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PROCESS OF STRATERGIC

CHOICE

The process of stratergic choice is essentiallya decision making process.

Decision making consists of setting

objectives, generating alternatives, choosingone or more alternatives that will help theorganistion achieve its objectives.

To make a choice from among thealterantives, a decision maker has to setcertain criteria on which to accept or rejectalterantives. These criteria are the selectionfactors and act as a guide to decision making.

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CHOICE

Stratergic choice could be defined as thedecision to select from among the grandstrategies considered, the strategy which will

best meet the enterprices objectives. The decision involves focusing on a few

alternatives, considering the selectionfactors,evaluating the stratergic alternatives

and making the actual choice.

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CHOICE

FOCUSING ON ALTERNATIVES The aim of focusing on few alternatives is to narrow

down the choice to a manageable number of feasible

strategies. Theoretically it is possible to consider all the

allterantives. But practically a decision maker wouldlimit the choice of a few alternatives.

Such a situation frequently poses a dilemma beforethe decion maker considering too many alternativeswould make the process unwidely and unproductivebut if only a few alternatives are considered, thedecision maker make ignore others which he should

have considered.

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CHOICE

For resolving the dilemma a decision maker has tofocus on a resonable number of alternatives.

It is difficult to tell what that resonable number of

alternatives. It is still difficult to tell what resonablenumber would be.

In deciding on what would be a resonable number ofalternatives, it is advisable to start with businessdefinition.

The three dimensions along which a business Isdefined

Customer group

Customer Functions

Alternative technologies

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CHOICE Gap analysis can also be used for focusing on strategic

alternatives.

A company sets objectives for a future period of time say3 to 5 years and then works backward to find out where it

can reach through the present level of efforts. Byanalysing the difference between the projected anddesired performance, a gap could be found.

How wide or narrow the gap is its important.

Where the gap is narrow satbility stratergies would seem

to be feasible alternative. If the gap is large due to expected enviornmental

opportunities, expansion stratergies are more likely to beused.

If it is large due to past and expected bad performance

retrenchment startergies may be more suitable.

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CHOICE

CONSIDERING SELECTION FACTORS Narrowing down stratergic choice to a few feasible

alternatives is faciltated by considering the business

definition and gap analysis. These alternatives have to be subjected to furthr

analysis, such an analysis has to rely on certainfactors. These facors are termed as selection factors.

Selection factors can be broadly devided in to twogroups.

The objective factors.

The subjective factors.

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CHOICE

Objective factors are based on anlytical techniqesand are hand facts or data used to facilitate astratergic choice.

Subjective factors on the other hand are based onones personal judgement, collective consensus andnon numerical data.

EVALUATION OF STRATERGIC ALTERNATIVES

Each alternatives has to be evaluated for its

capability to help the organisation to achieve itsobjectives.

Evaluation will be done by using both subjective andobjective factors.

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CHOICE

MAKING THE STRATERGIC CHOICE.

Evaluation of stratergic choice should lead toa clear assessment of which alternative is the

most suitable under the existing conditions. The final step is therefore of making strategic

choice.

One or more strategies have to be chosen forimplementation. A blue print has to be madethat will describe the strategies and theconditions under which they would operate.This blue print is the strategic plan.

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BOSTON CONSULTING GROUP

MATRIX

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INTRODUCTION

BOSTON CONSULTING GROUP (BCG)

MATRIX is developed by BRUCEHENDERSON of the BOSTON

CONSULTING GROUP IN THE EARLY1970s.

According to this technique, businesses or

products are classified as low or highperformers depending upon their marketgrowth rate and relative market share.

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Relative Market Share

and Market Growth

To understand theBoston Matrix youneed to understand how market share

and market growth interrelate.

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MARKET SHARE

Market shareis the percentage of the total marketthat is being serviced by your company, measuredeither in revenue terms or unit volume terms.

RELATIVE MARKET SHARE

RMS = Business unit sales this yearLeading rival sales this year

The higher your market share, the higher proportionof the market you control.

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MARKET GROWTH

RATE Market growthis used as a measure of a markets

attractiveness.

MGR = Individual sales - individual sales

this year last yearIndividual sales last year

Markets experiencing high growth are ones wherethe total market share available is expanding, and

theres plenty of opportunity for everyone to makemoney.

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THE BCG GROWTH-SHARE

MATRIX It is a portfolio planning modelwhich is based on

the observation that a companys business units can

be classified in to four categories:

Stars

Question marks

Cash cows

Dogs

It is based on the combination of market growth andmarket share relative to the next best competitor.

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STARSHigh growth, High market share

Stars are leaders in business.

They also require heavy investment, to

maintain its large market share. It leads to large amount of cash consumption

and cash generation.

Attempts should be made to hold the marketshare otherwise the star will become a CASHCOW.

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CASH COWSLow growth , High market share

They are foundation of the company and oftenthe stars of yesterday.

They generate more cash than required.

They extract the profits by investing as littlecash as possible

They are located in an industry that is mature,not growing or declining.

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DOGSLow growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to bring in much

cash.

Number of dogs in the company should beminimized.

Business is situated at a declining stage.

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QUESTION MARKSHigh growth , Low market share

Most businesses start of as question marks.

They will absorb great amounts of cash if the

market share remains unchanged, (low). Why question marks?

Question marks have potential to become

star and eventually cash cow but can alsobecome a dog.

Investments should be high for questionmarks.

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WHY BCG MATRIX ?

To assess :

Profiles of products/businesses

The cash demands of products The development cycles of products

Resource allocation and divestmentdecisions

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MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU.

Assessing and comparing the prospects ofeach SBU according to two criteria :

1. SBUS relative market share.

2. Growth rate OF SBUS industry.

Classifying the SBUS on the basis of BCG

matrix. Developing strategic objectives for each SBU.

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BENEFITS

BCG MATRIX is simple and easy tounderstand.

It helps you to quickly and simply screen the

opportunities open to you, and helps youthink about how you can make the most ofthem.

It is used to identify how corporate cashresources can best be used to maximize acompanys future growth and profitability.

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LIMITATIONS

BCG MATRIX uses only two dimensions,Relative market share and market growthrate.

Problems of getting data on market share andmarket growth.

High market share does not mean profits allthe time.

Business with low market share can beprofitable too.

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CONCLUSION

Though BCG MATRIX has its limitations it is one

of the most FAMOUS AND SIMPLE portfolioplanning matrix ,used by large companieshaving multi-products.

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GE MATRIX

The business portfolio is the collection ofbusinesses and products that make up the company.The best business portfolio is one that fits thecompany's strengths and helps exploit the most

attractive opportunities. The company must:

(1) Analyse its current business portfolio and decidewhich businesses should receive more or less

investment, and(2) Develop growth strategies for adding new products

and businesses to the portfolio, whilst at the sametime deciding when products and businesses should

no longer be retained.

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The two best-known portfolio planning methods arethe Boston Consulting Group Portfolio Matrix and theMcKinsey / General Electric Matrix.

In both methods, the first step is to identify the

various Strategic Business Units ("SBU's") in acompany portfolio. An SBU is a unit of the companythat has a separate mission and objectives and thatcan be planned independently from the other

businesses. An SBU can be a company division, aproduct line or even individual brands - it all dependson how the company is organised.
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The McKinsey / General Electric Matrix

The McKinsey/GE Matrix overcomes a numberof the disadvantages of the BCG Box.

Firstly,market ttractiveness replaces market

growth as the dimension of industryattractiveness, and includes a broader range offactors other than just the market growth rate.

Secondly, competitive strength replaces

market share as the dimension by which thecompetitive position of each SBU is assessed.

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The GE / McKinsey Matrix is divided into ninecells - nine alternatives for positioning of anySBU or product offering. Based on the

strength of the business and its marketattractiveness each SBU will have a differentposition in the matrix. Further, the market sizeand the current sales will distinguish each

SBU. Based on clear understanding of all ofthese factors decision makers are able todevelop effective strategies.

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GE Multifactor Portfolio MatrixIndustry Attractiveness

High

High

Medium

Medium

Low

Low

Invest/Grow

Selectivity/earnings

Harvest/Divest

ProtectPosition

Invest toBuild

Buildselectively

Buildselectively

Selectivelymanage forearnings

Limitedexpansion orharvest

Protect &refocus Divest

Manage forearnings

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The nine cells in the matrix can be grouped intothree major segments:

Segment 1: This is the best segment. The

business is strong and the market is attractive.The company should allocate resources in thisbusiness and focus on growing the business andincrease market share.

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Segment 2: The business is either strong but themarket is not attractive or the market is strong andthe business is not strong enough to pursue

potential opportunities. Decision makers shouldmake judgment on how to further deal with theseSBUs. Some of them may consume to muchresources and are not promising while others may

need additional resources and better strategy forgrowth.

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Segment 3: This is the worst segment.Businesses in this segment are weak and theirmarket is not attractive. Decision makers should

consider either repositioning these SBUs into adifferent market segment, develop better cost-effective offering, or get rid of these SBUs andinvest the resources into more promising and

attractive SBUs.

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Factors that Affect Market Attractiveness

There are several factors which can help to determineattractiveness. These are listed below:

- Market Size- Market growth

- Market profitability- Pricing trends- Competitive intensity / rivalry- Overall risk of returns in the industry

- Opportunity to differentiate products and services- Segmentation- Distribution structure (e.g. retail, direct, wholesale

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Factors that Affect Competitive Strength

Factors to consider include:

- Strength of assets and competencies- Relative brand strength

- Market share- Customer loyalty- Relative cost position (cost structure comparedwith competitors)

- Distribution strength- Record of technological or other innovation- Access to financial and other investmentresources

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Yes the GE matrix is superior to the BCG Matrix since ituses several dimensions, as compared to BCG's Matrix.However, problems or limitations include:

* There is no research to prove that there is a relationship

between market attractiveness and business position. * The interrelationships between SBU's, products, brands,

experiences or solutions is not taken into account.

* This approach does require extensive data gathering.

* There is no hard and fast rule on how to weightelements.

* The GE matrix offers a broad strategy and does notindicate how best to implement it.

PROBLEMS OR LIMITATIONS

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Gen Matrix (1)