The BCG Matrix Grand Strategies in Steatergic Management Studies mba 4 sem

THE BCG MATRIX GRAND STRATEGIES

Babasab Patil 04/10/23

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Grand Strategies Grand strategies provide basic direction for

strategic actions. They are the basis for coordinated and

sustained efforts directed towards achieving long-term business objectives.

They indicate a time period over which long-term objectives are to be achieved.

Firms involved with multiple industries, businesses, product lines or customer groups usually combine several grand strategies.

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The fifteen grand principles are:1. Concentrated growth e.g. e-bay in online auction

2. Market development e.g. J&J catering to the adults, using sachets for market penetration

3. Product development e.g. personal care products from HUL, newer version of books,

4. Innovation

5. Horizontal integration

6. Vertical integration

7. Concentric diversification

8. Conglomerate diversification

9. Turnaround

10. Divestiture e.g. Sale of TOMCO by Tata, selling of cement division by L&T

11. Liquidation

12. Bankruptcy

13. Joint ventures

14. Strategic alliances

15. Consortia e.g. Mitsubishi, LG


Innovation Innovation is needed since both consumer and

industrial markets expect periodic changes and improvements in the products offered.

Firms seeking to making innovation as their grand strategy seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product.

As the products enters the maturity stage these companies start looking for a new innovation.


Innovation The underlining rationale is to create a new

product life cycle and thereby make similar existing products obsolete.

This strategy is different from the product development strategy in which the product life cycle of an existing product is extended. e.g. Polaroid which heavily promotes each

of its new cameras until competitors are able to match its technological innovation; by this time Polaroid normally is prepared to introduce a dramatically new or improved product.

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Turnaround Sometimes the profit of a company decline

due to various reasons like economic recession, production inefficiencies and innovative breakthrough by competitors.

In many cases the management believes that such a firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences.

This is known as turnaround strategy.


Turnaround typically is begun with one or both of the following forms of retrenchment being employed either singly or in combination.

1. Cost reduction

It is done by decreasing the workforce through employee attrition, leasing rather than purchasing equipment, extending the life of machinery, eliminating promotional activities, laying off employees, dropping items from a production line and discontinuing low-margin customers.


2. Asset reduction

This includes sale of land, buildings and equipment not essential to the basic activity of the firm.

Research have showed that turnaround almost always was associated with changes in top management.

New managers are believed to introduce new perspectives, raise employee morale and facilitate drastic actions like deep budgetary cuts in established programs.


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Turnaround situation The model begins with the depiction of

external and internal factors as causes of a firm's performance downturn.

When these factors continue to detrimentally impact the firm, its financial health is threatened.

Unchecked decline places the firm in a turnaround situation.

A turnaround situation represents absolute and relative to the industry declining performance of a sufficient magnitude to warrant explicit turnaround actions.


Turnaround situation

A turnaround situation represents absolute and relative to the industry declining performance of a sufficient magnitude to warrant explicit turnaround actions.

Turnaround situations may be a result of years of gradual slowdown or months of sharp decline.

For a declining firm, stabilizing operations and restoring profitability almost always entail strict cost reduction followed by shrinking back to those segments of the business that have been the best prospects of attractive profit margins.


Situation severity The urgency of the resulting threat to

company survival posed by the turnaround situation is known as situation severity.

Severity is the governing factor in estimating the speed with which the retrenchment response will be formulated and activated.

When severity is low stability can be achieved through cost reduction alone.


Situation severity When severity is high cost reduction must be

supplemented with more drastic asset reduction measures.

Assets targeted for divestiture are those determined to be underproductive.

More productive resources are protected and will become the core business in the future plan of the company.

E.g . strategy adopted by Citibank


Turnaround response

Turnaround response among successful firms typically include two strategic activities: Retrenchment phase Recovery phase


Retrenchment phase

It consists of cost-cutting and asset-reducing activities.

The primary objective of this process is to stabilize the firm's financial condition.

Firms in danger of bankruptcy or failure attempt to halt decline through cost and asset reductions.

It is very important to control the retrenchment process in a effective and efficient manner for any turnaround to be successful.

After the stability has been attained through retrenchment, the next step of recovery phase begins.


Recovery phase The primary causes of the turnaround

situation will be associated with the recovery phase.

For firms that declined as a result of external problems, turnaround most often has been achieved through creative new entrepreneurial strategies.

For firms that declined as a result of internal problem, turnaround has been mostly achieved through efficiency strategies.

Recovery is achieved when economic measures indicate that the firm has regained its predownturn levels of performance.


Turnaround Strategy

Changing the Leadership

The Main The Main Steps of TurnaroundSteps of Turnaround


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Turnaround Strategy

Redefining the Strategic Focus



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Turnaround Strategy

Asset Sales and Closures



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Turnaround Strategy

Improving Profitability



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Turnaround Strategy

Acquisitions



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BCG MATRIX & GE NINE CELL PLANNING GRID

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BCG MATRIX A concept developed by the Boston

Consulting Group that evaluates SBUs with respect to the dimension of business growth rate and market share.

Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

ALSO CALLED AS PORTFOLIO STRATEGY


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Reviewing the Corporate Portfolio

Portfolio Planning Identifying SBUs Assessing and Comparing SBUs

Relative Market Share Relative Growth Rate


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Formulating Business-Level Strategy It is a strategy formulation within the

strategic business unit in which the concern is how to compete.

The same three GRAND strategies (growth, stability, and retrenchment) apply at the business level, but they are accomplished through competitive actions rather than the acquisition or divestment of business divisions.


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Portfolio Strategy

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BCG Matrix


The BCG MatrixHigh

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Relative Market ShareRelative Market Share04/10/23Babasabpatilfreepptmba.com

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High

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Relative Market ShareRelative Market Share

Stars


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1. Stars(=High growth, high market share) The business has high market share compared to

competitors and it is doing business in high-growth market

Use large amounts of cash and are leaders in the business so they should also generate large amounts of cash.

Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.


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High

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The BCG Matrix

Cash Cows


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2.Cash Cows(=low growth, high market share) The market is not very attractive – low market

growth rate, however the business has high market share compared to competitors.

Profits and cash generation should be high , and because of the low growth, investments needed should be low. Keep profits high

Foundation of a company


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High

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The BCG Matrix

Dogs


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3. Dogs(=low growth, low market share)

This business has low market share and operates in low-growth market.

Avoid and minimize the number of dogs in a company.

Beware of expensive ‘turn around plans’. Deliver cash, otherwise liquidate


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High

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The BCG Matrix

???? ????Question Marks


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Question Marks (= high growth, low market share)

The business unit has low market share compared to competitors, however it is doing business in high-growth market.

Have the worst cash characteristics of all, because high demands and low returns due to low market share

If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog.

Either invest heavily or sell off or invest nothing and generate Whatever cash it can. Increase market share or deliver cash.


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High

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The BCG Matrix

???? ????Question Marks

Cash Cows

Dogs

Stars


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Analysis of Your Enterprise Position

Stars Cash Cows

Question Marks

Dogs

High growthHigh share

Low growthHigh share

High growthLow share

Low growthLow share

Business is likely to generate enough cash to be self sustaining.

Business can be used to support other business units.

defend & maintain

Business requires a lot of cash to maintain market share.

invest more cash

or, divest

Business is a cash trap.

focus on short term avoid risky project limited future


Reviewing the Corporate Portfolio

Strategic Implications Cash Surplus from Cash Cows Used to

Support Question Marks and Stars Question Marks Divested Exit Industry Where SBU is a Dog Firm with Insufficient Cash Cows, Stars,

or Question Marks Should Consider Acquisitions and Divestments


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Limitations of B C G Model: Defining a market, measuring share and growth rate

difficult. In the matrix average growth rate & average market

share not recognized. The relationship between market share and profitability

underlying the BCG matrix – the experience curve effect -varies across industries and market segments.

The BCG matrix is not particularly helpful in comparing relative investment opportunities across different business units in the corporate portfolio.

Strategic evaluation of a set of business requires examination of more than relative market shares and market growth.

It oversimplifies the four classifications.


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G E nine cell planning grid


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Introduction GE came up with the multifactor portfolio

matrix in the 1970’s for the assessment of their SBU’s.

It is similar to BCG matrix

Vertical axis represents industry attractiveness and the horizontal axis represents the company’s strength in the industry or business position


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G E Nine cell planning grid

The General Electrical company is highly admired for the sophistication, maturity& quality of its planning system.

It uses a 3×3 matrix called the General Electric’s Stoplight matrix to guide the allocation of resources.


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BUSINESS

STRENGTH

weak

average

strong

Industry AttractivenessHigh Medium Low

General Electric’s Nine-cell (multi-factor) Port-folio Matrix

0

1000

Invest/grow

Selectivity/earning

Harvest/divest

legend


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This matrix calls for evaluating the business of a firm in terms of two key uses:

Business Strength : How strong is the firm vis-à-vis its competitors ?

Industry strength : What is the attractiveness or potential of the industry ?


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G E’s Nine-cell Planning Grid:

Business Strength: Industry Attractiveness:

Relative market share Market Size and growth rate

Profit margins Industry Profit margins Ability to compete on Competitive intensity

price and quality Seasonality Knowledge of customer Cyclical

and market Economies of scale Competitive strength and Technology

weaknesses Social, environmental, legal,

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G E Nine cell planning grid The commitment of resources to various business is

guided by how they are rated in terms of above two dimensions.

Business which are favorably placed justify substantial commitment of funds.

Business which are unfavorably placed call for divestment.

And business which are placed in between quality for modest investment.


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More advanced than BCG matrix in three ways:

Market growth is replaced be market attractiveness

Market share is replaced by competitive strength

GE uses 6 step approach (BCG-2*2, GE -3*3)


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Attractiveness include

Broader range of factors other than market growth rate.

Depending on the product characteristics, different parameters can select to measure market attractiveness.


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Market attractiveness factors MARKET SIZE MARKET GROWTH MARKET PROFITABILITY PRICING TRENDS COMPETITIVE INTENSITY OPPORTUNITY TO DIFFERENTIATE PRODUCTS

AND SERVICES DISTRIBUTOIN STRUCTURE (EG: RETAIL,

DIRECT, WHOLESALE)


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Factors that affect competitive strength STRENGTH OF ASSETS AND COMPETENCIES

RELATIVE BRAND STRENGTH

MARKET SHARE

CUSTOMER LOYALTY

RELATIVE COST POSITION

DISTRIBUTION STRENGTH

RECORD OF TECHNOLOGICAL AND OTHER INNOVATION

ACCESS TO FINANCIAL AND OTHER INVESTMENT RESOURCES


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Plotting the Information:

1. Select factors to rate the industry for each product line or business unit. Determine the value of each factor on a scale of 1 (very unattractive) to 5 (very attractive), and multiplying that value by a weighting factor.

Industry attractiveness = factor value1 x factor weighting1

+ factor value2 x factor weighting2

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2. Select the key factors needed for success in each of the product line or business unit. Determine the value of each key factor in the criteria on a scale of 1 (very unattractive) to 5 (very attractive), and multiplying that value by a weighting factor.

Business strengths/competitive position = key factor value1 x factor weighting1

+ key factor value2 x factor weighting2

.

.

.

+ key factor value N x factor weighting N


3. Plot each product line's or business unit's current position on a matrix.

4. The individual product lines or business units is identified by a letter and plotted as circles on the GE Business Screen.

5. The area of each circle is in proportion to the size of the industry in terms of sales. The pie slice within the circles depict the market share of each product line or business unit.

6. Plot the firm's future portfolio assuming that present corporate and business strategies remain unchanged. This is shown as an arrow which starts from the circle representing the current position and the tip of the arrow will be the tentative center of the future circle.


Strategic Implications

• Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the matrix as follows:

1. Grow strong business units in:– attractive industries – average business units in attractive

industries– strong business units in average

industries.


1. Hold average business units in:

– average industries– strong businesses in weak industries– weak business in attractive industries.

2. Harvest weak business units in:

– unattractive industries– average business units in unattractive

industries– weak business units in average industries.


The McKinsey MatrixCompetitive PositionCompetitive Position

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Good Medium PoorHigh

Medium

Low

Winner

Winner

Winner

ProfitProducer

AverageBusiness

QuestionMark

Loser

LoserLoser


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There are strategy variations within these three groups. For example, within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might perform a phased harvest of an average business unit in the same industry.

GE business screen represents an improvement over the more simple BCG growth-share matrix.


Limitations

It presents a somewhat limited view by not considering interactions among the business units

It neglects to address the core competencies leading to value creation

Rather than serving as the primary tool for resource allocation, portfolio matrices are better suited to displaying a quick synopsis of the strategic business units.


Protect positionInvest at maximumDigestible rateConcentrate effort on maintaining strength

Invest to buildBuild selectively on strengthsReinforce vulnerable areasChallenge for leadership

Build selectivelySeek ways to overcome weaknessesSpecialize around limited strengths

Build selectivelyInvest heavily in most attractive segmentsEmphasize profitability by raising productivity

Manage for earningsProtect existing business Concentrate investments in segments with good profits, low risk

Limited expansion

Rationalize operations

Protect and refocusManage for current earningsDefend strength

Manage for earnings- Protect position in most profitable segments

DivestSell at time that will maximize cash value cut fixed cost Avoid investment

Industry

attractiveness

high

medium

low

strong Average weak

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Strategies for SBU at different quadrants


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PRESENTATION ON COMPANY GOALS & COMPANY PHILOSOPHY


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• Goals describe future expected outcomes or states. They provide

programmatic direction. They focus on ends rather than means.

• Example 1: provide high quality information services that satisfy

user needs.

• Example 2: acquire or make available, in a timely manner, all

externally produced information resources needed by the

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Company goals effectively state what a company does; it is

the main objective value that a company should be gauged

against. It gives the public a window on how they operate and

what that certain institution means to achieve. The

development of metrics should be gauged on this aspect of the

company..


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Key Characteristics of Goals

Goals must be realistic Goals must include everyone Goals need to be communicated Goals should have different ranges

Have first your long-term goals. This may range from one to two years, to even five years. Yearly goals should be next, then quarterly goals, monthly goals, weekly goals, and ultimately daily goals.


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SMART illustrates the 5 characteristics of an efficient

objective; it stands for Specific - Measurable

- Attainable -Relevant - Timely.

1. Be SPECIFIC!

When it comes of business planning, "specific" illustrates a

situation that is easily identified and understood. In this case,

being "specific" means being "precise".


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Contd…

2. Be measurable!

3. Be attainable!

4. Be relevant!

5. Be timely!


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The Importance of Setting goals

It gives a target to aim to, therefore all actions and efforts will be focused on attaining the objective instead of being inefficiently used;

It gives participants a sense of direction, a glimpse of where they're going to;

It motivates the leaders and their teams, since it is quite the custom of establishing some sort of reward once the team successfully completed a project;

It offers the support in evaluating the success of an action or project.


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Financial Goal Examples

To be earning Rs 6,00,000 a month by 24th December 2010.

To have paid off Rs 1,00,000 mortgage by 30th June 2011.


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Business Goal Examples

To have grown business by 50% by 30th November 2011.


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EX: B. Braun Corporate Video

Growth as a family enterprise - Growth from our own resources.

One true company - Strength in unity worldwide.

Worldwide engagement - Improving market position.

The divisions' fields of competency - Oriented to customer needs.

Modern products - Enhanced by service.

Improved supply chain management - Release of working capital.

Qualified employees - A prerequisite for success.

Benchmarking - Learning from the best

Innovation as motivation - In all fields


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Company philosophy


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Tips for Developing a Company Philosophy

Establishing a solid business philosophy on sets an ethical

precedent within a company, but also enables an organization to

improve relations with employees, partners and customers.

it is essential to avoid becoming overly elaborate. A philosophy

should be clear and memorable, according to experts,


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Ex : VOLVO CAR PHILOSOPHY

Volvo Cars' company philosophy, Our Tomorrow, describes the values that guide the company and relates them to profitability and customer's demands.

What makes Volvo Cars unique in the automotive world is its focus on human values in life. Caring about customers and others; the safety concept encompasses not only the passengers of the car, but also passengers in other cars. Environmental care goes beyond legislation.


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Brand


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Work culture


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Strategic management process

Vision and Mission

Vision and Mission

External AuditExternal Audit

Internal AuditInternal Audit

Long-term objectives

Long-term objectives

Generates evaluates select strategy

Generates evaluates select strategy

Implement strategy mgt issues

Implement strategy mgt issues

Implement strategies marketing, Finance/A/c R&D &CIS

Implement strategies marketing, Finance/A/c R&D &CIS

Measure& evaluate performance

Measure& evaluate performance


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Strategy Implementation

So far we have studied strategy formulation, analysis of alternative strategies, and then making a strategic choice.

What Next ?

The strategy must be translated into concrete action, and That action must be carefully implemented.

Implementation is initiated in three stages:

1. Identification of annual objectives

2. Development of specific functional strategies

3. Development and communication of concise policies to guide decisions.


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Implementing Strategy:

Strategy Implementer’s Action Agenda

Strategy Implementer’s Action Agenda

Building aCapableOrganization

Allocating Resources

Establishing Strategy-Supportive Policies

Instituting BestPractices forContinuousImprovement

Installing SupportSystems to Carryout Strategic RolesTying Rewards

to Achievementof Key Strategic Targets

Exercising StrategicLeadership

Shaping CorporateCulture to Fit Strategy


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Factors Influencing Managers in Leading Implementation Process

Experience and knowledge of business

New to job or seasoned

Network of personal relationships

Diagnostic, administrative, interpersonal, and problem-solving skills

Authority given manager

Leadership style most comfortable with

View of role to get things done

Context of organization’s situation


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Strategy choice & implementation – the ‘Nestle’ story.

Nestle has a presence in India over a century !! For a long time it imported condensed milk (milk maid) & infant

food items. Lately, it woke up to the food- market potentials in India and set

long-term objectives: Launch variety of dairy products – Milk, Butter, curd Increase food products – instant coffee (nescafe), Maggie, KitKat,

Cerelac, Nestrum, Munch etc. Penetrate vast rural, middle-class segments Maintain competitive edge (HLL. Cadburry, Heinz & locals)

The Strategy Nurture the best selling brand, Price cuts, economy packs at

different price points, strengthen distribution network, expand product base to include daily consumable items, build volumes through price cuts, reach out with appealing adds.04/10/23Babasabpatilfreepptmba.com

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Nestle Story – the current market scenario:

Milk Products & Baby food: Amul has focussed on Milk Products and Babyfood- giving tough competition. Local coops. Entering the market, Britania JV with Fonterra is a big challenge.

Beverages: HLL’s Bru favoured in South India, the coffee belt, Barista-Tata coffee poses threat, Bisleri & Kinley price war

Processed Food: HLL making strong bid, locals like MTR in the fray.

Chocolate & Confectionery: Cadbury adopting Nestle’s strategy, ITC, Amul, HLL in the fray using their distribution network to their advantage.


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Strategy Implementation

Operationalizing strategy

This phase is the translation of the agreed upon long term objectives, the strategic plan, into organizational action.

Here the focus shifts from strategy formulation to strategy implementation.

There are four important things to be done well to make this transition:

1. Identify short term objectives They translate long term objectives into annual targets for

action. They provide clarity and can be very powerful motivator and

facilitator of effective strategy implementation. 04/10/23Babasabpatilfreepptmba.com84

2. Initiate specific functional strategies They translate business strategy into daily activities. Functional managers are involved in developing these tactics

and their participation helps in clarifying what needs to be done to implement the strategy.

3. Communicate policies that empower people in the organization Policies are empowerment tools that simplify decision

making by empowering operational managers and their subordinates.

They empower the people involved in execution by reducing the time required to decide and act.

4. Design effective rewards It is aimed at rewarding the desired actions and results.04/10/23Babasabpatilfreepptmba.com85

Annual or short term objectives

They provide a guidance to the people in the organization as to what needs to be done currently to make the long term objectives become reality.

They provide specific guidelines about the things to be done.

They "operationalize" long -term objectives. e.g. if the long term, say five year plan is to gain forty percent market share from the current twenty percent, then what needs to be done in this year to increase the current market share by "X" percent


Annual or short term objectives

Discussion and agreement on short-term strategies help raise issues and potential conflicts that requires coordination to avoid serious consequences.

It identifies measurable outcomes of action plans or functional activities, which can be used to make feedback, correction, and evaluation more relevant and acceptable.


Short-term objectives are accompanied by action plans, which help short-term objectives in three ways:

1. These action plans identify functional tactics and activities that will be undertaken in the next week, month or quarter to build competitive advantage. They specify what exactly needs to be done.

2. They provide a time frame for completion - a schedule with starting and ending dates.

3. It identifies who is responsible for each action in the plan.


Qualities of effective short-term objectives

1. Measurable Short-term objectives are more consistent when they clearly state

what is to be accomplished when it will be accomplished how its accomplishment will be measured

This helps in effectively monitoring each activity and the progress across several interrelated activities.

Measurable objectives make misunderstanding less likely among interdependent managers who must act on the plans.

It is easier to quantify objectives of line units (e.g. production) than staff areas (e.g. personal).

Difficulties in quantifying objectives often can be overcome by initially focusing on measurable activity and then identifying measurable outcomes.


2. Priorities Some annual objectives would require higher priority either

because of the timing considerations or because of their effect on a strategy's success. E.g. new product development may be more important than promotional activities

Not prioritizing will lead to conflicting assumptions which may inhibit progress towards strategic effectiveness.

The various ways on which priorities can be established are:

1. Ranking method

2. Terms such as primary, top and secondary can be used.

3. Objectives can be given weights (e.g. 0 to 100 percent) to establish and communicate the relative priority.


3. Linked to long-term objectives

Short-term objectives can add specificity in identifying what must be accomplished to achieve long-term objective.

e.g. Adobe systems has an long-term objective of achieving five percent of its total revenue to come from India in the next 5 years. To achieve this it can have a series of short-term objectives like focusing on particular products.

The link between the short-term and long-term objectives should resemble cascades through the firm, from basic long-term objectives to specific short-term objectives in key operational areas.

The cascading effect provides a clear reference for communications and negotiation, which may be necessary to integrate and coordinate objectives and activities at the operating level.


Characteristics of Industry Maturity

Slowing demand breeds stiffer competition More sophisticated buyers demand bargains Greater emphasis on cost and service “Topping out” problem in adding production capacity Product innovation and new end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce the number of industry rivals


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Strategy Options for Competing in a Mature Industry

Prune marginal products and models Emphasize innovation in the value chain Strong focus on cost reduction Increase sales to present customers Purchase rivals at bargain prices Expand internationally Build new, more flexible competitive capabilities


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Strategic Pitfalls in a Maturing Industry

Employing a ho-hum strategy with no distinctive features

thus leaving firm “stuck in the middle” • Concentrating on short-term profits rather

than strengthening long-term competitiveness • Being slow to adapt competencies to changing customer expectations • Being slow to respond to price-cutting • Having too much excess capacity • Overspending on marketing • Failing to pursue cost reductions aggressively


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Stagnant or Declining Industries: The Standout Features

Demand grows more slowly than economy as whole (or even declines) • Competitive pressures intensify--rivals battle for market share • To grow and prosper, firm must take market

share from rivals • Industry consolidates to a smaller number of key

players via mergers and acquisitions


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Strategy Options for Competing in a Stagnant or Declining Industry Pursue focus strategy aimed at fastest growing

market segments Stress differentiation based on quality improvement

or product innovation Work diligently to drive costs down– Cut marginal activities from value chain– Use outsourcing– Redesign internal processes to exploit e-commerce– Consolidate under-utilized production facilities– Add more distribution channels– Close low-volume, high-cost distribution outlets– Prune marginal products


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Competing in a Stagnant Industry :The Strategic Mistakes

Getting embroiled in a profitless battle for market

share with stubborn rivals -Diverting resources out of the business too quickly -Being overly optimistic about industry’s future (believing things will get

better)


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Competitive Features of Fragmented Industries

Absence of market leaders with large market shares

Buyer demand is so diverse and geographically scattered that many firms are required to satisfy buyer needs Low entry barriers Absence of scale economies Buyers require small amounts of customized or made-to-order products Market for industry’s product/service may be globalizing, thus putting many companies across the world in same market arena Exploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share


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Examples of Fragmented Industries

Book publishing Landscaping and plant nurseries Auto repair Restaurant industry Public accounting Women’s dresses Meat packing Paperboard boxes Hotels and motels Furniture


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Competing in a Fragmented Industry: The Strategy Options

Construct and operate “formula” facilities

• Become a low-cost operator • Specialize by product type • Specialize by customer type • Focus on limited geographic area


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Strategies for Sustaining Rapid Growth

Companies desirous of growing revenues and earnings

rapidly year-after-year have to have a portfolio of strategies

– Horizon 1: Strategic initiatives to fortify and extend their position in

existing businesses – Horizon 2: Strategic initiatives to leverage existing

resources and capabilities by entering new businesses with

promising growth potential – Horizon 3: Strategic initiatives to plant new seeds

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Three Strategy Horizons for Sustaining Rapid Growth

Portfolio of

Strategy Initiatives

Short-jump”initiatives to fortifyand extend currentbusinesses• Immediate gains inrevenues and profits

Medium-jump”initiatives to leverageexisting resourcesand capabilities topursue growth innew businesses• Moderate revenueand profit gains now,but foundation laidfor sizable gainsover next 2-5 years

“Long-jump”initiatives to sow theseeds for growth inbusinesses of thefuture• Minimal revenuegains now and likelylosses, but potentialfor significantcontributions torevenues and profitsin 5-10 years

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Risks of Pursuing Multiple Strategy Horizons

Firm should not pursue all options to avoid stretching itself too thin Pursuit of medium- and long-jump initiatives may cause firm to stray too far from its core

competencies Competitive advantage may be difficult to

achieve in medium- and long-jump businesses that do not

mesh well with firm’s present resource strengths Payoffs of long-jump initiatives may prove

elusive04/10/23Babasabpatilfreepptmba.com

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Characteristics of Industry Leaders

Stronger-than-average to powerful position

Well-known reputation Proven strategies Strategic concern -- How to sustain

dominant leadership position


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Strategy Options: Industry Leaders

1. Stay-on-the-offensive strategy

2. Fortify-and-defend strategy

3. Muscle-flexing strategy

Stay-on-the-Offensive Strategies

Be a first-mover, leading industry changeBest defense is a good offense Relentlessly pursue continuous improvement and innovation• Force rivals to scramble to keep up• Launch initiatives to keep rivals off balance• Grow faster than industry, taking market from rivals


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Fortify-and-Defend Strategy: Objectives Make it harder for new firms to enter and for challengers to gain ground •Hold onto present market share Strengthen current market position Protect competitive advantage

Fortify-and-Defend: Strategic Options

Increase advertising and R&D• Provide higher levels of customer service• Introduce more brands to match attributes of rivals• Add personalized services to boost buyer loyalty• Keep prices reasonable and quality attractive• Build new capacity ahead of market demand• Invest enough to remain cost competitive• Patent feasible alternative technologies• Sign exclusive contracts with best suppliers and distributors


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Muscle-Flexing Strategy: Objectives

Play competitive hardball with smaller rivals thatthreaten leader’s position• Signal smaller rivals that moves to cut into leader’sbusiness will be hard fought• Convince rivals they are better off playing“follow-the-leader” or else attacking each other rather then industry leader

Muscle-Flexing: Strategic Options• Be quick to meet price cuts of rivals• Counter with large-scale promotional campaigns if rivalsboost advertising• Offer better deals to rivals’ major customers• Dissuade distributors from carrying rivals’ products• Provide salespersons with documentation aboutweaknesses of competing products• Make attractive offers to key executives of rivals• Use arm-twisting tactics to pressure present customers notto use rivals’ products 04/10/23Babasabpatilfreepptmba.com

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Obstacles Runner-Up Firms Must Overcome

When big size is a competitive asset, firms with low market share face obstacles – Less access to economies of scale – Difficulty in gaining customer recognition – Inability to afford mass media advertising – Difficulty in funding capital requirements

Competitive Strategies for Runner-UpFirms: Building Market Share

Strategic options for building market share to overcome costadvantage of larger rivals– Use lower prices to win customers from weak, higher-cost rivals– Merge or acquire rivals to achieve size needed to capture greaterscale economies– Invest in new cost-saving facilities and equipment, perhapsrelocating operations to countries where costs are lower– Pursue technological innovations or radical value chainrevamping to achieve cost-savings


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Growth-via-Acquisition Strategies for Runner-Up Firms

Frequently used strategy of ambitious runner-up firms To succeed, top managers must have skills to

– Assimilate operations of acquired firms, eliminating duplication and overlap,

– Generate efficiencies and cost savings Specialist Strategy for Runner-Up Firms-Strategy

concentrated on being a leader based

– Specific technology

– Product uniqueness

– Expertise in Special-purpose products Specialized know-how Delivering distinctive customer services


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Distinctive Image Strategy for Runner-Up Firms

Strategy concentrated on ways to stand outfrom rivals• Approaches– Reputation for charging lowest price– Prestige quality at a good price– Superior customer service– Unique product attributes– New product introductions– Unusually creative advertising

Superior Product Strategy for Runner-Up FirmsDifferentiation-based focused strategy based on– Superior product quality or– Unique product attributes• Approaches– Fine craft man ship– Prestige quality– Frequent product innovation– Close contact with customers to gain input for better quality product


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The BCG Matrix Grand Strategies in Steatergic Management Studies mba 4 sem

Education

Transcript of The BCG Matrix Grand Strategies in Steatergic Management Studies mba 4 sem