Tools for corporate level strategic management

The Boston Consulting Group Matrix
 It is the simplest way to portray a

corporation’s portfolio of investments.  Each of the corporation’s product lines or business units is plotted on the matrix according to • The growth rate of the industry • Its relative market share

The Boston Consulting Group Matrix

The Boston Consulting Group Matrix
 Stars  Stars are market leaders  They at the peak of their PLC  Maintain high share of the market  When market rate slows down, stars become

cash cows

The Boston Consulting Group Matrix
 Cash cows  They bring in far more cash than is needed to

maintain their market share.  As these products move along the decline stage of their life cycle, they are milked for cash that will be invested in new question mark products

The Boston Consulting Group Matrix
 Question marks  Also called as problem child or wild cats.  Are new products with the potential for

success that need a lot of cash for development.  If one of these products is to become a star, money must be taken from more mature products and spend on question marks.

The Boston Consulting Group Matrix
 Dogs  Those products with low market share that do

not have the potential to bring in much cash.  Dogs should be either sold off or managed carefully for the small amount of cash they can generate

The Boston Consulting Group Matrix
 After the current positions of a company’s

product lines or business units have been ploted, a projection can be made of their future positions, assuming there is no change in strategy.  The goal of any company is to maintain a balanced portfolio  Always try to harvest mature products in declining industries to support new ones in the growing industries.

The Boston Consulting Group Matrix
 Dogs should be promptly harvested or

liquidated.  A product with a low share can be very profitable if the product has a niche in the market.  Some firms may also keep a dog because its presence creates an entry barrier for potential competitors.

The Boston Consulting Group Matrix
 BCG matrix is popular because it is

quantifiable and easy to use.  It has been criticised because it is too simple.  IT puts too much emphasis on market share and on being the market leader.

The GE Planning Grid
 GE developed a matrix with the assistance of

McKinsey.  It includes nine cells  It is based on  Long-term industry attractiveness  Business strength and competitive position.

The GE Planning Grid
 GE industry attractiveness includes market

growth rate, industry profitability, size and pricing practices among other possible opportunities and threats.  Business strength or competitive position includes market share as well as technological position, profitability and size among other possible strengths and weaknesses.

The GE Planning Grid
 The individual product lines or business units

are identified by a letter and are plotted as circles on the GE Planning Grid.

 The area of each circle is in proportion to the

size of the industry in terms of sales.

 The pie slices within the circles depict the

market share of each product line or business unit.

The GE Planning Grid

The GE Planning Grid
 The following four steps have to be taken to

draw product lines or business units  Assess overall industry attractiveness for each product line or business unit on a scale from 1(very unattractive) to 5 ( very attractive).  Assess business strength and competitive position for each product line on a scale of 1(very weak) to 5 (very strong)

The GE Planning Grid
 Plot the business unit ‘s current position on

the grid.
 Plot the firm’s future portfolio. Compare and

study whether there is a performance gap between projected and desired portfolios.

The GE Planning Grid
 The nine-cell GE planning grid is an

improvement over the BCG.  It considers more variables than the BCG.  However it is quite complicated and cumbersome.  The numerical estimates of industry attractiveness or business strength is subjective.  Difficult to depict new and developing products.

The life cycle concept
 It describes how organisations / products

grow, develop and eventually decline.  It has four stages  Introduction  Growth  Maturity  Decline

The life cycle concept

The life cycle concept
 A revival phase may occur during the maturity

or decline stage.
 The key is for management to b e able to

identify when the firm is changing stages and to make the appropriate strategic and structural adjustments.

The life cycle concept
Introduction Growth Maturity Decline

Popular Strategies

Concentration on a niche

Horizontal and vertical integration

Concentric and conglomerate diversification

Profit strategy followed by retrenchment

Likely structure

Entrepreneur dominated

Functional Decentralizati management on into profit emphasized or investment centres

Structural surgery

The McKinsey Framework

The McKinsey Framework
 The 7- S framework consists of • Strategy • Structure • Systems  Managers tend to rely on the above stated

Ss.

The McKinsey Framework
 Leaders have an inherent inclination for

utilization of the soft Ss of
• Style • Staff • Skills • Shared goals

The McKinsey Framework
 It is a management model that describes 7

factors to organize a company in an holistic and effective way.  Managers must take into consideration all seven factors for successful implementation of a strategy.  All the factors are interdependent.

The McKinsey Framework
 Relative importance of each factor may vary

over time.  The 7-S framework was first mentioned in ‘The art of Japanese management ’by Richard Pascale and Anthony Athos in 1981  At the same time Tom Peters and Wateman were exploring what made a company excellent.

The McKinsey Framework
 It appeared ‘ In Search of Excellence ’by

Peters and Waterman.  It was taken up as a basic tool by global management consultancy McKinsey.

The McKinsey Framework
 Shared values – Central beliefs and attitudes  Strategy – Plans for allocation of a firm’s

scarce resources over time to reach identified goals  Structure – The way in which organization units relate to each other.  System – The procedures, processes and routines that characterise how the work should be done.

The McKinsey Framework
 Staff – Number and types of personnel within

the organization.  Style – Management style and culture.

The McKinsey Framework - Strength
 Diagnostic tool for understanding

organizations that are ineffective.  Guides organizational change.  Combines rational and hard elements with emotional and soft elements.  Managers must act on all the Ss in parallel and all Ss are interrelated.

Organizational structure

The meaning of organisational structure
Structure:  is the pattern of relationships among positions in the organisation & among members of the organisation  allows the application of the process of management  creates a framework of order & command through which the activities of the organisation can be planned, organised, directed & controlled

Different organizational structures for different strategies
 Each structure tends to support some

corporate strategies over others.  Simple structure  It has no functional or product category  It is appropriate for a small, entrepreneurdominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche.  Employees tend to be generalists and jack-ofall-trades.

Simple structure

Owner - Manager

Workers

Functional structure
 It is appropriate for a medium-sized firm with

several product lines in one industry.
 Employees tend to be specialists in the

business functions important to that industry
 E.g. manufacturing, marketing, finance,

human resources etc.

Functional structure
Top management

Manufacturing

Sales

Finance

Personnel

Divisional structure
 It is appropriate for a large corporation with

many product lines in several related industries.
 Employees tend to be functional specialsit

organized according to product/market distinction.

Divisional structure
 It is appropriate for a large corporation with

many product lines in several related industries.  Employees tend to be functional specialists organized according to product / market distinctions.  Management attempts to find some synergy among divisional activities through the use of committees and horizontal linkages.

Divisional structure
Top management

Product Div A

Product Div B

Manufacturing

Sales

Finance

Manufacturing

Sales

Finance

Strategic business units (SBUs)

 It is divisions or groups of divisions composed

of independent product-market segments that are given primary responsibility and authority for the management of their own functional areas.

Strategic business units (SBUs)
 An SBU may be of any size or level but it must have  A unique mission  Identifiable competitors  An external market focus  Control of its business functions.

Strategic business units (SBUs)
 The idea is to decentralize on the basis of

strategic elements.
 General Foods organized its products into

SBUs on the basis of consumer-oriented menu segments: breakfast food, beverage, main meal, desert and pet foods.

Conglomerate structure
 It is appropriate for a large corporation with

many product lines in several unrelated industries.
 The unrelated nature of the subsidiaries

prevents any attempt at gaining synergy among them.

Does strategy drive structure?
 Structure should follow strategy or to put it

another way, form should follow function.
 Michael Porter at Harvard defines strategy as,

"an integrated set of actions that a company designs to produce a sustainable competitive advantage and thus attain superior performance."

Does strategy drive structure?
 A strategy should contain three major

elements:  a look at the future (anticipation),  a look at today (awareness),  and a focus on what should be done (action).

Does strategy drive structure?
 Structure should always reflect the strategy.  What is most important is that the structure

serves the customer's needs and makes implementing the strategy easy.

 the best structures, like strategies, need to

adapt to changing circumstances.

 a structure is not something fixed and rigid.

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