Tools for corporate level strategic

management
The Boston Consulting Group Matrix
 It is the simplest way to portray a
corporation’s portfolio of investments.
 Each of the corporation’s product lines or
business units is plotted on the matrix
according to
• The growth rate of the industry
• Its relative market share
The Boston Consulting Group Matrix
The Boston Consulting Group Matrix
 Stars
 Stars are market leaders
 They at the peak of their PLC
 Maintain high share of the market
 When market rate slows down, stars become
cash cows
The Boston Consulting Group Matrix
 Cash cows
 They bring in far more cash than is needed to
maintain their market share.
 As these products move along the decline
stage of their life cycle, they are milked for
cash that will be invested in new question
mark products
The Boston Consulting Group Matrix
 Question marks
 Also called as problem child or wild cats.
 Are new products with the potential for
success that need a lot of cash for
development.
 If one of these products is to become a star,
money must be taken from more mature
products and spend on question marks.
The Boston Consulting Group Matrix
 Dogs
 Those products with low market share that do
not have the potential to bring in much cash.
 Dogs should be either sold off or managed
carefully for the small amount of cash they
can generate
The Boston Consulting Group Matrix
 After the current positions of a company’s
product lines or business units have been
ploted, a projection can be made of their
future positions, assuming there is no change
in strategy.
 The goal of any company is to maintain a
balanced portfolio
 Always try to harvest mature products in
declining industries to support new ones in
the growing industries.
The Boston Consulting Group Matrix
 Dogs should be promptly harvested or
liquidated.
 A product with a low share can be very
profitable if the product has a niche in the
market.
 Some firms may also keep a dog because its
presence creates an entry barrier for potential
competitors.
The Boston Consulting Group Matrix
 BCG matrix is popular because it is
quantifiable and easy to use.
 It has been criticised because it is too simple.
 IT puts too much emphasis on market share
and on being the market leader.
The GE Planning Grid
 GE developed a matrix with the assistance of
McKinsey.
 It includes nine cells
 It is based on
 Long-term industry attractiveness
 Business strength and competitive position.
The GE Planning Grid
 GE industry attractiveness includes market
growth rate, industry profitability, size and
pricing practices among other possible
opportunities and threats.
 Business strength or competitive position
includes market share as well as
technological position, profitability and size
among other possible strengths and
weaknesses.
The GE Planning Grid
 The individual product lines or business units
are identified by a letter and are plotted as
circles on the GE Planning Grid.

 The area of each circle is in proportion to the

size of the industry in terms of sales.

 The pie slices within the circles depict the

market share of each product line or business
unit.
The GE Planning Grid
The GE Planning Grid
 The following four steps have to be taken to
draw product lines or business units
 Assess overall industry attractiveness for
each product line or business unit on a scale
from 1(very unattractive) to 5 ( very
attractive).
 Assess business strength and competitive
position for each product line on a scale of
1(very weak) to 5 (very strong)
The GE Planning Grid
 Plot the business unit ‘s current position on
the grid.

 Plot the firm’s future portfolio. Compare and

study whether there is a performance gap
between projected and desired portfolios.
The GE Planning Grid
 The nine-cell GE planning grid is an
improvement over the BCG.
 It considers more variables than the BCG.
 However it is quite complicated and
cumbersome.
 The numerical estimates of industry
attractiveness or business strength is
subjective.
 Difficult to depict new and developing
products.
The life cycle concept
 It describes how organisations / products
grow, develop and eventually decline.
 It has four stages
 Introduction
 Growth
 Maturity
 Decline
The life cycle concept
The life cycle concept
 A revival phase may occur during the maturity
or decline stage.

 The key is for management to b e able to

identify when the firm is changing stages and
to make the appropriate strategic and
structural adjustments.
 The life cycle concept
Introduction Growth Maturity Decline

Popular Concentration Horizontal Concentric Profit strategy

Strategies on a niche and vertical and followed by
integration conglomerate retrenchment
diversification

Likely Entrepreneur Functional Decentralizati Structural

structure dominated management on into profit surgery
emphasized or investment
centres
The McKinsey Framework
The McKinsey Framework
 The 7- S framework consists of
• Strategy
• Structure
• Systems

 Managers tend to rely on the above stated

Ss.
The McKinsey Framework
 Leaders have an inherent inclination for
utilization of the soft Ss of

• Style
• Staff
• Skills
• Shared goals
The McKinsey Framework
 It is a management model that describes 7
factors to organize a company in an holistic
and effective way.
 Managers must take into consideration all
seven factors for successful implementation
of a strategy.
 All the factors are interdependent.
The McKinsey Framework
 Relative importance of each factor may vary
over time.
 The 7-S framework was first mentioned in
‘The art of Japanese management ’by
Richard Pascale and Anthony Athos in 1981
 At the same time Tom Peters and Wateman
were exploring what made a company
excellent.
The McKinsey Framework
 It appeared ‘ In Search of Excellence ’by
Peters and Waterman.
 It was taken up as a basic tool by global
management consultancy McKinsey.
The McKinsey Framework
 Shared values – Central beliefs and attitudes
 Strategy – Plans for allocation of a firm’s
scarce resources over time to reach identified
goals
 Structure – The way in which organization
units relate to each other.
 System – The procedures, processes and
routines that characterise how the work
should be done.
The McKinsey Framework
 Staff – Number and types of personnel within
the organization.
 Style – Management style and culture.
The McKinsey Framework - Strength
 Diagnostic tool for understanding
organizations that are ineffective.
 Guides organizational change.
 Combines rational and hard elements with
emotional and soft elements.
 Managers must act on all the Ss in parallel
and all Ss are interrelated.
Organizational structure
The meaning of organisational
structure
Structure:
 is the pattern of relationships among positions
in the organisation & among members of the
organisation
 allows the application of the process of
management
 creates a framework of order & command
through which the activities of the
organisation can be planned, organised,
directed & controlled
Different organizational structures for
different strategies
 Each structure tends to support some
corporate strategies over others.
 Simple structure
 It has no functional or product category
 It is appropriate for a small, entrepreneur-
dominated company with one or two product
lines that operates in a reasonably small,
easily identifiable market niche.
 Employees tend to be generalists and jack-of-
all-trades.
Simple structure

Owner - Manager

Workers
Functional structure
 It is appropriate for a medium-sized firm with
several product lines in one industry.

 Employees tend to be specialists in the

business functions important to that industry

 E.g. manufacturing, marketing, finance,

human resources etc.
Functional structure

Top management

Manufacturing Sales Finance Personnel

Divisional structure
 It is appropriate for a large corporation with
many product lines in several related
industries.

 Employees tend to be functional specialsit

organized according to product/market
distinction.
Divisional structure

 It is appropriate for a large corporation with

many product lines in several related
industries.
 Employees tend to be functional specialists
organized according to product / market
distinctions.
 Management attempts to find some synergy
among divisional activities through the use of
committees and horizontal linkages.
Divisional structure

Top management

Product Div A Product Div B

Manufacturing Sales Finance Manufacturing Sales Finance

Strategic business units (SBUs)

 It is divisions or groups of divisions composed

of independent product-market segments that
are given primary responsibility and authority
for the management of their own functional
areas.
Strategic business units (SBUs)

 An SBU may be of any size or level but it must have

 A unique mission

 Identifiable competitors

 An external market focus

 Control of its business functions.

Strategic business units (SBUs)

 The idea is to decentralize on the basis of

strategic elements.

 General Foods organized its products into

SBUs on the basis of consumer-oriented
menu segments: breakfast food, beverage,
main meal, desert and pet foods.
Conglomerate structure

 It is appropriate for a large corporation with

many product lines in several unrelated
industries.

 The unrelated nature of the subsidiaries

prevents any attempt at gaining synergy
among them.
Does strategy drive structure?
 Structure should follow strategy or to put it
another way, form should follow function.

 Michael Porter at Harvard defines strategy as,

"an integrated set of actions that a company
designs to produce a sustainable competitive
advantage and thus attain superior
performance."
Does strategy drive structure?

 A strategy should contain three major

elements:
 a look at the future (anticipation),
 a look at today (awareness),
 and a focus on what should be done (action).
Does strategy drive structure?
 Structure should always reflect the strategy.

 What is most important is that the structure

serves the customer's needs and makes
implementing the strategy easy.

 the best structures, like strategies, need to

adapt to changing circumstances.

 a structure is not something fixed and rigid.