strstegic analysis and choice

8/4/2019 strstegic analysis and choice

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Strategic Analysis

The process by which objectives are

formulated and achieved is known asstrategic management and strategy actsas the means to achieve the objective.



Meaning of strategy

The word ‘strategy’ has entered in thefield of management from the military

services where it refers to apply the forcesagainst an enemy to win a war.

Originally, the word strategy ha s been

derived from Greek, ‘strategos’ whichmeans generalship.



Process of Strategy

The process of strategy is cyclical in

nature. The elements within it interactamong themselves.



Four phases

Focusing on strategic alternatives.

Analyzing the strategic alternatives.

Evaluating the strategic alternatives.

Choosing from among the strategicalternatives.





STRATEGIC ANALYSIS

Corporate Portfolio Analysis.

SWOT Analysis.



Corporate Portfolio Analysis

Portfolio analysis is an analytical tool

which views a corporation as a basket orportfolio of products or business units tobe managed for the best possible returns.



The aim of portfolio analysis is

To analyze its current business portfolio anddecide 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 longerbe retained



BCG MATRIX The Boston Consulting Group (BCG) is a global management consulting

firm with offices in 42 countries. It is recognized as one of the most prestigious

management consulting firms in the world The BCG matrix was developed by Boston

Consulting group in 1970s. It is also called asthe growth share matrix. This is the mostpopular and most simplest matrix to describe thecorporation’s portfolio of businesses or products.

The BCG matrix helps to determine priorities in aproduct portfolio. Its basic purpose is to investwhere there is growth from which the firm canbenefit, and divest those businesses that havelow market share and low growth prospects.



BCG MATRIX

Each of the products or business units is plottedon a two dimensional matrix consisting of

relative market share – is the ratio of the marketshare of the concerned product or business unitin the industry divided by the share of themarket leader

market growth rate – is the percentage of market growth, by which sales of a particularproduct or business unit has increased



Analysis of the BCG matrix – the matrix reflects thecontribution of theproducts or business units

to its cash flow. Based onthis analysis, the productsor business units areclassified as –

Stars

Cash cows

Question marks

Dogs



Stars – high growth, high market share

Stars are products that enjoy a relatively

high market share in a strongly growingmarket. They are potentially profitable andmay grow further to become an importantproduct or category for the company. Thefirm should focus on and invest in theseproducts or business units.



Cash Cows – Low growth, high marketshare

These are the product areas that havehigh relative market shares but exist inlow-growth markets. The business ismature and it is assumed that lower levelsof investment will be required. On this

basis, it is therefore likely that they will beable to generate both cash and profits.Such profits could then be transferred tosupport the stars.



Question Marks – high growth, lowmarket share

Question marks are also called problem childrenor wild cats. These are products with lowrelative market shares in high growth markets.

The high market growth means thatconsiderable investment may still be requiredand the low market share will mean that suchproducts will have difficulty in generating

substantial cash. These businesses are calledquestion marks because the organization mustdecide whether to strengthen them or to sellthem.



Dogs – Low growth, low market share

These are products that have low market sharesin low growth businesses. These products willneed low investment but they are unlikely to bemajor profit earners. In practice, they mayactually absorb cash required to hold theirposition. They are often regarded asunattractive for the long term and recommendedfor disposal.



Advantages –

It is easy to use

It is quantifiable

It draws attention to the cash flows

It draws attention to the investment needs



Limitations –

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 overallcompetitive position

Many products or business units fall right in the middleof the matrix, and cannot easily be classified.



GE Nine-Cell Matrix The horizontal

axis representsbusiness

strength andthe vertical axisrepresentindustry

attractiveness



Cont..

This matrix was developed in 1970s by theGeneral Electric Company with the assistance

of the consulting firm, McKinsey & Co, USA.This is also called GE multifactor portfoliomatrix.

This matrix consists of nine cells (3X3) based

on two key variables: business strength

industry attractiveness



GE matrix is also called “Stoplight” strategy matrixbecause the three zones are like green, yellow and

red of traffic lights.

Green indicates invest/expand – if the product falls ingreen zone, the business strength is strong andindustry is at least medium in attractiveness, thestrategic decision should be to expand, to invest andto grow.

Yellow indicates select/earn – if the product falls inyellow zone, the business strength is low but industryattractiveness is high, it needs caution and managerialdiscretion for making the strategic choice

Red indicates harvest/divest – if the product falls inthe red zone, the business strength is average or weak and attractiveness is also low or medium, theappropriate strategy should be divestment.



Comparison GE versus BCG -

Thus products or business units in thegreen zone are almost equivalent to stars

or cash cows, yellow zone are likequestion marks and red zone are similar todogs in the BCG matrix.



SWOT analysis

The SWOT analysis is an extremely usefultool for understanding and decision-

making for all sorts of situations inbusiness and organizations. SWOT is anacronym for Strengths, Weaknesses,

Opportunities, Threats.



Hero Motocorp

STRENGTHS

Hero Motocorp introduced First stroke bike

in the Indian market. It gives 70 Km/Liter Avg.

Huge sale network (3500 Dealers).

Better sale service. It has the highest share in automobile

sector.



WEAKNESS:

Its market share is reducing from last few

years.

Spare parts are too costly.



OPPOURTUNITIES:

Hero Motocorp the first manufacture to launcheco friendly bikes with 4-stroke engines. They

have attained a stronger good will andpopularity in the industry and the consumers.

There is large no. of young consumers in the

market. Company has to focus on them.

They have big opportunities in heavy bike

segments.



THREATS:

Main threats to Hero Motocorp are theircompetitors like:-

Bajaj Auto Ltd.

TVS motors Ltd.

Yamaha Motors India.

Honda motorcycle and scooter India.



BAJAJ

STRENGTHS

Highly experienced management.

Product design & development capabilities. Extensive R&D focus.

Wide spread distribution network.

High performance product across all categories. Good customer service.



WEAKNESS:

Hasn’t employed the excess cash for long.

Slow to make decisions and adapt to

changes that affect the profession.

Do not have the resources to research themarket and promote the designation.



OPPOURTUNITIES:

Their business sector is expanding, withmany future opportunities for success.

competitors may be slow to adopt newtechnologies



THREATS:

A small change in focus of a large

competitor might wipe out anymarket position they achieve.

The competition catches-up any new

innovation in no time.



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strstegic analysis and choice