Master oI Business Administration-MBA Semester 4

Strategic Management and Business Policy

MB0052
Assignment Set 1

Q.1
What similarities and diIIerences do you Iind in BCG business portIolio matrix, An oII growth
matrix and GE growth pyramid.
Ans.
The BCG matrix is a portIolio management tool used in product liIe cycle. BCG matrix is oIten
used to highlight the products which get more Iunding and attention within the company. During
a
products liIe cycle, it is categorized into one oI Iour types Ior the purpose oI Iunding decisions.
Figure 1 below depicts the BCG matrix.
Figure 1 BCG Growth Share Matrix

Question Marks

(high growth, low market share)
are new products with potential success, but they need a lot oI cash Ior development. II such a
product gains enough market shares to become a market leader, which is categorized under Stars,
the organization takes money Irom more mature products and spends it on Question Marks.
Stars (high growth, high market share)
are products at the peak oI their product liIe cycle and they are in a growing market. When their
market rate grows, they become Cash Cows.
Cash Cows (low growth, high market share)
are typically products that bring in Iar more money than is needed to maintain their market share.
In this declining stage oI their liIe cycle, these products are milked Ior cash that can be invested
in new Question Marks.
Dogs (low growth, low market share)
are products that have low market share and do not have the potential to bring in much cash.
According to BCG matrix, Dogs have to be sold oII or be managed careIully Ior the small
amount oI cash they guarantee. The key to success is assumed to be the market share. Firms with
the highest market share tend to have a cost leadership position based on economies oI scale
among other things. II a company is able to apply the experience curve to its advantage, it should
able to produce and sell new products at low price, enough to garner early market share
leadership.
Limitations oI BCG matrix
The use oI highs and lows to Iorm Iour categories is too simple
The correlation between market share and proIitability is questionable. Low share business
can also be proIitable.
Product lines or business are considered only in relation to one competitor: the market leader.
Small competitors with Iast growing shares are ignored.


Growth rate is the only aspect oI industry attractiveness
Market share is the only aspect oI overall competitive position
Igor An oII growth matrix
The An oII Growth matrix is a tool that helps organizations to decide about their product and
market growth strategy. Growth matrix suggests that an organization`s attempts to grow depend
on whether it markets new or existing products in new or existing markets. An oII`s matrix
suggests strategic choices to achieve the objectives. Figure 2 depicts An oII growth matrix.
Figure 2: An oII Growth Matrix

Market penetration
Market penetration is a strategy where the business Iocuses on selling existing products into
existing markets. This increases the revenue oI the organization.
Market development

Market development is a growth strategy where the business seeks to sell its existing products
into new markets. This means that the product is the same, but it is marketed to anew audience.
Product development

Product development is a growth strategy where a business aims to introduce new products
into existing markets. This strategy may need the development oI new competencies and requires
the business to revise products to appeal to existing markets.
DiversiIication

DiversiIication is the growth strategy where a business markets new products in new markets.
This is an intrinsically riskier strategy because the business is moving into markets in which it
has little or no experience. For a business to adopt a diversiIication strategy, it should have a
clear idea about what it expects to gain Irom the strategy and an honest assessment oI the risks.

McKinsey/GE growth pyramid

The McKinsey/GE matrix is a tool that perIorms a business portIolio analysis on the Strategic
Businessunits in an organization. It is more sophisticated than BCG matrix in the Iollowing three
aspects:
Industry (market) attractiveness
Industry attractiveness replaces market growth. It includesmarket growth, industry
proIitability, size and pricing practices, among other possible opportunities andthreats.

Competitive strength
Competitive strength replaces market share. It includes market share as wellas technological
positions, proIitability, size, among other possible strengths and weaknesses. McKinsey/GE
growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2 matrixes.External Iactors
that determine market attractiveness are the Iollowing: Market size Market growth
Market proIitability Pricing trends Competitive intensity/rivalry Overall risk oI returns
in the industry Opportunity to diIIerentiate products and services Segmentation
Distribution structure (e.g., retail, direct, wholesale)Internal Iactors that aIIect competitive
strength are the Iollowing: Strength oI assets and competencies Relative brand strength
Market share Customer loyalty Relative cost position (cost structure compared to
competitors) Distribution strength Record oI technological or other innovation Access
to Iinancial and other investment resources.
Q.2 Discuss the invest ment strategies applicable Ior businesses and methods to
rectiIy Iault yinvestment strategies.Ans.
An investment strategy is a key component oI every conceivable businesstype, and it's critical
toensuring the success oI the business. Entirecollegeprograms have been designed speciIically to
teach business investment strategies, but a Iew key tips can help lay groundwork Ior eIIective
investing.
Use Income to Eliminate Debt
o
While t he pay-down oI outstanding debt may not seem like business invest ment on
thesurIace, debt eliminat ion can equate to a Iinancial return that outpaces even the
best invest ments. II a business has outstanding debt Iinanced at a given interest rate,
payingoII that debt guarantees an instant return oI that percentage. Because business debt
oItenr ea c hes i nt o doubl e di g it i nt er e st r at es, pa yi ng o I I t hi s de bt ca n
pr ovi de a n i nst a nt , guaranteed return that is signiIicantly higher than usual returns on other
investments.
Reinvest Funds to Nurture the Business
o
Perhaps one oI the most common ways businessesinvest their Iunds involves
purchasingaddit ional equipment, remodeling customer-Iacing environments or
opening addit ionallocat ions. By reinvest ing proIits back into the business Ior
expansion or improvement,the business stands to gain addit ional proIits as a result
oI the expansion. As an added bonus, a guaranteed return on the investment will come in the
Iorm oI tax not assessed onthe reinvested Iunds.
Invest in Other Businesses
o
Some businesses Iind success in investing their proIits in other noncompeting
businesses.T h e s e i n v e s t me n t s ma y b e ma d e a s t r a d i t i o n a l c a s h
i n v e s t me n t s , a s l o a n s o r b y purchasing securities issued to business start-ups.
Investing in other businesses can be anespecially wise move Ior companies in shaky
industries, as spreading invest ments intoother types oI operations can help diversiIy a
business's holdings and reduce the risk oI acomplete business loss
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Have a clear disposition towards price The more you pay Ior an asset in relation to its
earnings, thelesser is your return value. So have a clear outlook towards the price. Allocate
capital by opportunity cost Allocate investments/assets to the choice which has been optedas
the best among several mutually exclusive choices.
Internal methods to rectiIy Iaulty investment strategies
In this section we will explain the methods to rectiIy Iaulty investment strategies. Some oI the
methodsare as Iollows: Internal transIormation Corporate restructuring and
reorganization Financial restructuring Divestment strategy Expansion strategy
DiversiIication strategy Vertical and horizontal integration strategy Building core
competencies and critical success IactorsFrequent assessment report assists in detecting the
problems associated with Iaulty investment strategiesin an organization.
Internal transIormation
Internal transIormation takes place in an organization to sustain constant growth, survival and
maintain proIit abilit y. It includes corporate restructuring, downsizing oI employees
etc. The Iollowing are thereasons Ior internal transIormation oI a company: Pressure on
owner to decrease costs OverstaIIing Large and complicated company structure Low
Ilexibility oI staII Financial instabilityThe main object ive oI a company which adopts
internal transIormat ion is to increase eIIiciency byr e a c h i n g t h e s t a n d a r d s i n
t h e g l o b a l ma r k e t . T h i s i s a c h i e v e d b y h o l d i n g h i g h q u a l i t y l e v e l
o I productivity.The essential components oI a successIul business transIormation are as
Iollows: Achievement A new level oI sustainably high perIormance emerges Extraordinary
and unexpected results appear throughout Improved synergy Collaboration naturally occurs
across all levels Creativity and innovation Ilourishes Aliveness Employees Ilourish as they
openly express their passion, commitment and creativity towards work. Growth and
development occurs both personally and proIessionally Shared Iuture The entire organization
unites to accomplish the Iuture and live consistently with core valuesWe will now discuss the
two internal transIormation processes in the Iollowing section. Corporate restructuring and re-
organization LayoIIs and employee termination
Q.3. a. Distinguish policy, procedure and programmes with examples.b. Give a short note on synergy