Amity Business School

STRATEGIC MANAGEMENT
Module III Strategic Choice
Ramesh Bagla

Amity Business School

Strategic Choice
Re-visit the Mission
Revise, create, or maintain mission

Set Long-Term Objectives Generate feasible alternatives Evaluate alternatives Choose the best strategic option

Amity Business School

The Strategy Formulation Framework

Stage 1: The Input Stage

SWOT Analysis External Analysis Internal Analysis

Stage 2: The Matching Stage Re-visit Mission and Set Long Term Objectives
Generate feasible alternative Corporate Strategies

Stage 3: The Decision Stage

Evaluate and Choose Corporate Strategies

Amity Business School

Alternatives for Growth

Expansion of existing Businesses

Market Penetration Market Development Product Development

Alternatives for Growth

Vertical Integration Forward & Backward

Related Diversification into new Businesses Unrelated

Amity Business School

Modes of Growth
Internal development Acquiring firms/businesses Collaborative arrangements
Strategic Alliances Joint Ventures Licensing

Amity Business School

Key Questions in Strategic Choice

Strategic choices need to take into account the environment and build on core competences Strategic choices need to take into account the expectations and influence of stakeholders Strategic direction and methods should build on broad strategic choices Resources and competences should be developed to deliver and sustain the chosen strategies

Amity Business School

Tools for Formulating and Choosing Corporate Strategies

1. Portfolio Analysis

Amity Business School

The BCG Matrix

BOSTON CONSULTING GROUP (BCG) MATRIX was developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970s. It is also known as Growth Share Matrix According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share.

Amity Business School

The BCG Matrix

Relative Market Share Position in the Industry
High 1.0 High +20 Medium .50 Low 0.0

Stars (II)

Question Marks (I)

Industry Sales Growth Rate Medium 0 (Percent)

?
Cash Cows (III) Dogs (IV)

Low

- 20

Amity Business School

QUESTION MARKS
High 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 also become a dog. Investments should be high for question marks.

Amity Business School

STARS
High 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 market share otherwise the star will become a CASH COW.

Amity Business School

CASH COWS Low growth , High market share

They are foundation of the company and often the stars of yesterday. They generate more cash than the investment required. They extract the profits by investing as little cash as possible They are located in an industry that is mature, not growing or declining.

Amity Business School

DOGS
Low 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 be minimized. Business is situated at a declining stage.

Amity Business School

Strategic Perspectives of Products in Different Quadrants

Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications

Amity Business School

Question Marks
Investmentheavy initial capacity expenditures and high R&D costs Earningsnegative to low Cash-flownegative (net cash user) Strategy Implications
If possible to dominate segment, go after share. If not, redefine the business or withdraw

Amity Business School

Stars
Investmentcontinue to invest for capacity expansion EarningsLow to high earnings Cash-flowNegative (net cash user) Strategy Implications
Continue to increase market shareeven at the expense of short-term earnings

Amity Business School

Cows
InvestmentCapacity maintenance EarningsHigh Cash-flowPositive (net cash contributor) Strategy Implications
Maintain market share and cost leadership until further investment becomes marginal

Amity Business School

Dogs
Investment
Gradually reduce capacity

EarningsHigh to low Cash-flow

Positive (net cash contributor) if deliberately reducing capacity

Strategy Implications
Plan an orderly withdrawal to maximize cash flow

Amity Business School

The BCG Matrix for ITC Ltd.

Stars Hotels Paperboards/ Packaging. Agri business. Cows FMCG-Cigarettes ? FMCG- Others

Dogs Maybe ITC Infotech.

Amity Business School

BCG Matrix - Three Paths to Success

Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not selfsustaining Stars need a lot of reinvestments and as the market matures, stars will turn into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash

Amity Business School

BCG Matrix - Three Paths to Failure Over invest in cash cows and under invest in question marks
Trade future opportunities for present cash flow

Under invest in the stars

Allow competitors to gain share in a high growth market

Over milk the cash cows

Amity Business School

WHY BCG MATRIX ?

To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment decisions

Amity Business School

MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBUs. Assessing and comparing the prospects of each 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.

Amity Business School

BENEFITS
BCG MATRIX is simple and easy to understand. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a companys future growth and profitability.

Amity Business School

LIMITATIONS
BCG MATRIX uses only two dimensions, Relative market share and market growth rate. Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too.

Amity Business School

CONCLUSION
Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLEST portfolio planning matrix ,used by large companies having multi-products. M&M and HLL are using the BCG MATRIX.

Amity Business School

Foundations of Technology Strategy

Technology Dynamics

Organising for Innovation

Technological Competition

Amity Business School

Turning innovation into the basis of sustainable advantage depends on two key types of factors.
Organisational - ability to create value through technological innovation Strategic - ability to capture value from technological innovation .both require an understanding of the dynamics of technology-driven markets

Amity Business School

Developing and Implementing an Effective Technology Strategy Requires Understanding Three Key Questions

What technologies can decisively affect overall customer value?

Do we have the organizational capabilities necessary to deliver it?

Can we capture this value in the face of competition?

Amity Business School

Technology Strategy
Technology and innovation Innovation and information Economics and strategy Prices and markets Financial Implications

Amity Business School

Photocopiers
Many firms were offered the photocopying patent but turned it down At that time, copying seemed a waste because typing on carbon paper was a substitute But main value of copier was to make copies of copies and so on Required a change in office management and work practices

Amity Business School

Xeroxs Strategy
Enabled a marketing innovation Stopped trying to sell copiers but instead sold copies: earned fees based on usage
removed customer risk put machines in offices to evolve changing practices

Amity Business School

Key Thoughts
For emerging technologies, a key source of strategic advantage arises from the quality of information Competitive Intelligence is difficult to assess In the absence of experience, near-term market evaluation is very sensitive to ad-hoc assumptions Technological innovation does not give a company a birthright to downstream commercialisation Independent development invites competition, creating a wedge between the overall diffusion of technology and the ability of the innovator to appropriate returns Licensing or joint venture strategies can provide key advantages in information, distribution, and amortising large fixed commercialisation costs

Amity Business School

Coevolving
Creating cross-business synergy in corporate enterprise is at the heart of corporate strategy and a prime rationale for the existence of the multi-business corporation. Two or more businesses can generate greater value working together than they could working apart. Shared resources, knowledge and skills create synergy which facilitates coordinated strategies, vertical integration or establishing internal alliances in the enterprise.
34

Amity Business School

Coevolving
An efficient way of achieving corporate synergy is creating a web of collaborative links and relationships among the enterprise and business units - everything starting from exchanging information on shared assets to creating the corporate strategy. It is realized through managing a corporate strategic process called coevolving, based on the principle of natural laws of shared survival and development of individual species.
35

Amity Business School

Coevolving
Laws of biological co-evolution are consistent with the notion that multi-business corporate enterprise are coevolving ecosystems, with flexible and temporary links among the units. Besides the quantity of links, the quality is also important for efficiency of corporate enterprise. In essence, the multi-business corporate enterprises need to emulate the principle of functioning from nature and approach crossbusiness synergies with a very different mindset than that of the traditional corporate managers.
36

Amity Business School

Coevolving
Coevolving is a subtle strategic process in successful corporate enterprises, including creation of flexible business portfolio with both collaborative and competitive units It ensures a superior corporate strategy based on cross-business synergies in performing business activities. The process of coevolving turns the corporate enterprise into an ecosystem with corporate strategy in the hands of business-unit managers. The multi-business team is powerful because it can add significant value to the corporate enterprise beyond the sum of the units.
37

Amity Business School

Coevolving
The process of transition results in growth and development of enterprises, which requires flexible and adaptive forms of organizational structure and management system. This implies making complex corporate business arrangement. At the same time, there is the process of creating dynamic and unpredictable markets, immanent to developed market economy. These markets always change opportunities and capabilities for creating competitive and corporative advantage and business success of enterprise.
38

Amity Business School

Coevolving
Adjustment to market possibilities for performing efficient business activities changes the corporate "repertoire" of corporate strategy. The new corporate strategy focuses on corporate strategic processes of restructuring or "remapping" business portfolios as well as on coevoluting its elements for performing business activities in a more efficient way.

.
Amity Business School

Strategic Opportunism
Driven by a focus on the present Based on the premise that environment is so dynamic and uncertain that it is not feasible to aim at a future target Strategic flexibility and willingness to respond to opportunities is necessary. Change is the norm Minimizes risk of missing emerging opportunities Reduces risk of strategic stubbornness Requires decentralized structure Needs entrepreneurial skills and abilities

Amity Business School

Patching
Patching is the strategic process by which corporate executives routinely remap their business to match with rapidly changing market opportunities adding, splitting transferring, exiting or combining chunks of businesses When markets are turbulent and rapidly changing patching is seen as critical to the creation of economic value in a multinational company.

41

Amity Business School

Patching
In volatile markets, patchers strategic analysis focuses on making quick, small, frequent changes in parts of businesses and organizational processes that enable dynamic strategic repositioning rather than long term defensible positions. Managers should flexibly seize opportunities as long as that flexibility is disciplined. Effective corporate strategies focus on key processes and simple rules.
42

Amity Business School

Patching
The fundamental argument in favour of Patching is that no one can predict how long a competitive advantage will last, particularly in turbulent, rapidly changing markets; hence strategy must be simple, responsive and dynamic to exploit the advantage for significant growth and wealth creation.

43