Strategic Analysis & Choice

VIRENDER ANUJ MOHIT ISHA ANILA

Strategic Analysis

The process by which objectives are formulated and achieved is known as strategic management and strategy acts as the means to achieve the objective.

Meaning of strategy

The word strategy has entered in the field of management from the military services where it refers to apply the forces against an enemy to win a war. Originally, the word strategy ha s been derived from Greek, strategos which means generalship.

Process of Strategy

The process of strategy is cyclical in nature. The elements within it interact among themselves.

Four phases

Focusing on strategic alternatives. Analyzing the strategic alternatives. Evaluating the strategic alternatives. Choosing from among the strategic alternatives.

STRATEGIC ANALYSIS

Corporate Portfolio Analysis. SWOT Analysis.

Corporate Portfolio Analysis

Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of products or business units to be managed for the best possible returns.

The aim of portfolio analysis is

To analyze its current business portfolio and decide which businesses should receive more or less investment To develop growth strategies, for adding new businesses to the portfolio To decide which business should not longer be retained

The Boston Consulting Group (BCG) is a global management consulting firm with offices in 42 countries. It is recognized as one of the most prestigious management consulting firms in the world

BCG MATRIX

The BCG matrix was developed by Boston Consulting group in 1970s. It is also called as the growth share matrix. This is the most popular and most simplest matrix to describe the corporations portfolio of businesses or products. The BCG matrix helps to determine priorities in a product portfolio. Its basic purpose is to invest where there is growth from which the firm can benefit, and divest those businesses that have low market share and low growth prospects.

BCG MATRIX

Each of the products or business units is plotted on a two dimensional matrix consisting of relative market share is the ratio of the market share of the concerned product or business unit in the industry divided by the share of the market leader market growth rate is the percentage of market growth, by which sales of a particular product or business unit has increased

Analysis of the BCG matrix the matrix reflects the contribution of the products or business units to its cash flow. Based on this analysis, the products or business units are classified as

Stars Cash cows Question marks Dogs

Stars high growth, high market share Stars are products that enjoy a relatively high market share in a strongly growing market. They are potentially profitable and may grow further to become an important product or category for the company. The firm should focus on and invest in these products or business units.

Cash Cows Low growth, high market share

These are the product areas that have high relative market shares but exist in low-growth markets. The business is mature and it is assumed that lower levels of investment will be required. On this basis, it is therefore likely that they will be able to generate both cash and profits. Such profits could then be transferred to support the stars.

Question Marks high growth, low market share

Question marks are also called problem children or wild cats. These are products with low relative market shares in high growth markets. The high market growth means that considerable investment may still be required and the low market share will mean that such products will have difficulty in generating substantial cash. These businesses are called question marks because the organization must decide whether to strengthen them or to sell them.

Dogs Low growth, low market share

These are products that have low market shares in low growth businesses. These products will need low investment but they are unlikely to be major profit earners. In practice, they may actually absorb cash required to hold their position. They are often regarded as unattractive for the long term and recommended for disposal.

Advantages

It It It It

is easy to use is quantifiable draws attention to the cash flows draws attention to the investment needs

Limitations

It is too simplistic Link between market share and profitability is not strong Growth rate is only one aspect of industry attractiveness It is not always clear how markets should be defined Market share is considered as the only aspect of overall competitive position Many products or business units fall right in the middle of the matrix, and cannot easily be classified.

GE Nine-Cell Matrix

The horizontal axis represents business strength and the vertical axis represent industry attractiveness

Cont..

This matrix was developed in 1970s by the General Electric Company with the assistance of the consulting firm, McKinsey & Co, USA. This is also called GE multifactor portfolio matrix. This matrix consists of nine cells (3X3) based on two key variables:

business strength industry attractiveness

GE matrix is also called Stoplight strategy matrix because the three zones are like green, yellow and red of traffic lights.

Green indicates invest/expand if the product falls in green zone, the business strength is strong and industry is at least medium in attractiveness, the strategic decision should be to expand, to invest and to grow. Yellow indicates select/earn if the product falls in yellow zone, the business strength is low but industry attractiveness is high, it needs caution and managerial discretion for making the strategic choice Red indicates harvest/divest if the product falls in the red zone, the business strength is average or weak and attractiveness is also low or medium, the appropriate strategy should be divestment.

Comparison GE versus BCG

Thus products or business units in the green zone are almost equivalent to stars or cash cows, yellow zone are like question marks and red zone are similar to dogs in the BCG matrix.

SWOT analysis

The SWOT analysis is an extremely useful tool for understanding and decisionmaking for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats.

Hero Motocorp
STRENGTHS

Hero Motocorp introduced First stroke bike in the Indian market. It gives 70 Km/Liter Avg. Huge sale network (3500 Dealers). Better sale service. It has the highest share in automobile sector.

WEAKNESS:

Its market share is reducing from last few years. Spare parts are too costly.

OPPOURTUNITIES:

Hero Motocorp the first manufacture to launch eco friendly bikes with 4-stroke engines. They have attained a stronger good will and popularity in the industry and the consumers. There is large no. of young consumers in the market. Company has to focus on them. They have big opportunities in heavy bike segments.

THREATS:
Main threats to Hero Motocorp are their competitors like: Bajaj Auto Ltd. TVS motors Ltd. Yamaha Motors India. Honda motorcycle and scooter India.

BAJAJ
STRENGTHS

Highly experienced management. Product design & development capabilities. Extensive R&D focus. Wide spread distribution network. High performance product across all categories. Good customer service.

WEAKNESS:

Hasnt employed the excess cash for long. Slow to make decisions and adapt to changes that affect the profession. Do not have the resources to research the market and promote the designation.

OPPOURTUNITIES:

Their business sector is expanding, with many future opportunities for success. competitors may be slow to adopt new technologies

THREATS:
A small change in focus of a large competitor might wipe out any market position they achieve. The competition catches-up any new innovation in no time.