I.

BCG MATRIX
(Boston Consultancy Group)

This matrix is particularly relevant to diversified businesses. This was the first of the portfolio planning
techniques. The basic logic of the device is that the relative market share is linked directly to cash
generation and profitability.

Relative market share:

High
It refers to the SBU’s
(Strategic Business MARKET
Question
Unit) market share Stars
G Marks
*****
relative to that of its R ??????
O
largest competitor in W
the business segment. T
H
It serves as a measure
of the company’s RATE Cash cows Dogs

strength in the relevant Low

market segment.
Market growth rate: High RELATIVE MARKET SHARE low

It indicates the annual growth rate of the market in which the business operates.
Question marks:
These are products in a high growth market, but have very low market share. They have the following
features:
 Require a lot of cash to be in the market.
 Large amount of resources like production capacity, personnel and materials are required.
 Company has to think hard about whether or not to keep pouring money in to them.
 It is however good for a company to invest in one or two question mark products, but not
more. These products should have a very strong USP (Unique Selling Proposition) for
investing into them.
 If question marks are to become stars, it is necessary to draw money from mature products
and invest in question marks.
Stars:
If question mark products are successful then they are called stars. They have the following
characteristics:
 They are the market leaders in high growth markets
 Need not necessarily generate positive cash flow for the company.
 Company needs to spend large amounts of cash and resources to keep up the fight against
competition.
 When market growth rate slows down, stars become cash cows.
Cash cows:
When the annual growth rate of the market slows down then stars become cash cows. They have the
following characteristics.
 Large market share
 Lot of cash for the company
 There is no need to expand the product line or channels, as the market growth by itself is
slow.
 Economies of scale can be achieved, as the product is the market leader.

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  It has high profit margin.
 The revenue earned by this product can be used for investing into other products or their
development like question marks and stars.
Dogs:
These are weak products in weak markets and have the following characteristics:
 They have low profits or are running on losses
 Sentimental reasons for retaining them in the product portfolio.
 Turnaround is necessary for these products.
Applying BCG matrix for strategies
 BUILD on STARS
 HOLD CASH COWS
 HARVEST using R & D on QUESTION MARKS and DOGS
 DIVEST on the bad DOGS and QUESTION MARKS.
II. GEC MATRIX or GEC BUSINESS SCREEN

PROTECT INVEST TO BUILD

HIGH POSITION BUILD SELECTIVELY
(PAUSE AND PROCEED) (PAUSE AND PROCEED) (TO RETAIN OR DIVEST)
MARKET ATTRACTIVENESS

BUILD SELECTIVITY / LIMITED

SELECTIVELY MANAGE FOR EXPANSION
MEDIUM
(PAUSE AND PROCEED) EARNINGS OR HARVEST
(TO RETAIN OR DIVEST) (PROCEED TO DISOWN)

MANAGE FOR DIVEST

PROTECT AND
LOW EARNINGS
REFOCUS (PROCEED TO DISOWN)
(PROCEED TO DISOWN)
(TO RETAIN OR DIVEST)

STRONG MEDIUM WEAK

BUSINESS STRENGTH/ COMPETITIVE POSITION

 General Electric Company develops this with the assistance from McKinsey Company.
 This is a nine-cell matrix of three levels of industry attractiveness and three levels of
business strength.
 Some factors of industry attractiveness are
1. Market size and growth rate
2. Industry profit margins
3. Competitive intensity
4. Seasonality
5. Cyclicality
6. Economies of scale
7. Technology and capital requirements
8. Social, environmental, legal and human impacts
9. Emerging opportunities and threats
10. Barriers to entry and exit

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  Some factors of business strength/ competitive position are
1. Relative market share
2. Profit margin relative to competitors
3. Ability to compete on price and quality
4. Knowledge of customer and markets
5. Competitive strength and weaknesses
6. Technological capability
7. Calibre of management
The various classifications are discussed below
1. PROTECT POSITION
 Invest to grow at maximum digestible rate.
 Concentrate effort on maintaining strength.
2. INVEST TO BUILD
 Challenge for leadership in the market.
 Build selectively on strengths
 Reinforce vulnerable areas.
3. BUILD SELECTIVELY
 Specialize around limited strengths
 Seek ways to overcome weaknesses
 Withdraw if indications of sustainable growth are lacking
4. BUILD SELECTIVELY
 Invest heavily in most attractive segments
 Build up ability to counter competition
 Emphasize profitability by raising productivity.
5. SELECTIVITY / MANAGE FOR EARNINGS
 Protect existing programs
 Concentrate investments in segments where profitability is good and risks are
relatively low
6. LIMITED EXPANSION OR HARVEST
 Look for ways to expand without risk
 Otherwise, minimize investment and rationalize operations
7. PROTECT AND REFOCUS
 Manage for current earnings
 Concentrate on attractive segments
 Defend strengths
8. MANAGE FOR EARNINGS
 Protect position in most profitable segments
 Upgrade product line
 Minimize investment
9. DIVEST
 Sell at time that will maximize cash value
 Cut fixed costs and avoid investment meanwhile.

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 III. DIRECTIONAL POLICY MATRIX

BUSINESS SECTOR PROSPECTS

UNATTRACTIVE AVERAGE ATTRACTIVE

COMPANY’S COMPETITIVE ABILITIES

IMITATION
PHASED
WEAK DIVESTMENT /PHASED
WITHDRAWAL
WITHDRAWAL
PHASED MAINTENANCE OF EXPANSION /
AVERAGE WITHDRAWAL/ POSITION/ MARKET PRODUCT
MERGER PENETRATION DIFFERENTIATION

MARKET
DIVERSIFICATION / GROWTH / MARKET
STRONG LEADERSHIP/
CASH GENERATION SEGMENTATION
INNOVATION

 The Directional Policy Matrix (DPM) developed by Shell Chemicals UK is similar to GE

Business Screen and uses the two parameters the “Business Sector Prospects” and “
company’s competitive abilities.
 The business sector prospects such as
 Market growth
 Market quality
 Market supply etc, are similar to the industry attractiveness.
 These are considered in three levels as
 Unattractive
 Average
 Attractive
 The company’s competitive ability are classified as
 Strong
 Average
 Weak
 From the industry and company data available for the above factors the different directional
policies are given in the corresponding cells of the matrix.
 The company can apply suitable strategy based on the business definition and the directional
policies.
 This matrix is useful to evaluate the risk to the company and its products based on the
environmental threats and the probability of their occurrence.
IV. HOFER’S PRODUCT/MARKET EVOLUTION MATRIX

COMPETITIVE POSITION

STRONG AVERAGE WEAK

DEVELOPMENT
A

GROWTH
B

SHAKE-OUT C

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 STAGES OF MARKET DEVELOPMENT
MATURITY /
D
SATURATION

DECLINE
E

A, B, C, D, E Are Assumed To Be Different Businesses Or Products.

 Hofer and Schendel proposed a 15-cell matrix similar to the 9-cell GEC matrix.
 This matrix considers the stages of development of the product or market.
 The competitive position of these different products / businesses of a company’s corporate
portfolio.
 Business- A
 Is a high potential product or business and thus deserves lot of investment
to expand.
 Business-B
 Has a strong competitive position but has product that is entering the
shakeout stage, and therefore needs a cautious expansion strategy.
 Business-C
 Is a losing business and thus has to be discarded.

 Business-D
 An old product / business which is well established and generates a lot of
cash which can be diverted to A and B
 Business –E
 This is a potential loser, which is declining and can be considered for
disinvestments.
 This matrix portrays a corporate portfolio with high level of accuracy and completeness.
V.Tows matrix

INTERNAL FACTORS

STRENGTHS WEAKNESSES
IESOPPORTUNIT

SO WO
EXTERNAL FACTORS

(MAXI-MAXI) (MINI-MAXI)
Maximize strength and Minimize weaknesses and
opportunities maximize opportunities

ST WT
THREATS

(MAXI-MINI) (MINI-MINI)
Maximize strengths Minimize weaknesses and
and minimize threats threats

 Heinz Weihrich propounded this theory.

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  This is an important strategy formulation –matching tool.
 The TOWS matrix alternatives are listed below.
1. W-T strategy: The W-T or the mini-mini strategy seeks to minimize the weaknesses and
threats. They can be even overcome. In some cases an unprofitable business that cannot
be revived may be given up.
2. W-O strategy: The W-O or mini-maxi strategy aims at minimizing the weaknesses and
maximizing the opportunities. The solutions are to give thrust to R& D to develop
technology and measures to reduce the time lag so as to be in a better position to
exploit to the maximum of growing demand.
3. S-T strategy: The S-T or maxi-mini strategy attempts to use the organizations strengths
to deal with environmental threats.
4. S-O strategy: This maxi-maxi strategy, which is the most desirable and advantageous
strategy to mass up a firm’s strengths to exploit the opportunities.
VI. GENERIC COMPETITIVE STRATEGIES

Type of competitive advantage being pursued

Lower cost Differentiation

Overall cost leadership
Market target

buyer A broad buyer segment

Broad differentiation strategy

strategy

Best cost provider strategy

A narrow

segment

Focused low cost strategy Focused differentiation strategy

 These five strategies are called Michael porter’s Generic strategies.

1. A low cost provider strategy: The overall low cost provider strategy is to appeal
(favour) to a large and varied (different) customers based on being the over all low
cost provider of a product or service.
2. Broad differentiation strategy: Seeking to differentiate (separate) the company’s
product, offering in such a way, which is different from competitors that will be
appealing (liked) by a large variety of customers.
3. Focused low-cost strategy: concentrating on a narrow buyer segment (Niche) and
overcoming competition by serving these members at a lower cost than rival
companies.
4. Focused differentiation strategy: concentrating on a narrow buyer segment (niche)
and overcoming the rivals by offering these consumers certain specific product
attributes (quality, cost, range, availability, guarantee, service etc) that meet their
tastes and requirements better than rival’s products.
5. Best cost provider strategy: Giving customers more value for the money by
incorporating good-to-excellent product attributes at a lower cost than competitors.

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 The target is to have the lowest (best) costs and prices compared to competitors
who are offering products with comparatively costlier or higher attributes.
Each of these strategies is distinct (unique) to competing and operating the business.

VII. STRATEGIC POSITION AND ACTION EVALUATION STRATEGY MATRIX

SPACE STRATEGY MATRIX

 This approach considers the company’s strategic position in relation to the strategic
position of the industry.
 The company’s strategic position is determined on the basis of financial strength.
( ROI, Leverage, Liquidity, etc) and competitive advantage (market share, product
quality etc )
 The industry’s strategic position is based on the industry strength (growth, and
profit potential etc) and environmental stability (technological changes, competitive
pressures, etc).
 When these two positions are combined four strategies are evolved. They are

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1. AGGRESSIVE- concentric diversification & vertical integration
2. DEFENSIVE- disinvestments, liquidation and retrenchment
3. CONSERVATIVE- stability, conglomerate diversification
4. COMPETITIVE-concentric merger, conglomerate merger, turnaround

VIII.CORPORATE PARENTING ANALYSIS

PARENTING-FIT STRATEGY

 Campbell, Goold, and Alexander suggested that the manner in which the centre
(corporate) manages and nurtures the individual businesses is known as
corporate parenting.
 The total corporation is viewed in terms of resources and capabilities that can
be used to build individual businesses as well as create synergies across these
businesses.(especially and only diversified businesses).
 Besides this matrix reviews the organisation in totality as a diversified
corporation, and focuses on the value created from this relationship between
the parent (main company) and its children ( other businesses)
 Thus the matrix mainly addresses
1. What businesses should a diversified corporation own and why?
2. What organisational structure, management processes, and philosophy
will foster superior performance from the individual business units?

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  The following five different strategic positions result, with its own rules for corporate
strategy and critical success factors. (CSF)
1. Heartland businesses: the parent company plays a good role of knowing
the CSF’s of the child business and thus there are opportunities for the
parent to make improvements. Expansion strategies suit these businesses.
2. Edge of heartland businesses: in this some characteristics are known by the
parent company and they fit well into the parent company but a few do not.
Thus there is need for understanding between the parent and the child.
Expansion strategies are suitable provided (if) the parent has the necessary
confidence to devote a large investment of both time and money to these
businesses.
3. Ballast businesses: these fit well with the parent company, but have very
few opportunities for improvement by the parent. These are the
businesses, which have been established long time back and are still
surviving. They contribute (or give) a lot to the business, but may also drag
the parent. As the parent cannot do anything it is better to retrench these
at the right time if the opportunity cost is higher than the expected future
cash flows.
4. Alien territory businesses: they have very little opportunity as they are
misfits between the characteristics of the parent and the businesses CSF’s.
These are a result of misguided diversification in the past. Retrenchment
strategy id the best under the circumstances.
5. Value- trap businesses: These have good parenting opportunities but are a
misfit with the understanding of the other units of the parent. These are
the businesses which have a very good growth but do not suit the parents
core competencies. They should be avoided, retrenched or let to
function separately.
IX.ARTHUR D’LITTLE COMPANY MATRIX
TENABLE LE FAVOURAB G STRON T DOMINAN

BUILD BUILD HOLD HARVEST

BUILD BUILD HOLD HARVEST

BUSINESS STRENGTH

BUILD BUILD HOLD UNACCEPTABLE

BUILD BUILD UNACCEPTABLE UNACCEPTABLE

WEAK

BUILD UNACCEPTABLE UNACCEPTABLE UNACCEPTABLE

EMBRYONIC GROWTH MATURITY DECLINE

PRODUCT LIFE CYCLE

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 This matrix identifies the product life cycle (PLC) with the business position.
 This uses the link of whether or not to continue in the business of manufacturing a
product, if the product in itself is on the decline then, there is no need to further
proceed in the business in itself. (i.e., manufacturing of the product)
 Based on the above criterion, the 4-stages of PLC are plotted against the 5-types of
business strengths to get four strategies. They are
1. Build (increase investment, time)
2. Hold (expand, improve R & D)
3. Harvest (encash as much as possible)
4. Unacceptable (sell off if ROI is difficult)

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