Chapter 5:

Strategy Analysis
and Choice

Business Strategy
SWOT analysis
Strengths and
Weaknesses,
Opportunities
and Threats
 BCG matrix

Question Marks (= high growth, low market share)

Question - Either invest heavily or sell off or invest nothing
Marks and generate whatever cash it can. Increase market
share or deliver cash

Stars (=high growth, high market share)

Stars - Require capital expenditure in excess of the
cash the generate, in order to maintain their
market position.

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 BCG matrix

Cash Cow(=low growth, high market share)

Cash - Investments needed should be low because
Cow of the low growth and market conditions are
more stable. Keep profits high

Dogs (=low growth, low market share)

Dogs declining market

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 Space analysis
- Financial
strength
- Environmental
stability
- Industry
strength
- Competitive
advantage
 Space analysis
Factors determining each of key issues in the
SPACE analysis
a. Environmental stability
+ Technological changes (E.g Garment industry)
+ Rate of inflation
+ Demand variability (Demand diversification)
+ Price range of competing products
+ Barriers to entry into market
+ Competitive pressure/rivalry
+ Price elasticity of demand (quantity and price)
+ Pressure from substitute products
Space analysis
Space analysis
Space analysis
 SPACE MATRIX
1. Select a set of variables
2. Assign value from +1 (worst) to +6 (best) to each of
variables on FS, IS.
Assign value from -1 (best) to -6 (worst) to each of variables
on ES, CA.
!!! On FS, CA, compare to competitors (Benchmarking)
On IS, ES compare to other industries (benchmarking)
3. Compute an average score for FS, CA, IS, ES by summing
the values given to variables of each dimension; then
dividing by the number of variables
4. Plot the average scores for FS, IS, ES, and CA
5. Add the two scores on the x-axis and two score on the y-
axis, . Plot intersection of the new xy point
6. Draw directional vector
 SPACE MATRIX

• Aggressive: FS
+ Market development
+ Market penetration Conservative Aggressive
+ Product development
+ Forward integration
+ Backward integration
CA IS
+ Horizontal integration
• Conservative:
Defensive Competitive
+ Market development
+ Market penetration
+ Product development ES
+ Horizontal integration
+ Liquidation
 SPACE MATRIX

• Defensive: FS

+ Retrenchment
Conservative Aggressive
+ Related diversification
+ Unrelated diversification
CA IS
+ Liquidation
• Competitive: Defensive Competitive
+ Related diversification
ES
+ Unrelated diversification
+ Joint ventures
 McKinsey Matrix

One way to consider the competitive position

of an SBU is by means of directional policy
matrix (General Electric’s Business Screen-
GE/McKinsey Matrix), which is a form of
portfolio analysis. This is map out:
- How attractive the industry is in which they
are operating;
- The competitive strength.
 McKinsey Matrix
Directional policy matrices
One way to consider the
DATA DIAGRAM
competitive position of an
SBU is by means of
directional policy matrix
(General Electric’s Business
Screen-GE/McKinsey Matrix),
which is a form of portfolio
analysis. This is map out:
- How attractive the industry
is in which they are
operating;
- The competitive strength. 16
• Typical (external) factors that affect Market
Attractiveness
– Market size
– Market growth rate
– Market profitability
– Pricing trends
– Competitive intensity/rivalry
– Overall risk of returns in the industry
– Entry barriers
– Opportunity to differentiate products and services
– Demand variability
– Segmentation
– Distribution structure
– Technology development
– Social, Political, regulatory….
• Typical (internal) factors that affect
Competitive Strength of a SBU
– Strength of assets and competencies
– Relative brand strength (marketing)
– Market share
– Market share growth
– Customer loyalty
– Relative cost position (cost structure compared with
competitors)
– Relative profit margins (compared to competitors)
– Distribution strength and production capacity
– Record of technological or other innovation
– Quality
– Access to financial and other investment resources
– Management strength
 The GE matrix has 5 steps
One - Identify your products,
1 brands, experiences, solutions,
or SBU's.

Two - Answer the question,

2 What makes this market so 1
attractive?
Three - Decide on the factors
3 that position the business on 5 2
the GE matrix.

Four - Determine the best ways

4 to measure attractiveness and
business position. 4 3
Five - Finally rank each SBU as
5 either low, medium or high for
business strength, and low, medium
and high in relation to market
attractiveness.
20