other strong competitors. The red segment signifies that company should start
harvesting the brand. Brand harvesting means maximizing your profit by reducing your
expenditure on brand due to its decline phase in product life cycle.

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 HOFER’S PRODUCT-MARKET EVOLUTION MATRIX

Charles W. Hoffer has suggested a further refinement of GE/Mckinsey portfolio matrix by

identifying companies, particularly new businesses, that are about to accelerate their growth.
This matrix is also called ‘life-cycle portfolio matrix’. According to this model, a firm’s
business is positioned in a 15-cell matrix based on two major variables viz., stage of
production-market development (phase of development of the market and product as per
PLC) and the competitive position.

Hofer’s matrix reflects the stage of development of the product or market. Business units are
placed on a grid showing their stage of product-market evolution and their competitive
position. Circles represent the SBU (A B C D) and the pie wedges represent the market share
of the business unit. Hoffers evolution matrix are useful to develop strategies that are
appropriate at different stages of the product life cycle.
An illustrative graph representing Hofer’s matrix given in figure below provides potential
strategies for different units placed in the matrix.

Fig: Hofer’s Product-Market Evolution Matrix

In Hofer’s matrix, the vertical axis represents the stages of product-market evolution and
horizontal axis represents the SBU’s competitive position. In this matrix, three stages of
competitive position of SBU (viz., strong, average and week) are shown on horizontal axis.
The vertical axis shows the industry’s state in the evolutionary life cycle, starting with initial
development and passing through the growth, competitive shake-out, maturity, saturation and
decline stages.
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The matrix can be interpreted as follows:
SBU A with average competitive position and in development stage, holds out prospects for
future development and deserves expansion and desired financial resources to be allowed to
exploit the opportunities.
SBU B with strong competitive position and in growth stage requires to adopt growth
strategies to make it a future winner.

SBU C with weak competitive position which is in growth stage of the industry should give
lot of attention and requires a careful formulation of marketing strategies to make it more
competitive in the industry.
SBU D with moderately strong position is in the shake-out stage needs close attention and
careful marketing strategy formulation. This may also require adoption of growth strategies.
SBU E with average competitive position and in maturity stage of the industry needs to adopt
stability strategies.
SBU F with moderately strong competitive position and is in the maturity stage of the industry
life cycle. Needs the stability, harvest and retrenchment strategies to be adopted. No further
funds to be invested in this SBU. The market strategies require to hold the market position
without fail.
SBU G with moderately weak competitive position and is in the decline state of the industry
life cycle. It need to be divested immediately to arrest any cash loss since it is in a position of
losing. Revival of this SBU is not suggested.
The Hofer’s product-market evolution matrix displays business portfolio of an international
firm with relative greater degree of accuracy and completeness.

EXPERIENCE CURVE

Introduced by the Boston Consulting Group, Experience Curve is a concept that states that
there is a consistent relationship between the cumulative production quantity of a company
and the cost of production. The concept of experience curve was first introduced by Boston
Consulting Group (BCG) in the 1960s while analyzing cost behavior in companies. Bruce
Henderson, the group’s founder, led a study into a leading manufacturer of semiconductors
to analyze the relationship between cost behavior and production quantity.

The research found that when the manufacturer doubled the volume of production, there was
a 25% decline in the overall cost of manufacturing. This means that when the total production
capacity (from the first unit to the last) doubles, the value-added costs decline by a constant
percentage. The value-added costs include the cost of manufacturing, marketing, distribution,
and administration. The concept implies that the more experienced a company is in
manufacturing a specific product, the more it can lower its cost of production. As a company
gains know-how, it also gains in terms of labor efficiency, technology-driven

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learning, product efficiency, and shared experience, to reduce the cost per unit as the
cumulative volume of production increases.
The Graphical Representation of Experience Curve is as hereunder:

When representing an experience curve on a graph, the cost per unit of production is plotted
on the Y-axis, while the cumulative production quantity is plotted on the X-axis. The unit cost
of production includes the cost incurred by the company to add value to the product but
excludes the cost of purchasing the materials. The curve shows that as the company increases
its overall cumulative production quantity, the unit costs decline at a constant rate. The decline
goes on without limit and is surprisingly consistent, even from one industry to another. In
some cases, the absence of experience in some industries may be viewed as an outcome of
mismanagement.

Implications of the Experience Curve

Based on the research conducted by BCG, we can deduce that the experience curve of lower
unit costs tends to become stronger for large businesses that are market leaders in their
respective industries. A company that benefits from the effects of an experience curve enjoys
several advantages over its competitors. As the business grows and lowers its unit production
costs, it will gain a bigger market share over its rivals, increasing its profit potential. Since
the company enjoys cost advantages over competitors due to the reduced cost of production,
it can develop a penetrative pricing strategy by setting a low price to attract more customers
to purchase its products. On the downside, the experience curve can sometimes come to an
abrupt end when the competitors discover the strategy and replicate the cost reductions
without making huge capital investments to gain experience. The experience curve can also
come to an end when new technologies are introduced, and the company will need to create
a new curve. It must upgrade its processes by replacing the old experience curve with a new
one that allows it to retain its competitive advantage.

Criticisms of the Experience Curve

i. Complacency: One of the criticisms of the experience curve is that it makes market
leaders complacent with their achievements. By getting the benefits of experience curve
effects, the companies become reluctant to continually innovate and lower the unit costs
because of their experience. As a result, such companies become satisfied with their level
of achievement. They begin resisting change, which may eliminate their cost benefits of
the experience curve.

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ii. Inability to measure its effects: Another criticism of the experience curve is that its
effects are closely related to economies of scale, and it will be impossible to differentiate
between the two. Economies of scale are the cost benefits gained due to an increased level
of production, whereas experience curve effects are the cost benefits achieved through
experience by performing repetitive tasks. Both concepts are intertwined, and it is
difficult to differentiate between experience and increased level of production.

DIRECTIONAL POLICY MATRIX

The Directional Policy Matrix (DPM) wa developed by Shell Chemicals, U.K. It is another
portfolio model that helps the companies in identifying one balanced business portfolio.
The Matrix is another refinement upon the Boston Consulting Group (BCG) Matrix. As with
the GE Business Screen, the location of a Strategic Business Unit (SBU) in any cell of the
matrix implies different strategic decisions.

The competitive capability of the company is determined on the basis of three factors, such
as market position, production capability and product research and development. The
profitability prospects of a business are determined on the basis of market growth rate, market
quality and environmental prospects. The DPM is an aid to the top management in strategic
planning for a conglomerate with diverse position in terms of their prospects and competitive
capabilities. The model is positioned in 3 x 3 matrix. The vertical axis represents the
company’s competitive capability graded in three classes viz., weak, average and strong. The
horizontal axis represents the business sector prospects which are categorized into
unattractive, average and attractive.

Each of the zones in Shell’s Directional Policy Matrix is described as follows:

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1. Market Leadership: The SBU’s business sector prospects are attractive and the
company’s competitive capabilities is also strong. The company can adopt offensive
strategies to increase its market share and attain market leadership through innovations,
capacity additions and R&D experiments. The economies of scale will also help in
attaining cost leadership also. The company can apply growth strategies to such SBUs.

2. Growth: The SBU’s industry attractiveness is average and the company’s competitive
capability is strong in this area. This requires infusion of additional funds to support
product innovation, R&D activities, capacity expansion etc. They should adopt growth
strategies in this situation with caution. The sales promotion and advertising will enable
the company to increase its market share.

3. Cash Generation: The business sector prospects are bleak but the SBUs competitive
capability is strong, which make the SBU to generate cash inflow with its internal
strength. Very little additional investments maybe allowed for such SBUs but expansion
programs should not be undertaken unless the industry attractiveness is improved
substantially.

4. Try Harder: The business sector prospects are attractive for the SBU, but the
company’s competitive capability is average. These SBUs need additional resources to
strengthen their capabilities. Niche is the suitable strategy in these situations. Lot of
efforts are required to tap the prospects of the business sector.
5. Custodial: The prospects of the business sector is average in this SBU and the
company’s competitive capability is also average. It is suggested to hold the position with
little support or investment from outside the SBU. When the position is more clear, either
the SBU can continue in such business or withdraw the investment by focusing on other
profitable business.

6. Phased Withdrawal: The SBU falling quadrant has unattractive prospects of the
business sector in which the company’s competitive capability is average. The company
should withdraw from this business gradually in a phased manner by adopting harvest
strategy.

7. Double or Quit: The business prospects are attractive but the company’s capability is
weak in this area of business. The company has two options to remedy the situation i.e.-
(a) invest more to exploit the prospects of the business sector, (b) if not possible to better
the situation, it is suggested to quit such business altogether.

8. Phased Withdrawal: The competitive capability of this SBU is weak and its business
sector prospects are average. The investment in these SBUs should be withdrawn in a
phased manner. The company may adopt harvest strategy in these SBUs, without any
further new investments in these businesses.

9. Divestment: In the first quadrant, the company’s competitive capabilities are weak and
its business prospects are also unattractive. The SBU will be in a position cash outflow

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 and will be a looser. This represents ‘dog position in BCG matrix. The situation is not
likely to improve in future. Therefore, the investments should be withdrawn immediately
by divestment. The resources so released can be properly used elsewhere.

THE PRODUCT LIFE CYCLE PORTFOLIO MATRIX

Developed by Barksdale and Harris, the product life cycle portfolio matrix is specifically
designed to deal with the criticisms that the BCG matrix ignores products that are new, and
that it overlooks markets with a negative growth rate, i.e. markets that are in decline. Because
of this, the product life cycle portfolio matrix includes a specific focus on the growth and
maturity stages of the product life cycle in developing the portfolio technique. However, the
same assumptions that underlie both the conventional product life cycle experience curves
and the BCG growth/share matrix are also built into this model.

These assumptions, which have been witnessed in BCG Matrix and PLC are repeated:

i. Products have finite life spans. They enter the market, pass through a period of growth,
reach a stage of maturity, subsequently move into a period of decline and finally
disappear.
ii. Strategic objectives and marketing strategy should match the market growth rate
changes to take advantage of the challenges and opportunities as the product goes
through the different stages.
iii. For most mass-produced products, costs of production are closely linked to experience
(volume). Hence, for most types of products, the unit cost goes down as volume
increases.
iv. Expenditures – investment in plant and equipment and marketing expenses are directly
related to rate of growth. Consequently, products in growth markets will use more
resources than products in mature markets.
v. Margins and the cash generated are positively related to share of the market. Products
with high relative share of the market will be more profitable than products with low
shares.
vi. When the maturity stage is reached, products with high market share generate a stream
of cash greater than that needed to support them in the market. This cash is available
for investment in other products or in research and development to create new products.

Building on these assumptions, Barksdale and Harris also highlight the additional issues
which arise out of pioneering new products, which they label infants, and products in
declining markets which they label as either warhorses (high share products in declining
markets) or dodos (low share products in declining markets). The result is combined
PLC/product portfolio model as shown in Figure. This approach is based on the notions that
both the initial and decline stages of the life cycle are important and, more specifically,
recognizes that product innovations as well as products with negative growth rates are
important and should not be ignored in strategic analysis.

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The result is an expanded portfolio matrix, as shown in Figure. The seven-cell matrix is
composed of the usual four BCG categories plus the new categories as outlined:

i. Warhorses: When a market begins to exhibit negative growth, cash cows become
warhorses. These products still have high market share and hence can still be
substantial cash generators. This might require reduced marketing expenditure or it
may take the form of selective withdrawal from market segments or elimination of
certain models.

ii. Dodos: These are products that have low shares of declining markets with little
opportunity for growth or cash generation. The appropriate strategy is to remove them
from the portfolio, but if competitors have already removed themselves from the
market it may still be marginally profitable to remain. Timing is thus crucial.

iii. Infants: These are pioneering products that possess a high degree of risk. They do not
immediately earn profits and consume substantial cash resources. The length of the
innovation can vary from a short time to an extended period with a product that is
innovative enough to require a shift in buying habits.

Fig: Product Life Cycle Portfolio Matrix

Uses and limitations of the product life cycle portfolio matrix:

The developers of the matrix claim that it is comprehensive. Regardless of the level of analysis
– corporate, business division or product/market categories – they suggest that the expanded
model provides an improved system for classifying and analysing the full range of market
situations. Classification of products according to this expanded model is meant to reveal the
relative competitive position of products, indicate the rate of market growth and enable the
configuration of strategic alternatives in a general sense if not in specific terms. It is claimed
that it provides an improved framework that identifies the cash flow potential and the
investment opportunity for every product offered by an organization. In addition, it helps
conceptualize the strategic alternatives of all product/market categories of an organization

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 GRAND STRATEGY SELECTION MATRIX

Grand strategy selection matrix is a popular tool for developing feasible strategies also known
as the grand strategy matrix. It is the instrument to create alternative and various strategies
for the company. Grand strategy selection matrix is a four-cell guide to strategies based upon
whether the business is (1) operating from a position of strength or weakness or (2) relying
on its resources versus requiring acquiring resources by merger or acquisition.

All organizations and divisions can be placed in one of the four strategy quadrants of this
grand strategy matrix. This strategy matrix is developed in 2 dimensions: market growth and
competitive position. Data required for placing SBUs (Strategic Business Units) in this matrix
is got from the portfolio analysis. Grand strategy matrix gives feasible strategies for
organizations that are listed in attractiveness’s sequential order in the matrix’s each quadrant.

The grand strategy selection matrix has become a powerful tool in developing alternative
strategies for companies. Grand strategy matrix is the instrument for creating alternative and
different strategies for the organization. All companies and divisions can be positioned in
one of the Grand Strategy Matrix’s four strategy quadrants. The Grand Strategy Matrix is based
on two dimensions: competitive position and market growth. Data needed for positioning
SBUs in the matrix is derived from the portfolio analysis. This matrix offers feasible strategies
for a company to consider which are listed in sequential order of attractiveness in each
quadrant of the matrix.

Basically, this strategy matrix is based on 4 crucial elements:

• Rapid Market Growth
• Slow Market Growth
• Strong Competitive Position
• Weak Competitive Position

DR. TABASSUM ALI 16

 1. Quadrant I (Strong Competitive Position and Rapid Market Growth): Firms
located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic
position. The first quadrant refers to the firms or divisions with strong competitive
base and operating in fast moving growth markets. Such firms or divisions are better
to adopt and pursue strategies such as market development, market penetration,
product development etc. The idea behind is to focus and make the current competitive
base stronger. In case such firms possess readily available resources they can move on
to integration strategies but should never be at the cost of diverting attention from
current strong competitive base.

2. Quadrant II (Weak Competitive Position and Rapid Market Growth): Firms

positioned in Quadrant II need to evaluate their present approach to the marketplace
seriously. Although their industry is growing, they are unable to compete effectively,
and they need to determine why the firm’s current approach is ineffectual and how the
company can best change to improve its competitiveness. The suitable strategies for
such firms are to develop the products, markets, and to penetrate into the markets.
Because Quadrant II firms are in a rapid-market-growth industry, an intensive strategy
(as opposed to integrative or diversification) is usually the first option that should be
considered. To achieve the competitive advantage or becoming market leader
Quadrant II firms can go into horizontal integration subject to availability of resources.
However if these firms foresee a tough competitive environment and faster market
growth than the growth of the firm, the better option is to go into divestiture of some
divisions or liquidation altogether and change the business.

3. Quadrant III (Weak Competitive Position and Slow Market Growth): The firms
fall in this quadrant compete in slow-growth industries and have weak competitive
positions. These firms must make some drastic changes quickly to avoid further demise
and possible liquidation. Extensive cost and asset reduction (retrenchment) should be
pursued first. An alternative strategy is to shift resources away from the current
business into different areas. If all else fails, the final options for Quadrant III
businesses are divestiture or liquidation.

4. Quadrant IV (Strong Competitive Position and Slow Market Growth): Finally,

Quadrant IV businesses have a strong competitive position but are in a slow-growth
industry. Such firms are better to go into related or unrelated integration in order to
create a vast market for products and services. These firms also have the strength to
launch diversified programs into more promising growth areas. Quadrant IV firms
have characteristically high cash flow levels and limited internal growth needs and
often can pursue concentric, horizontal, or conglomerate diversification successfully.
Quadrant IV firms also may pursue joint ventures.

Generally, strategies listed in the first quadrant of Grand Strategy Matrix are intended to
maintain a firm’s competitive edge and boost rapid growth, while the other three quadrants
represent appropriate actions to be taken to reach the best position, which is the first quadrant.

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Increasing market share, expanding to new markets and creating new products are common
strategies.

The efficiency of the management greatly depends upon adoption of and pursuing the
strategies consistent with the market and competitive position of the firm. For devising
appropriate strategy management is required to reveal the firm’s competitive position and
market place through a scientific analysis of its current position. Grand Strategy Matrix is
there to simplify the job.

Advantages of Grand Strategy Matrix is that, this model allows better implementation of
strategy because of the intensified focus and objectivity. It conveys a lot of information about
corporate plans in a simplified format. However, Grand Strategy Matrix may not be as simple
as it seems, upon application to real life due to the unforeseen factors and also complications
in the business world. In addition, the relationship between market share and profitability
differs in different industries. Another issue about this model is that, the grand strategy
options are mostly concern on cash related issues but not values of the firm.

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