MB0052

STRATEGIC MANAGEMENT AND BUSINESS POLICY

Illustrate the Strategic Management Model (SMP)

Explain the levels in SMP
Strategic management model refers to the pattern or mode of strategic management. According to
the strategic management model, a number of steps are taken to achieve the objectives of a company.
Different strategic management models are chosen by various companies according to their
conveniences.
About Strategic Management Model
Strategic management model is also known as strategic planning model. A strategic planning model is
selected for the purpose of formulating and implementing the strategic management plan of a
particular organization.
Nevertheless, it has been proved that no strategic planning model is perfect. Every company designs
its own strategic planning model frequently by choosing a model and transforming it as the company
advances into formulating its strategic management plan procedures.
A number of strategic planning model options are available for the companies from which they can
choose.
The steps involved in this strategic planning model were the following:
Mission
Objectives
Situation Analysis
Formulation of Strategies
Application
Control

The strategic management process means defining the organizations strategy. It is also defined as the
process by which managers make a choice of a set of strategies for the organization that will enable it
to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the
organization is involved; appraises its competitors; and fixes goals to meet all the present and future
competitors and then reassesses each strategy.
Strategic management process has following four steps:
1.

Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the internal
and external factors influencing an organization. After executing the environmental analysis
process, management should evaluate it on a continuous basis and strive to improve it.

2.

Strategy Formulation- Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving organizational purpose. After

conducting environment scanning, managers formulate corporate, business and functional

strategies.
3.

Strategy Implementation- Strategy implementation implies making the strategy work as

intended or putting the organizations chosen strategy into action. Strategy implementation
includes designing the organizations structure, distributing resources, developing decision
making process, and managing human resources.

4.

Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as its implementation meets
the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new strategic
management plan. Present businesses that have already created a strategic management plan will
revert to these steps as per the situations requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.
Corporate Level Strategy
Corporate level strategy fundamentally is concerned with the selection of businesses in which the
company should compete and with the development and coordination of that portfolio of businesses.
Corporate level strategy is concerned with:

Reach - defining the issues that are corporate responsibilities; these might include identifying
the overall goals of the corporation, the types of businesses in which the corporation should be
involved, and the way in which businesses will be integrated and managed.

Competitive Contact - defining where in the corporation competition is to be localized. Take the
case of insurance: In the mid-1990's, Aetna as a corporation was clearly identified with its
commercial and property casualty insurance products. The conglomerate Textron was not. For
Textron, competition in the insurance markets took place specifically at the business unit level,
through its subsidiary, Paul Revere. (Textron divested itself of The Paul Revere Corporation in
1997.)

Managing Activities and Business Interrelationships - Corporate strategy seeks to develop

synergies by sharing and coordinating staff and other resources across business units,
investing financial resources across business units, and using business units to complement
other corporate business activities. Igor Ansoff introduced the concept of synergy to corporate
strategy.

Management Practices - Corporations decide how business units are to be governed: through
direct corporate intervention (centralization) or through more or less autonomous government
(decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by managing their
portfolio of businesses, ensuring that the businesses are successful over the long-term, developing
business units, and sometimes ensuring that each business is compatible with others in the portfolio.
Business Unit Level Strategy
A strategic business unit may be a division, product line, or other profit center that can be planned
independently from the other business units of the firm.
At the business unit level, the strategic issues are less about the coordination of operating units and
more about developing and sustaining a competitive advantage for the goods and services that are
produced. At the business level, the strategy formulation phase deals with:

positioning the business against rivals

anticipating changes in demand and technologies and adjusting the strategy to accommodate
them

influencing the nature of competition through strategic actions such as vertical integration and
through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can
be implemented at the business unit level to create a competitive advantage and defend against the
adverse effects of the five forces.
Functional Level Strategy
The functional level of the organization is the level of the operating divisions and departments. The
strategic issues at the functional level are related to business processes and the value chain.
Functional level strategies in marketing, finance, operations, human resources, and R&D involve the
development and coordination of resources through which business unit level strategies can be
executed efficiently and effectively.
Functional units of an organization are involved in higher level strategies by providing input into the
business unit level and corporate level strategy, such as providing information on resources and
capabilities on which the higher level strategies can be based. Once the higher-level strategy is
developed, the functional units translate it into discrete action-plans that each department or division
must accomplish for the strategy to succeed.

Business need to be planned not only for today but also for future. This
implies the continuity and the need for sustainability Enumerate
A business continuity action plan is a document that contains the critical
information a business needs to stay running in spite of adverse events. A business
continuity plan is also called an emergency plan.
The business continuity planning (BCP) is the creation of a strategy through the
recognition of threats and risks facing a company, with an eye to ensure that
personnel and assets are protected and able to function in the event of a disaster.

Business continuity planning (BCP) involves defining potential risks, determining

how those risks will affect operations, implementing safeguards and procedures
designed to mitigate those risks, testing those procedures to ensure that they work,
and periodically reviewing the process to make sure that it is up to date.

A good business continuity plan should clearly state the business' essential functions in writing.
The document should identify and prioritize which systems and processes must be sustained and
provide the necessary information for maintaining them.
A business continuity action plan should include the following information:

Employee contact list

Key supplier/vendor information

Key contacts

Prioritized list of critical business functions

Recovery locations

Copies of essential records

Critical telephone numbers

Critical supplies list

Inventory of the company's equipment/machinery/vehicles

Invntory of the company's computer equipment and software

List of communication venues

Disaster response plan

BCPs provide procedures for how employers and employees will stay in touch and
keep doing their jobs in the event of a disaster or emergency, such as a fire at the
office. Unfortunately, many companies never take the time to develop such a plan,
typically because they do not feel it is necessary. However, creating a
comprehensive BCP will allow you to enhance your companys ability to continue
business as usual during or after significant disruptions to business operations.
Method 1

Understanding What Makes a Good Business Continuity Plan

1Accept the potential threats and risks facing your company. The possibility of a disruption
shutting down your business operations is scary to think about, but you should always be
prepared and willing to accept that risks and threats can cause turmoil for your business. Once
you can accept that unplanned for risks and threats can have devastating results on business
operations, you can then make a plan that ensures that both your businesss assets and personnel
are sufficiently protected.

Make a list of possible risks and their impact upon your company. For example, the death
of a key person will not typically result in closing the doors for a while, but can severely
impact results, vendor relations and customer service.

After identifying risks, sort them by impact and livelihood to prioritize your planning.

2 Dont confuse business continuity plans with disaster recovery plans. Business Continuity
Plans are sometimes referred to as Disaster Recovery Plans and the two have much in common.
Disaster Recovery Plans should be oriented towards business recovery following a disaster, and
mitigating the negative consequences of a disaster. In contrast, Business Continuity Plans focus
on creating a plan of action that focuses on preventing the negative consequences of a disaster
from occurring at all.
3 Consider the potential threats/risks facing the company. Business impact analysis plans

consider the potential consequences to your business when the ability to function and process has
been disrupted by a threat or risk. As a result, creating a BIA allows you to determine which
issues, risks and threats that your business continuity plan needs to address. You should consider
the possible effects a disruption to business operations could cause, such as:[

Lost income and sales

Increased expenses

Customer defection/dissatisfaction

Tardiness in service delivery

Regulatory fines

Delay/inability to commence future business plans.

METHOD 2 Determining Key Recovery Resources

1 Make a list of key internal personnel. Following the occurrence of an event that disrupts

normal business operations, you will need to quickly mobilize key personnel in order to
successfully execute a BCP. Create a list of internal key personnel and backups --- these are the
employees people who fill positions without which your business absolutely cannot function.
Make the list as large as necessary, but as small as possible.[4]

Make a list of all key internal personnel with all contact information including business
phone, home phone, cell phone, pager, business email, personal email, and any other
possible way of contacting them in an emergency situation where normal
communications might be unavailable.

Consider which job functions are critically necessary to continue every day operations.
You should think about who fills those positions when the primary job-holder is on
vacation.

Remember that key personnel does not just include high-ranking executives. For
example, a low to mid-level accounts receivable clerk might be responsible for
processing reports that affecting AR loans or collections, which greatly affect the amount
of available operating income. The accounts receivable clerk should be considered key
personnel, because that person's job functions facilitates the company's access to capital
provided by the processing of receivables and the collection of funds.

2 Document critical business equipment. On-site business computers often contain the most

critical information that you and your employees must be able to access even when working offsite. You should make a list of critical equipment/data, and create a strategy for secure access in
the event of a disruption.[5]Dont forget software that would often be considered critical
equipment, especially if it is specialized software or if it cannot be replaced.

This list should include include passwords, identification data and the location of key
files.

Some businesses cannot function even for a few hours without a fax machine. Do you
rely heavily on your copy machine? Do you have special printers you absolutely must
have?

3 Identify critical documents. You should compile all documentation necessary to start your

business over again in the event of a fire or other disaster that destroys critical documents located
on-site. Make sure that you have alternative copies in physical storage offsite and ways to access
critical documents such as articles of incorporation and other legal papers, utility bills, banking
information, critical HR documents, building lease papers, tax returns and other critical
documents.

You should consider what the plan of action would be if there was a total facility loss.
Would you know when to pay the loan on your company vehicles? To whom do you send
payment for your email services?

4 Identify who can telecommute. In the event that business operations cannot continue at the

regular location, telecommuting from home is a great way for employees to continue doing work
as usual. Your employees ability to work, even when away from the office, will mean that at
least some of the delays in performing work as usual can be avoided. Some people in your
company might be perfectly capable of conducting business from a home office. [6]

Find out who can and who cannot work from home because of internet connectivity
limitations or other issues, and make sure to provide your employees with the necessary
resources for telecommutin

Mentod 3 Creating Your Business Continuity Plan

Identify contingency equipment options. Contingency equipment options are accessible

equipment alternatives that can be used if and when normal business operations are disrupted.[7]

Where would you rent trucks if a disaster damaged or destroyed vehicles used in the
ordinary course of business? Where would you rent computers? Can you use a business
service outlet for copies, fax, printing, and other critical functions?

Alternative equipment suppliers typically do not have to be identified specifically, unless

they are unique and an arrangement has already been negotiated (very rare).

It is more important to identify the services, equipments and/or resources a substitute

must be able to supply. The key personnel entrusted with the responsibility of managing
the relationship with the substitute must have the necessary authority to make relevant
decisions.

Identify your contingency location. This is the place you will conduct business while your
primary offices are unavailable.[8]

It could be a hotel many of them have very well-equipped business facilities you can
use. It might be one of your contractors offices, or your attorneys office.

A storage rental facility near your regular site might be a great place to relocate and store
products in a pinch.

Perhaps telecommuting for everyone is a viable option.

If you do have an identified temporary location, include a map to the location in your
BCP. Wherever it is, make sure you have all the appropriate contact information
(including peoples names).

Make a "How-to" section in your BCP. It should include step-by-step instructions on how to
execute the BCP and address what to do, who should do it, and how. List each responsibility and
write down the name of the person assigned to it. Also, do the reverse: For each person, list the
responsibilities. That way, if you want to know who is supposed to call the insurance company,
you can look up "Insurance", and if you want to know what Joe Doe is doing, you can look under
"Joe" for that information.
Document external contacts. If you have critical vendors or contractors, build a special contact
list that includes a description of the company (or individual) and any other absolutely critical
information about them including key personnel contact information.[9]

Include in your list people like attorneys, bankers, IT consultants...anyone that you might
need to call to assist with various operational issues.

Dont forget utility companies, municipal and community offices (police, fire, water,
hospitals) and the post office!

Put the information together! A BCP is useless if all the information is scattered about in
different places. A BCP is a reference document and it should all be kept together in something
like a 3-ring binder.

Make plenty of copies and give one to each of your key personnel.

Keep several extra copies at an off-site location, at home and/or in a safety-deposit box.

Method 4 Implementing Your Business Continuity Plan

Communicate the BCP to relevant employees. Make sure all employees who
could be potentially affected by a disruption have read and understand the BCP.
Take the time to ensure that employees are aware of their relevant roles in the
implementation and execution of the policy.
Provide essential BCP plan information to non-key personnel. Don't leave
things to chance! Even if key personnel are informed about their role under the BCP,
you should still make sure that all employees are aware of building evacuation
procedures, as well as contingency locations. This way the unforeseeable absence
of key personnel will not prevent non-key personnel from knowing how to respond
to business operation disruptions.

Plan on modifying and updating your BCP. No matter how good your BCP, it is likely that
there will be disruptive events that are not provided for in your plan. Be open to updating and/or
modifying your BCP in light of additional information and/or changed circumstances. Every time
something changes, update all copies of your BCP, and never let it get out of date.

Core competence

The core competency theory is the theory of strategy that prescribes actions to be taken by firms
to achieve competitive advantage in the marketplace. The concept of core competency states that
firms must play to their strengths or those areas or functions in which they have competencies. In
addition, the theory also defines what forms a core competency and this is to do with it being not
easy for competitors to imitate, it can be reused across the markets that the firm caters to and the
products it makes, and it must add value to the end user or the consumers who get benefit from
it. In other words, companies must orient their strategies to tap into the core competencies
and the core competency is the fundamental basis for the value added by the firm.
Core Competencies and Strategy

The term core competency was coined by the leading management experts, CK Prahalad and
Gary Hamel in an article in the famous Harvard Business Review. By providing a basis for firms
to compete and achieve sustainable competitive advantage, Prahalad and Hamel pioneered the
concept and laid the foundation for companies to follow in practice.
Some core competencies that firms might have include technical superiority, its customer
relationship management, and processes that are vastly efficient. In other words, each firm has a
specific area in which it does well relative to its competitors, this area of excellence can be
reused by the firm in other markets and products, and finally, the area of strength adds value to
the consumer. The implications for real world practice are that core competencies must be
nurtured and the business model built around them instead of focusing too much on areas where
the firm does not have competency. This is not to say that other competencies must be neglected
or ignored. Rather, the idea behind the concept is that firms must leverage upon their core
strengths and play to their advantages.
Identifying core competencies

Organizations can identify and determine their established or desired core competencies by
examining their capabilities for developing new products and services that would allow them to
serve a wide range of potential customers; by determining that the mastery of these competencies
would contribute to a successful end product or service; and that the well-developed
competencies are difficult to imitate, leading to an enhanced competitive advantage.
Establishing a core competency strategy

Once an organization has identified its desired core competencies, it must develop a strategy for
maximizing their potential. Doing so will allow a company to deliver value to its customers
based on a sustainable competitive advantage. These enhanced proficiencies should represent an
organization's collective learning and the ways in which it aligns diverse talent sets and
technologies in order to establish competitive differentiation.
Developing core competencies

Organizations can develop core competencies by coordinating various production groups in order
to deliver an end product or service to the marketplace. In doing so, organizations should isolate
key abilities and organizational strengths; ensure they're developing unique capabilities that
customers value; invest in line with those priorities; create a road map that establishes goals for
building additional competences; and consider outsourcing or other vendor-managed
arrangements to access core competencies that might not be available within the organization.

Value chain analysis

A value chain is the full range of activities including design, production, marketing and
distribution businesses go through to bring a product or service from conception to delivery.
For companies that produce goods, the value chain starts with the raw materials used to make
their products, and consists of everything that is added to it before it is sold to consumers.
The process of actually organizing all of these activities so they can be properly analyzed is
called value chain management. The goal of value chain management is to ensure that those in
charge of each stage of the value chain are communicating with one another, to help make sure
the product is getting in the hands of customers as seamlessly and as quickly as possible.

Value Chain Analysis describes the activities that take place in a business and relates them to an
analysis of the competitive strength of the business.
Work by Michael Porter suggested that the activities of a business could be grouped under two
headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product
(e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase
effectiveness or efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a
business and which are best provided by others ("out sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive advantage. For
example, a business which wishes to outperform its competitors through differentiating itself
through higher quality will have to perform its value chain activities better than the opposition.
By contrast, a strategy based on seeking cost leadership will require a reduction in the costs
associated with the value chain activities, or a reduction in the total amount of resources used.
Primary Activities
Primary value chain activities include:

Secondary Activities
Secondary value chain activities include:

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:
(1) Break down a market/organisation into its key activities under each of the major headings in
the model;
(2) Assess the potential for adding value via cost advantage or differentiation, or identify current
activities where a business appears to be at a competitive disadvantage;
(3) Determine strategies built around focusing on activities where competitive advantage can be
sustained

Turnaround strategy
Turnaround Management

The facets of a business restructuring and turnaround involve formulation and implementation.
Just because a turnaround and restructuring program has been agreed upon, the enterprise risk
remains high. The problem can be: (a) the strategy is flawed, (b) the strategy is good, however
poorly implemented, or (c) the strategy is poor and poorly implemented.

Surprisingly, turnaround involves

applying traditional management techniques mainly by following best practices in rather unusual
environments. The business is distressed, both in cash and time are in short supply and rapid
restructuring is required. For the company owner or management, improving the short-term
performance of the business is desired. This would be a mistake. Depending on the stage where
the company is in the business life cycle and the attributes of the business will dictate the
turnaround approach. The approach for start-ups and high-growth companies is different then the
approach required for a mature low-growth business.

Times of corporate distress present special strategic management challenges. In such situations, a
firm may be in bankruptcy or nearing bankruptcy. Often turnaround consultants are brought into
the company to devise and execute a plan of corporate renewal, assuming that the firm has
enough potential to make it worth saving.
Before a viable turnaround strategy can be formulated, one must identify the root cause or causes
of the crisis. Frequently encountered causes include:

Revenue downturn caused by a weak economy

Overly optimistic sales projections

Poor strategic choices

Poor execution of a good strategy

High operating costs

High fixed costs that decrease flexibility

Insufficient resources

Unsuccessful R&D projects

Highly successful competitor

Excessive debt burden

Inadequate financial controls

There are three stages of a turnaround strategy:

I Pre-turnaround
II Period of Crisis
III Period of Recovery
The first stage is the period just before the profitability begins to decline. The company is still
considered profitable at this point, but losing ground. The second period is known as the period
of crisis. At this point the company needs to turnaround. This stage is marked by a decline in
profits (even negatives), a fall in market share and the company's poor cash situation.
The third stage is the period of recovery or the turning point. This is the stage where serious
action is taken to turnaround the company. Important decisions like scaling back production or
returning to an aggressive growth stage are taken. At this point, the company's strategy is clear.
The company can choose to rely on a centralised and low cost system and continue profitably.
Alternatively, it might decide to combine these benefits with a growth strategy. This is the
longest period and may last for years.
Steps in turnaround strategy

Changing the leadership: A change in leadership ensures that those techniques, which
resulted in the companys failure, are not used. The new leader has to motivate
employees, listen to their views and delegate powers.

Redefining strategic focus: This involves re-evaluating the company's business and
deciding which ones to change and which to retain. Diversified companies need to review
their portfolio on the basis of long-term profitability and growth prospects.

Selling or divesting unnecessary assets: Sometimes, although the assets are profitable,
they must be liquidated to contribute to the strategic focus. The cash received from the
sale of such assets should be used to repay debts. Self-sustaining businesses are ideal
candidates to do so.

Improving Profitability: To do this the company has to take drastic steps like:1. Assigning profit responsibility to individual divisions
2. Tightening finance controls and reducing unnecessary overheads.
3. Laying off workers wherever necessary
4. Investing in labour saving equipment
5. Building a new inventory management system and manage debt efficiently through
negotiating long-term loans.

Making careful acquisitions: The company must be careful while making acquisitions.
It should be in an area related to its core business enabling the company to quickly
rebuild or replace its weak divisions.

What is Stability Strategy?

Definition: The Stability Strategy is adopted when the organization attempts to maintain its
current position and focuses only on the incremental improvement by merely changing one or
more of its business operations in the perspective of customer groups, customer functions and
technology alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small
scale businesses or if the market conditions are not favorable, and the firm is satisfied with its
performance, then it will not make any significant changes in its business operations. Also, the
firms, which are slow and reluctant to change finds the stability strategy safe and do not look for
any other options.
Stability Strategies could be of three types:

1. No-Change Strategy
2. Profit Strategy
3. Pause/Proceed with Caution Strategy
To have a better understanding of Stability Strategy go through the following examples in the
context of customer groups, customer functions and technology alternatives.
1. The publication house offers special services to the educational institutions apart from its
consumer sale through the market intermediaries, with the intention to facilitate a bulk
buying.
2. The electronics company provides better after-sales services to its customers to make the
customer happy and improve its product image.
3. The biscuit manufacturing company improves its existing technology to have the efficient
productivity.
In all the above examples, the companies are not making any significant changes in their
operations, they are serving the same customers with the same products using the same
technology.

BCG Portfolio Model

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of
the Boston Consulting Group in the early 1970's. It is based on the observation that a company's
business units can be classified into four categories based on combinations of market growth and
market share relative to the largest competitor, hence the name "growth-share". Market growth
serves as a proxy for industry attractiveness, and relative market share serves as a proxy for

competitive advantage. The growth-share matrix thus maps the business unit positions within
these two important determinants of profitability.
BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the
generation of cash. This assumption often is true because of the experience curve; increased
relative market share implies that the firm is moving forward on the experience curve relative to
its competitors, thus developing a cost advantage. A second assumption is that a growing market
requires investment in assets to increase capacity and therefore results in the consumption of
cash. Thus the position of a business on the growth-share matrix provides an indication of its
cash generation and its cash consumption.
Henderson reasoned that the cash required by rapidly growing business units could be obtained
from the firm's other business units that were at a more mature stage and generating significant
cash. By investing to become the market share leader in a rapidly growing market, the business
unit could move along the experience curve and develop a cost advantage. From this reasoning,
the BCG Growth-Share Matrix was born.
The four categories are:

Dogs - Dogs have low market share and a low growth rate and thus neither generate nor
consume a large amount of cash. However, dogs are cash traps because of the money tied
up in a business that has little potential. Such businesses are candidates for divestiture.

Question marks - Question marks are growing rapidly and thus consume large amounts
of cash, but because they have low market shares they do not generate much cash. The
result is a large net cash comsumption. A question mark (also known as a "problem
child") has the potential to gain market share and become a star, and eventually a cash
cow when the market growth slows. If the question mark does not succeed in becoming

the market leader, then after perhaps years of cash consumption it will degenerate into a
dog when the market growth declines. Question marks must be analyzed carefully in
order to determine whether they are worth the investment required to grow market share.

Stars - Stars generate large amounts of cash because of their strong relative market share,
but also consume large amounts of cash because of their high growth rate; therefore the
cash in each direction approximately nets out. If a star can maintain its large market
share, it will become a cash cow when the market growth rate declines. The portfolio of a
diversified company always should have stars that will become the next cash cows and
ensure future cash generation.

Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is
greater than the market growth rate, and thus generate more cash than they consume.
Such business units should be "milked", extracting the profits and investing as little cash
as possible. Cash cows provide the cash required to turn question marks into market
leaders, to cover the administrative costs of the company, to fund research and
development, to service the corporate debt, and to pay dividends to shareholders. Because
the cash cow generates a relatively stable cash flow, its value can be determined with
reasonable accuracy by calculating the present value of its cash stream using a discounted
cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a
business unit will become either a cash cow or a dog, determined soley by whether it had become
the market leader during the period of high growth.
While originally developed as a model for resource allocation among the various business units
in a corporation, the growth-share matrix also can be used for resource allocation among
products within a single business unit. Its simplicity is its strength - the relative positions of the
firm's entire business portfolio can be displayed in a single diagram.
Limitations

The growth-share matrix once was used widely, but has since faded from popularity as more
comprehensive models have been developed. Some of its weaknesses are:

Market growth rate is only one factor in industry attractiveness, and relative market share
is only one factor in competitive advantage. The growth-share matrix overlooks many
other factors in these two important determinants of profitability.

The framework assumes that each business unit is independent of the others. In some
cases, a business unit that is a "dog" may be helping other business units gain a
competitive advantage.

The matrix depends heavily upon the breadth of the definition of the market. A business
unit may dominate its small niche, but have very low market share in the overall industry.

In such a case, the definition of the market can make the difference between a dog and a
cash cow.
While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing
a corporation's business portfolio at a glance, and may serve as a starting point for discussing
resource allocation among strategic business units.

Strategic alliance

A strategic alliance is an arrangement between two companies that have decided to share
resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved
and less permanent than a joint venture, in which two companies typically pool resources to
create a separate business entity. In a strategic alliance, each company maintains its autonomy
while gaining a new opportunity. A strategic alliance could help a company develop a more
effective process, expand into a new market or develop an advantage over a competitor, among
other possibilities.
A strategic alliance in business is a relationship between two or more businesses
that enables each to achieve certain strategic objectives neither would be able to
achieve on their own. The strategic partners maintain their status as independent
and separate entities, share the benefits and control over the partnership, and
continue to make contributions to the alliance until it is terminated. Strategic
alliances are often formed in the global marketplace between businesses that are
based in different regions of the world.

Strategic alliance Its characteristics and objectives

Core business goal supported by critical alliance:

Revenue is a core business goal, as is market share for the marketing and sales department. One
central business goal is to be one of the top 3 companies in a market. What impact does the
alliance upon that goal? The R&D divisions focus on key products and differentiators as
essential business goals. Is the alliance being critical to the sections goals?

Core competency develops or maintains with alliance:

Will the alliance enhance your competitive position in the market? The alliance must evolve to
seize the core competency and build upon it. The correct alliances strengthen market position.

Competitive threat becomes blocked:

How do you stop a competitor? Create a strategic alliance with their competitors. Or create an
alliance that is so strong, the competitor loses market share. This type of strategic alliance

generates a better total solution for the customers. The rest of the market becomes vulnerable and
maybe unstable.

Strategic choices expand:

A strategic alliance opens new markets, such as geographical regions. International distribution
alliances assist with new market annex. The properly planned alliance creates new revenue for an
untapped market. The fixed costs of using an alliance partner are significantly less than
developing your own team to capture these new customers.

Mitigates risks:

Strategic alliances can be created with any company. When developed with a supplier, cost
increases can be mitigated. One manufacture of silicon used a supplier of gold as partner. Instead
of purchasing the gold, the manufacture rented the element until it was actually used and
shipped. This mitigated risk of fluctuating gold prices.
Since I want to deliver more then I promised, let me add a 6th key trait:

Time to market

Companies have 3 choices when entering a market: build the product; buy a company making
the product; create a strategic alliance. Every product experiences a different time span for the
womb to tomb. Fastest time to market is to create a strategic alliance. If the alliance proves to be
invaluable, then the companies may merge.
Once the strategic alliances are established, and proven successful, less critical ones start to
emerge. Remember, strategic alliances need ongoing attention to succeed.

objectives
Gaining capabilities
An enterprise may want to produce something or to enquire certain resources that it lacks in the
knowledge, technology and expertise. It may need to share those capabilities that the other firms have.
Thus, strategic alliance is the opportunity for the enterprise to achieve its objectives in this aspect. Further
to that, in later time the enterprise also could then use the newly acquired capabilities by itself and for its
own purposes.
ii.

Easier access to target markets

Introducing the product into a new market can be complicated and costly. It may expose the enterprise to
several obstacles such as entrench competition, hostile government regulations and additional operating
complexity. There are also the risks of opportunity costs and direct financial losses due to improper
assessment of the market situations.

Choosing a strategic alliance as the entry mode will overcome some of those problems and help reduce
the entry cost. For example, an enterprise can license a product to its alliance to widen the market of that
particular product.
iii.

Sharing the financial risk

Enterprises can make use of the strategic arrangement to reduce their individual enterprises financial
risk. For example, when two firms jointly invested with equal share on a project, the greatest potential that
each of them stand to loose is only half of the total project cost in case the venture failed.
iv.

Winning the political obstacle

Bringing a product into another country might confront the enterprise with political factors and strict
regulations imposed by the national government. Some countries are politically restrictive while some are
highly concerned about the influence of foreign firms on their economics that they require foreign
enterprises to engage in the joint venture with local firms. In this circumstance, strategic alliance will
enable enterprises to penetrate the local markets of the targeted country.
v.

Achieving synergy and competitive advantage

Synergy and competitive advantage are elements that lead businesses to greater success. An enterprise
may not be strong enough to attain these elements by itself, but it might possible by joint efforts with
another enterprise. The combination of individual strengths will enable it to compete more effectively and
achieve better than if it attempts on its own.
For example, to create a favorable brand image in the consumers mind is costly and time-consuming.
For this reason, an enterprise deciding to introduce its new product may need a strategic arrangement
with another enterprise that has a ready image in the market.