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Module 4 : Strategic Choice • Liquidation entails the closing of a

business through the sale of all its
assets. The strategy is often used
when a business cannot be sold
through any of the other methods,
usually due to dependence on a
specific employee/owner of the
company or overall poor
strategy/performance.
• Divestment is the method of selling
subsidiary properties, investments,
or divisions to increase the parent
company's value. Often known as
the divestiture, it is the reverse of
an acquisition which is generally
achieved when the asset or division
• Turnaround strategy is a process of restructuring and transforming the company of the company does not meet
from loss to profitability. It allows the company to stabilize its performance by expectations.
getting back the industrial units to their original units. Now, the success of the
strategy relies on the commitment and dedication of the top management.
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Integration strategies are processes that businesses can use to enhance their
competitiveness, efficiency or market share by expanding their influence into new
areas. These areas can include supply, distribution or competition.
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Corporate Strategy | Corporate Level Strategy | Types of corporate level strategie

s in Hindi (youtube.com)
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Strategic choice models for multi-business companies

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INTRODUCTION
When the company is in more than one business, it can select more than one strategic alternative
depending upon demand of the situation prevailing in the different portfolios.
It is necessary to analyze the position of different business of the business house which is done by
corporate portfolio analysis.
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PORTFOLIO ANALYSIS
Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of products
or business units to be managed for the best possible returns.
When an organization has a number of products in its portfolio, it is quite likely that they will be in
different stages of development.
Some will be relatively new and some much older. Many organizations will not wish to risk having
all their products at the same stage of development.
It is useful to have some products with limited growth but producing profits steadily, and some
products with real growth potential but may still be in the introductory stage
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The aim of portfolio analysis
to analyze its current business portfolio and decide which businesses should receive more or
less investment
to develop growth strategies, for adding new businesses to the portfolio
to decide which business should not longer be retained
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Balancing the portfolio
Balancing the portfolio means that the different products or businesses in the portfolio have to be
balanced with respect to four basic aspects –
Profitability
Cash flow
Growth
Risk
 TECHNIQUES OF PORTFOLIO ANALYSIS
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This analysis can be done by any of the following technologies –

BCG matrix
GE nine cell matrix
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BCG MATRIX
developed by Boston Consulting group in 1970s.
It is also called as the growth share matrix.
This is the most popular and most simplest matrix to describe the corporation’s portfolio of
businesses or products.
The BCG matrix helps to determine priorities in a product portfolio.
Its basic purpose is to invest where there is growth from which the firm can benefit, and divest
those businesses that have low market share and low growth prospects
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Each of the products or business units is plotted on a two dimensional matrix consisting of
relative market share – is the ratio of the market share of the concerned product or business unit in
the industry divided by the share of the market leader
market growth rate – is the percentage of market growth, by which sales of a particular product or
business unit has increased
The Boston Consulting Group’s Growth-Share Amity Business School

Matrix

High
Stars Question marks
4
?? ? 1
Market Growth Rate

3
5 2
Cash cows Dogs
8
7
Low 6
High Low
Relative Market Share
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Analysis of the BCG matrix
the matrix reflects the contribution of the products or business units to its cash flow. Based on this
analysis, the products or business units are classified as –
Stars
Cash cows
Question marks
Dogs
 Stars – high growth, high market share
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Stars are products that enjoy a relatively high market share in a strongly growing market.
They are potentially profitable and may grow further to become an important product or category for
the company.
The firm should focus on and invest in these products or business units. The general features of
stars are -
High growth rate means they need heavy investment
High market share means they have economies of scale and generate large amount of cash
But they need more cash than they generate
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The high growth rate will mean that they will need heavy investment and will therefore be cash
users.
Overall, the general strategy is to take cash from the cash cows to fund stars.
Cash may also be invested selectively in some problem children (question marks) to turn them into
stars. The other problem children may be milked or even sold to provide funds elsewhere.
Over the time, all growth may slow down and the stars may eventually become cash cows. If they
cannot hold market share, they may even become dogs.
Cash Cows – Low growth, high market share Amity Business School

These are the product areas that have high relative market shares but exist in low-growth markets.
The business is mature and it is assumed that lower levels of investment will be required.
On this basis, it is therefore likely that they will be able to generate both cash and profits.
Such profits could then be transferred to support the stars
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features of cash cows
They generate both cash and profits
The business is mature and needs lower levels of investment
Profits are transferred to support stars/question marks
The danger is that cash cows may become under-supported and begin to lose their market
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Although the market is no longer growing, the cash cows may have a relatively high market share
and bring in healthy profits.
No efforts or investments are necessary to maintain the status quo.
Cash cows may however ultimately become dogs if they lose the market share.
Question Marks – high growth, low market share Amity Business School

Question marks are also called problem children or wild cats.

These are products with low relative market shares in high growth markets.
The high market growth means that considerable investment may still be required and the low
market share will mean that such products will have difficulty in generating substantial cash.
These businesses are called question marks because the organization must decide whether to
strengthen them or to sell them.
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features of question marks
Their cash needs are high
But their cash generation is low
Organization must decide whether to strengthen them or sell them
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Although their market share is relatively small, the market for question marks is growing rapidly.
Investments to create growth may yield big results in the future, though this is far from certain.
Further investigation into how and where to invest is advised.
 Dogs – Low growth, low market share
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These are products that have low market shares in low growth businesses.
These products will need low investment but they are unlikely to be major profit earners.
In practice, they may actually absorb cash required to hold their position.
They are often regarded as unattractive for the long term and recommended for disposal
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features of dogs
They are not profit earners
They absorb cash
They are unattractive and are often recommended for disposal.
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Turnaround can be one of the strategies to pursue because many dogs have bounced back and
become viable and profitable after asset and cost reduction.
The suggested strategy is to drop or divest the dogs when they are not profitable.
If profitable, do not invest, but make the best out of its current value.
This may even mean selling the division’s operations.
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ADVANTAGES OF BCG MATRIX
it is easy to use
it is quantifiable
it draws attention to the cash flows
it draws attention to the investment needs
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LIMITATIONS OF BCG MATRIX
it is too simplistic
link between market share and profitability is not strong
growth rate is only one aspect of industry attractiveness
it is not always clear how markets should be defined
market share is considered as the only aspect of overall competitive position
many products or business units fall right in the middle of the matrix, and cannot easily be classified.
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GE Nine-cell matrix
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GE Nine-cell matrix

This matrix was developed in 1970s by the General Electric

Company with the assistance of the consulting firm, McKinsey &
Co, USA. This is also called GE multifactor portfolio matrix.
The GE matrix has been developed to overcome the obvious
limitations of BCG matrix. This matrix consists of nine cells
(3X3) based on two key variables:
business strength
industry attractiveness
 GE Nine Cell Matrix Amity Business School

Industry Business Unit Strength

Attractiveness

Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

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Business Strength
The horizontal axis represents business strength and the vertical axis represent industry
attractiveness
The business strength is measured by considering such factors as:
relative market share
profit margins
ability to compete on price and quality
knowledge of customer and market
competitive strengths and weaknesses
technological capacity
caliber of management
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Business Strength

 Current market share

 Brand image
 Production capacity
 Corporate image
 Profit margins relative to
competitors
 R & D performance
 Promotional effectiveness
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Industry/ Market Attractiveness
Industry attractiveness is measured considering such factors as :
market size and growth rate
industry profit margin
competitive intensity
economies of scale
technology
social, environmental, legal and human aspects
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Market Attractiveness

 Annual market growth rate

 Overall market size
 Historical profit margin
 Current size of market
 Market structure
 Market rivalry
 Demand variability
 Global opportunities
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The nine cells of the GE matrix represent various degrees of industry attractiveness (high, medium
or low) and business strength (strong, average and weak).
After plotting each product line or business unit on the nine cell matrix, strategic choices are made
depending on their position in the matrix.
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GE matrix is also called “Stoplight” strategy matrix because the three zones are like green, yellow
and red of traffic lights.
Green indicates invest/expand – if the product falls in green zone, the business strength is strong
and industry is at least medium in attractiveness, the strategic decision should be to expand, to
invest and to grow.
Yellow indicates select/earn – if the product falls in yellow zone, the
business strength is low but industry attractiveness is high, it needs caution and managerial
discretion for making the strategic choice
Red indicates harvest/divest – if the product falls in the red zone, the business strength is average
or weak and attractiveness is also low or medium, the appropriate strategy should be divestment.
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Advantages
It used 9 cells instead of 4 cells of BCG
It considers many variables and does not lead to simplistic conclusions
High/medium/low and strong/average/low classification enables a finer distinction among business
portfolio
It uses multiple factors to assess industry attractiveness and business strength, which allow users to
select criteria appropriate to their situation
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Limitations
It can get quite complicated and cumbersome with the increase in businesses
Though industry attractiveness and business strength appear to be objective, they are in reality
subjective judgements that may vary from one person to another
It cannot effectively depict the position of new business units in developing industry
It only provides broad strategic prescriptions rather than specifics of business policy
EXAMPLE OF GE NINE CELL MATRIX Amity Business School
About Maruti Udyog Amity Business School

Founded in 1981
Products are Maruti 800, Omni, Alto,SX4,Swift Desire,Swift,A-star, Gypsy,Wagon
R,Ritz,others.
Vision – “The Leader in the Indian Automobile Industry, Creating Customer
Delight and Shareholder’s Wealth;a Pride of India”
Core Values : Our Core Values drive us in every endeavour-
 Customer Obession,
 fast, Flexible & first mover,
 Innovation & creativity
 Networking & Partnership
 Openess & Learning
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Strickland’s Grand Strategy selection matrix

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First Quadrant:
If your business is in this quadrant then you have a strong competitive position and the market is in rapid growth.
Arguably this is the best quadrant to be in, with opportunity high and your position strong.
Second Quadrant:
If your business is in this quadrant then you have a relatively weak competitive situation as a business,
but there’s a lot of opportunity to go for and a lot of success to be had within the market.
The strategies in this position are all about why you’re not taking advantage of the position.
If you’re placed in this quadrant then you know you can change to improve results.
Third Quadrant:
Being in the third quadrant means you have a weak competitive situation and the market is also quite slow.
This is a tricky position because you’re already not doing well and
there isn’t the huge opportunity that presents itself like the second quadrant.
If you find yourself here you need to consider major changes to improve your competitive position, consider areas
such as cost reduction, differentiation or diversification.
Fourth Quadrant:
If you’re placed within the fourth quadrant you have a strong competitive situation, which is great,but your market is
slow to grow or in decline.
This lends itself to strategies such as diversification as you have the funds to innovate in numerous areas
before the market decline becomes unsustainable.
Watch out for cheaper competitors entering the market to attack you as the leader.
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Strong Market Position + Strong Market Growth Strategies:

•Market Development
•Product Development
•Market Penetration
•Backward Integration
•Forward Integration
•Concentric Diversification
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Weak Market Position + Strong Market Growth Strategies:

•Market Development
•Product Development
•Market Penetration
•Horizontal/Vertical Integration
•Liquidation
•Divestiture:A divestiture is when a company or government disposes of all or some of its assets by
selling, exchanging, closing them down, or through bankruptcy. As companies grow, they may
become involved in too many business lines, so divestiture is the way to stay focused and remain profitable
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Weak Market Positioning + Weak Market Growth Strategies:

•Related / Unrelated Diversification
•Conglomerate Diversification
•Retrenchment
•Liquidation
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Strong Market Positing + Weak Market Growth Strategies:

•Related / Unrelated Diversification
•Horizontal / Vertical Diversification
•a growth strategy in which a company seeks to add to its existing lines new products that will appeal to its
existing customers called horizontal diversification .

What is vertical and horizontal diversification?

Vertical diversification, also known as vertical integration, is when you expand forward or backwards in your supply
chain or production process.

•Vertical diversification is also known as vertical integration, and occurs when a company moves up or down the
supply chain by combining two or more stages of production normally operated by separate companies.

•Joint Ventures
•Conglomerate Diversification:a growth strategy in which a company seeks to develop by adding totally unrelated
products and markets to its existing business.

There are some limitations such as:

•It only provides options rather than success criteria around them
•You need to use it with other tools
•The matrix is simplistic so loses some nuance
•Your business may operate in multiple quadrants if you have many products or services
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In the realm of business strategy management, the concepts of co-evolving and patching can be applied to adapt to the
ever-changing business landscape.
Co-evolving in Business Strategy: Co-evolving in business strategy management entails a continuous, dynamic
adjustment of the organization's strategies alongside the evolving market conditions. It emphasizes adaptability and
responsiveness to changes in customer needs, technological advancements, and competitive landscapes. This strategy
involves iterative planning and execution, fostering a culture of agility and innovation within the organization. Co-
evolving allows businesses to stay aligned with current market demands and positions them to seize emerging
opportunities.

Patching in Business Strategy: The patching strategy in business management involves making incremental
adjustments to specific aspects of the existing business model or strategy. These adjustments are akin to patches in
software, aiming to address specific issues, enhance operational efficiency, or introduce small-scale improvements.
Patching is often employed in stable business environments where major disruptions are to be avoided. It allows
organizations to maintain the core stability of their existing strategies while making targeted enhancements to address
evolving challenges.
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Choosing the Right Strategy: In the dynamic landscape of business, choosing between co-evolving and
patching depends on factors such as industry dynamics, competitive pressures, and the organization's risk
tolerance. Co-evolving is beneficial when the business environment is characterized by rapid changes and
uncertainties. Patching, on the other hand, is suitable when stability and predictability are paramount.
Organizations often need to strike a balance, integrating elements of both strategies to ensure they are
responsive to emerging opportunities while maintaining the stability of core business operations. The key is
to align the chosen strategy with the organization's goals and the demands of the external business
environment.