STRATEGIC CHOICE-TRADITIONAL

APPROACH

11/19/23 DR. ASHUTOSH KUMAR 1

 Strategic Analysis?

It is all about analyzing the strength of businesses’ position and

understanding the important external factors that may influence
that position.

Strategic analysis refers to the process of conducting research on a

company and its operating environment to formulate a strategy.

Strategic analysis is essential to formulate strategic planning for

decision making and smooth working of that organization. With the
help of strategic planning, the objective or goals that are set by the
organization can be fulfilled.

11/19/23 DR. ASHUTOSH KUMAR 2

 Strategic Analysis

 Strategic analysis can be done at two levels:

 Corporate level &
 Business levels.

 Corporate level strategic analysis treats a corporate entity as

constituting a portfolio of businesses under a corporate umbrella.
 The analysis focuses on the question of what should a corporate entity
do regarding the several businesses that are there in its portfolio.

 Business level strategic analysis refers a detailed outline which

incorporates a company's policies, goals, and actions with the focus on
being how to deliver value to customers while maintaining a
competitive advantage.

 In Nutshell, While business-level strategy focused on how an

organization generates value by positioning products and services
relative to the offerings of other firms in the same industry, corporate-
level strategy deals with a portfolio of distinct products and services.

11/19/23 DR. ASHUTOSH KUMAR 3

 Corporate Portfolio Analysis
 Corporate portfolio analysis refers to a set of techniques
that help strategists in taking strategic decision about
individual products or businesses in a firm’s portfolio.

 It is primarily used for competitive analysis and strategic

planning in multi-product and multi-business firms.

 The advantage in adopting a portfolio approach is that

resources could be targeted at the corporate level to those
businesses that possess the greatest potential for creating
competitive advantage.

 There are several techniques that could be considered as

corporate portfolio analysis techniques. Some of them are
BCG or product portfolio, General Electric’s Nine cell,
Hofer’s Product-Market Evolution etc.
11/19/23 DR. ASHUTOSH KUMAR 4
 BCG Model

 The Boston Consulting Group model is a

growth-market share matrix—a matrix
depicting a company’s competitiveness
(cash flow generation or profitability) in
terms of market growth rate, and its
relative market share.

 The model is also known as a portfolio

matrix.

 The BCG model is based on the

assumption that the relative market share
is a good indicator of profitability of a
product or product group.

11/19/23 DR. ASHUTOSH KUMAR 5

 BCG Matrix

Relative Market Share means market share in relation to the largest

competition. It is calculated as total sales/revenue divided by sales of
largest competitor in the industry.

Company Market Share

A (Firm) 20%
B (largest Competitor) 60%

Relative market share of A firm is 20/60= 1/3

11/19/23 DR. ASHUTOSH KUMAR 6

 BCG Model

 The BCG model was originally conceived

and developed in the early 1970s to
analyse the performance or cash flow
generation of the strategic business unit of
a company.
 BCG matrix has used ‘cash use’ for growth
rate and ‘cash generation’ for market
share.
 Four performance situations of product
groups or SBUs were identified as four
quadrants in the matrix, namely ‘stars’,
cash ‘cows’, ‘question marks’ (also ‘wild
cats’or ‘problem child) and ‘dogs’.

11/19/23 DR. ASHUTOSH KUMAR 7

 BCG—GROWTH SHARE MATRIX
20% Question
H
Stars
marks
Cash use ( Growth rate)

I Desani &
G Kinley energy drink
H “Full Throttle”
or Fanta &
10% Sprite
Cash cow Dogs
L
O
W

Coke &
Limca sweetened juice
0% drink Hi-C or Kinley
10 x

0.1x
1x

Soda
High Low
8
Cash Generation (Relative Market Share)
 BCG—GROWTH SHARE MATRIX
20% Question
H
Stars
marks
Cash use ( Growth rate)

I Youtube
G Google Drive
H

10%
Cash cow Dogs
L
O
W

Google Search Google Group and

Engine
0% Orkut
10 x

0.1x
1x

High Low
9
Cash Generation (Relative Market Share)
 Strategies for Resource Allocation

Provide financial resources if SBU (Problem

Build
Build Child) has potential to be a Star.

Preserve market share if SBU is a successful

Hold
Hold Cash Cow. Use cash flow for other SBUs.

Increase short-term cash return.

Harvest
Harvest Appropriate for all SBUs except Stars.

Get rid of SBUs with low shares in

Divest
Divest low-growth markets.

11/19/23 DR. ASHUTOSH KUMAR 10

 • Based on the fundamentals of portfolio
analysis, another matrix which helps in
strategy formulation is referred to as General
The GE Electric Matrix.

(McKinsey) • A Strategic tool for portfolio planning.

Matrix • A Portfolio being a businesses that make up a
company (SBUS).
• Example: Hilton Hotels has many SBUs. E.g.,
DoubleTree, Waldorf Astoria etc.
• No business has an infinite amount of money.

• The Matrix helps you to determine:

• Which SBUs should receive low or more
investment.
• What new products or SBUs are needed
in the portfolio.
• Which products or SBUs should be
divested.

11/19/23 DR. ASHUTOSH KUMAR 11

11/19/23 DR. ASHUTOSH KUMAR 12
 The model holds that, for the purpose of strategic
planning, a company can appropriately rate its
different businesses on the basis of two main
parameters– industry attractiveness and the
company’s business strength.

Industry •Industry attractiveness indicates how hard or

attractivenes easy it will be for a company to compete in the
s market and earn profits.

•The more profitable the industry is the more

attractive it becomes.

•Analyst keep on researching how attractive an

industry is based on the various components.

11/19/23 DR. ASHUTOSH KUMAR 13

 •How strong a business unit is against its
competitors in an industry.

•Is the business unit having any competitive

advantage over others.
Company’s
business •How sustainable is this competitive advantage?
strength.

11/19/23 DR. ASHUTOSH KUMAR 14

 • Industry size

• Industry profitability: entry barriers, exit

barriers, supplier power, buyer power, threat
of substitutes.

Component • Industry structure (consolidated or

fragmented).
of Industry
Attractivene • Stage of industry in industry life cycle.
ss
• Demand fluctuations.

• Macro environmental factors ( PEST or

PESTEL).

11/19/23 DR. ASHUTOSH KUMAR 15

 • Market share growth compared to rivals.

• Brand strength (use brand value for this).

• Profitability of the company.

Component • Customer loyalty.

of Business
• Strength of a value chain (Value chain
Strength Analysis).

• Brand image

• Corporate image.

11/19/23 DR. ASHUTOSH KUMAR 16

How to use
the model
1.Determine the
competitive strength of
each SBUs.
2.Plot the information on
the matrix.
3.Identify the future
direction of each SBUS.
4.Choose where to invest.

11/19/23 DR. ASHUTOSH KUMAR 17

Advantages Disadvantages

Helps to prioritize the limited resources Requires a consultant or a highly

in order to achieve the best returns. experienced person to determine
industry’s attractiveness and business
unit strength as accurately as possible.

For analyzing business units' It is costly to conduct.

performance.

Identifies the strategic steps the It doesn’t consider the synergies that
company needs to make to improve the could exist between two or more
performance of its business portfolio. business units.

11/19/23 DR. ASHUTOSH KUMAR 18

DISCUSSION