Course Code: 19MBA509A Course Title: Strategic Management: Module Leaders

Course Code: 19MBA509A
Course Title: Strategic Management
Module Leaders :
Mr. Rajeev Prasad
rajeev.ms.mc@msruas.ac.in
1
Faculty of Management and Commerce © Ramaiah University of Applied Sciences
At the end of this session, student will be able to:
– Discuss Porter’s generic strategies model
– Apply Boston Consulting Group (BCG) Matrix, Political,

Economic, Social and Technological (PEST) Analysis,
General Electrics (GE) Matrix in managerial decisions
2
Content
Environmental Analysis (Contd..):

– PEST Analysis
– Porter’s five forces model
– Boston Consulting Group (BCG) Matrix
– GE matrix
3
Environmental Analysis
4
PEST ANALYSIS
5
Introduction
PEST analysis describes a framework of macro-environmental factors used
in the environmental scanning component of strategic management
P- Political
E- Economical
S- Social
T- Technological
Some analysts added Legal and rearranged the mnemonic to SLEPT
6
PEST Analysis
• The model has recently been further

extended to STEEPLE and STEEPLED, adding Ethics
and Demographic factors
• It is a part of the external analysis when conducting a
strategic analysis
• Overview of the macro-environmental factors a company has to take
into consideration
• It is a useful strategic tool for understanding market growth or decline
7
Composition of PEST
(a)
Political
(b)
(c) Economic
Social
(d)
Technologica
l
8
Composition of PEST Contd..
The basic PEST analysis includes four factors:
a) Political factors:
• Are to what degree the government intervenes in the economy
• Includes areas such as tax policy, labor law, environmental law, trade
restrictions, tariffs and political stability
• Political factors includes goods and services which the
government wants to provide or be provided
9
b) Economic factors:
• Include growth, interest rates, exchange rates
and
economic the
• inflation rate on how businesses operate and make decisions
Major impacts
10
c) Social factors:
• Cultural aspects and health consciousness, population growth
rate, age distribution, career attitudes and emphasis on safety
• Trends in social factors affect the demand for a
company's products and how that company operates.
• Example, an aging population may imply a smaller
and less- willing workforce
11
d) Technological factors:
• Include technological aspects such as R&D activity,
automation, technology incentives and the rate of technological
change
• Barriers to entry, minimum efficient production level
and
influence outsourcing decisions
• Technological shifts can affect costs, quality, and lead to innovation
12
Expanding the analysis to PESTLE or PESTEL adds:
1. Legal factors
– Includes discrimination law, consumer law,
antitrust law, employment law, and health and safety
law
– These factors can affect how a company operates,
its costs, and the demand for its products
13
2) Environmental factors:
• Include ecological and environmental aspects such as weather,
climate, and climate change, which may especially affect industries
such as tourism, farming, and insurance
• Impacts of climate change is affecting how companies operate and
the products they offer
14
• Other factors for the various offshoots include:
1. Demographic factors: Include gender, age, ethnicity,

knowledge of languages, disabilities, mobility, home
ownership, employment status, religious belief or practice,
culture and tradition, living standards and income level
2. Regulatory factors: Include acts of parliament and associated

regulations, international and national standards, local
government by-laws, and mechanisms to monitor and ensure
compliance with these
15
Porters 5 Forces Model
16
Introduction
– Porter five forces analysis is a framework to analyze level of

competition within an industry and business strategy
development
– Derive five forces that determine the competitive intensity and
attractiveness of a market
– Attractiveness in this context refers to the overall industry
profitability
17
Introduction Contd..
• This analysis is
associated
with its principal
innovator Michael E. of
Porter Harvard
University
18
Porter’s 5 Forces
• Porter referred to these forces as the micro environment,

to contrast it with the more general term macro
environment
• They consist of those forces close to a company that affect
its ability to serve its customers and make a profit
19
Porter’s 5 Forces Contd..
• A change in any of the forces requires a business unit to re-

assess
the marketplace given the overall change in industry information
• The overall industry attractiveness does not imply
that every firm in the industry will return the same profitability
• Firms are able to apply their core competencies,
business model or network to achieve a profit above the industry
average
20
Porter's forces include - three forces from 'horizontal'

five
competition;
– The threat of substitute products or services
– The threat of established rivals
– The threat of new entrants
21
And two forces from 'vertical' competition:
₋ The bargaining power of suppliers and
₋ The bargaining power of customers
Porter developed his Five Forces analysis in reaction to the then-

popular SWOT analysis, which he found unrigorous and ad hoc
22
1. Threat of new entrants:

• Profitable markets that yield high returns will attract new firms
• This results in many new entrants, which will decrease profitability

for all firms in the industry
• Unless the entry of new firms can be blocked by incumbents the
abnormal profit rate will trend towards zero (perfect competition)
23
1. Threat of New Entrants Contd..
• The following factors can have an effect on how much of a threat
new entrants may pose:
1. The existence of barriers to entry (patents, rights, etc.)
2. Government policy
3. Capital requirements
4. Economies of scale
5. Product differentiation
6. Brand equity
24
2. Threat of Substitute Products or Services
The existence of products outside of the realm of the common product

boundaries increases the propensity of customers to switch to
alternatives
• Potential factors:
1. Buyer propensity to substitute
2. Relative price performance of substitute
3. Number of substitute products available in the market
25
3. Bargaining Power of Customers (Buyers)
• The bargaining power of customers is described as the market of

outputs
• The ability of customers to put the firm under pressure, which also
affects the customer's sensitivity to price changes
• Firms can take measures to reduce buyer power, such
as
implementing a loyalty program
26
3. Bargaining Power of Customers (Buyers) Contd..
1. Buyer concentration to firm concentration ratio
2. Degree of dependency upon existing channels of distribution
3. Buyer information availability
4. Availability of existing substitute products
5. Differential advantage (uniqueness) of industry products
27
4. Bargaining Power of Suppliers
• The bargaining power of suppliers is described as the market of

inputs
• Suppliers of raw materials, components, labor, and services to the
firm can be a source of power over the firm when there are few
substitutes
• Suppliers may refuse to work with the firm or charge excessively
high prices for unique resources
28
4. Bargaining Power of Suppliers Contd..
1. Supplier switching costs relative to firm switching costs
2. Degree of differentiation of inputs
3. Impact of inputs on cost or differentiation
4. Presence of substitute inputs
5. Strength of distribution channel
6. Supplier concentration to firm concentration ratio
7. Employee solidarity (e.g. labor unions)

29
5. Intensity of Competitive Rivalry
• For most industries the intensity of competitive rivalry is the major

determinant of the competitiveness of the industry.
1. Sustainable competitive advantage through innovation
2. Competition between online and offline companies
3. Level of advertising expense
4. Powerful competitive strategy
30
BCG Matrix
(Boston Consulting Group)
31
32
BCG Matrix
• Companies that are large enough to be organized into

strategic
business units face the challenge of allocating
• In 1970’s the Boston Consulting Group developed a model for
managing a portfolio of different business units (or major product
lines)
• The BCG growth-share matrix displays the various business units on a
graph of market growth rate vs. market share
33
BCG Matrix Contd..
Resources are allocated to business units according to where they are

situated on the grid as follows:
1. Cash Cow- A business unit that has a large market share in a mature
slow growing industry. Cash cows require little investment and
generate cash that cab be used to invest in other business units.
34
BCG Matrix Contd..
2. Star- A business unit that has a large market share in a fast growing
industry. Stars may generate cash, but because the market is growing
rapidly they require investment to maintain their lead. If successful, a
star will become a cash cow when its industry matures.
35
BCG Matrix Contd..
3. Question Mark- A business unit that has a small market share in

a high growth market. These business units require resources to
grow market share, but whether they will succeed and become
stars is unknown
36
BCG Matrix Contd..
4. Dog- A business unit that has a small market share in a mature

industry. A dog may not require substantial cash, but it ties up
capital that could better be deployed elsewhere. Unless a dog has
some other strategic purpose, it should be liquidated I there is
little prospect for it to gain market share
37
BCG Matrix Contd..
• The BCG matrix provides a framework for allocating resources among

different business units and allows one to compare many business at
a glance.
• However, the approach has received some negative criticism for the
following reasons:
1. The link between market share and profitability is questionable
since increasing market share can be very expensive
38
BCG Matrix Contd..
2.The approach may over emphasize high growth since it

ignores the potential declining markets
3.The model considers market growth rate to be given. In
practice, the firm may be able to grow the market
39
©
©M.
Ramaiah
S. Ramaiah
University
University
of Applied
of Applied
SciencesFaculty
Sciences of Management and Commerce
GE Matrix
40
GE Matrix
• The GE Matrix was developed by General Electrics with the

assistance of the consulting firm McKinsey and Company
• The model identifies the market position and profitability of
different business units based on their market attractiveness and
business unit strength
41
GE Matrix Contd..
• G.E. multi factorial analysis is a technique used in
brand marketing and product management to help a company
decide:
(1) What product(s) to add to its product portfolio
(2) Which opportunities in the market they should continue to

invest in
• It is conceptually similar to B.C.G. analysis, but somewhat more

complicated
42
GE Matrix Contd..
• The G.E matrix helps a strategic business unit evaluate its overall
strength
• Each product, brand, service, or potential product is mapped in this
industry attractiveness/business strength space
• This is more advanced form of growth matrix compared to
BCG Matrix
• The mail aims of the GE Matrix is discussed further
43
Main Aims of GE Model
• The main aims of the GE Matrix are as follows:
1. Analyze the current portfolio of and their position

business compared to others
2. Develop growth strategies for each individual business

units by adding new products and business to the portfolio
3. Decide the business units to be sold or invested more to exploit

future opportunities
44
Main Aims of GE Model Contd..
• GE Matrix is focused on 2 dimensions
Market Business Unit

attractivenes Strength
s
• Market attractiveness refers to the market or industry in which the
business units operate. Factors affecting market attractiveness are:
Market Market
Market Size
Profitability Predictability
Macro Economic
Factors
Market Growth New
Competition
and Potential Opportunities
45
Main Aims of GE Model Contd..
Assets and Market under the

• Business unit strength refers to Business Unit
Relative Brand Strength compared
the competitive position of to others
each of the business units. It Market Share and Growth in
Market Share
specifies the strength, market Brand Loyalty
share and market position of Distribution Network and
Population Reach
business units
RD, Patents and Innovations
• Factors affecting the More Investment and access to
Capital
business unit strength are as
follows: 46
GE Matrix Model
• Based the
on two
dimensions, one to
matrix is formed
be used as a GE3x3
Model
The matrix
shown is with
respective the strategi
c
directions
47
GE Matrix Model Contd..
• It leads to 4
decisions strategic based
outcome of the on
model:
the
 Invest
 Protect
 Harvest
 Divest
48
 Investment is made in the market on the basis of the existing

market attractiveness in terms of growth. Also affected by the
respective market share of an organization
 Protect condition refers to the situation where a business doesn’t
want fresh investment rather it is willing to have security of the
given investment. So that it does not result in losses
49
 Harvest refers to the situation the business wants to

where
generate cash out of the given investment
 Divest refers to a condition where a business has finally decided to
sell an undertaking or a part of its undertaking. Divestment is the
last option which a business organization can undertake
50
Summary
• PEST analysis describes a framework of macro-environmental

factors used in the environmental scanning component of strategic
management
• Porter five forces analysis is a framework to analyze level of
competition within an industry and business strategy development
• The BCG growth-share matrix displays the various business units on
a graph of market growth rate vs. market share
51
Summary
• The GE Matrix identifies the market position and profitability of

different business units based on their market attractiveness and
business unit strength
• GE Matrix develops growth strategies for each individual business
units by adding new products and business to the portfolio
52

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Course Code: 19MBA509A Course Title: Strategic Management: Module Leaders

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Copyright:

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Course Code: 19MBA509A

Course Title: Strategic Management

– Discuss Porter’s generic strategies model

– Apply Boston Consulting Group (BCG) Matrix, Political,

Environmental Analysis (Contd..):

– Porter’s five forces model

– Boston Consulting Group (BCG) Matrix

Some analysts added Legal and rearranged the mnemonic to SLEPT

• The model has recently been further

• Other factors for the various offshoots include:

1. Demographic factors: Include gender, age, ethnicity,

2. Regulatory factors: Include acts of parliament and associated

– Porter five forces analysis is a framework to analyze level of

• Porter referred to these forces as the micro environment,

• A change in any of the forces requires a business unit to re-

Porter's forces include - three forces from 'horizontal'

– The threat of established rivals

– The threat of new entrants

And two forces from 'vertical' competition:

₋ The bargaining power of suppliers and

₋ The bargaining power of customers

Porter developed his Five Forces analysis in reaction to the then-

1. Threat of new entrants:

• This results in many new entrants, which will decrease profitability

1. The existence of barriers to entry (patents, rights, etc.)

The existence of products outside of the realm of the common product

1. Buyer propensity to substitute

2. Relative price performance of substitute

3. Number of substitute products available in the market

• The bargaining power of customers is described as the market of

1. Buyer concentration to firm concentration ratio

2. Degree of dependency upon existing channels of distribution

3. Buyer information availability

4. Availability of existing substitute products

5. Differential advantage (uniqueness) of industry products

• The bargaining power of suppliers is described as the market of

1. Supplier switching costs relative to firm switching costs

2. Degree of differentiation of inputs

3. Impact of inputs on cost or differentiation

4. Presence of substitute inputs

5. Strength of distribution channel

6. Supplier concentration to firm concentration ratio

7. Employee solidarity (e.g. labor unions)

• For most industries the intensity of competitive rivalry is the major

2. Competition between online and offline companies

3. Level of advertising expense

4. Powerful competitive strategy

• Companies that are large enough to be organized into

Resources are allocated to business units according to where they are

3. Question Mark- A business unit that has a small market share in

4. Dog- A business unit that has a small market share in a mature

• The BCG matrix provides a framework for allocating resources among

2.The approach may over emphasize high growth since it

• The GE Matrix was developed by General Electrics with the

(2) Which opportunities in the market they should continue to

• It is conceptually similar to B.C.G. analysis, but somewhat more

• The main aims of the GE Matrix are as follows:

1. Analyze the current portfolio of and their position

2. Develop growth strategies for each individual business

3. Decide the business units to be sold or invested more to exploit

• GE Matrix is focused on 2 dimensions

Market Business Unit

Assets and Market under the