Goals are important as

• Goals provide a sense of direction

• Goals focus our efforts
• Goals guide our plans and decisions
• Goals help us evaluate our progress
 Types of Plans

Plans designed to meet an

Strategic Organization’s broad goals
Plans Establish long-range
objectives

Tactical Designed to implement

Plans strategic objectives
(usually one year or less)

Specify actions to achieve

Operational tactical plans (very short-
Plans term).
Plans that contains details
for implementing strategic
Plans in day to day
 The Hierarchy of Organization
Plans
Mission Statements

Strategic Plans

Operational Plans

Mission Statement : Broad organizational goal,

based on planning premises, which justifies an
organization
 How strategic and operational
plans differ
• Time Horizons

• Scope

• Degree of Detail
Strategy
• The broad program for defining and
achieving an organizations objectives.
• The organizations response to
environment over time

 Corporate Level Strategy

 Business Unit Strategy
 Functional Level Strategy
Hierarchy of Strategy
 Strategic Management
Defined
Strategic management is the art and science of
formulating, implementing, and evaluating cross
functional decisions that enable an organization to
achieve its objectives.

“It is not a single act but a set of activities”.

Strategic planning is an organization's process of

defining its strategy, or direction, and making
decisions on allocating its resources to pursue this
strategy, including its capital and people.
 Strategic Management
Process
Stages Activities

Strategy Conduct Integrate Make

Formulation Research intuition with Decision
analysis
Strategy Establish Device Policies Allocate
Implementat annual Resources
ion Objectives

Strategy Review Measure Take

Evaluation internal and Performance Corrective
external Action
factors
 Strategic Planning
• Various business analysis techniques can be
used in strategic planning, including 

SWOT analysis (Strengths, Weaknesses,

Opportunities, and Threats ), 
PEST analysis (Political, Economic, Social, and
Technological), 
STEER analysis (Socio-cultural, Technological,
Economic, Ecological, and Regulatory factors)
EPISTEL (Environment, Political, Informatic,
Social, Technological, Economic and Legal).
 The SWOT matrix
STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS
 What to look for in SWOT
Strengths –
- A powerful Strategy
- Core competencies in….
- Strong Financial Condition
- product innovation capabilities
- strong advertising and promotion
- wide geographic coverage
- superior intellectual capital
and many more….
 SWOT cont…
Weaknesses –
- No clear strategic direction
- resources that are not well matched with
industry
- too narrow product line
- weak balance sheet
- lack of innovation – product or process
- In the wrong strategic group
- underutilization of capacities
 SWOT cont…
Opportunities
- openings to win market share
- sharp rising buyer demand
- Entering into alliances, JV’s
- Integration- forward and backward
- Emerging technologies
 SWOT Cont…
Threats –
- Increasing intensity of rivalry
- slowdown in market growth
- new potential entrant
- shift in buyer needs
- restrictive trade practices
 The TOWS Matrix
Using SWOT Analysis to Generate
Potential Feasible Strategies

At a practical level, the only difference

between TOWS and SWOT is that TOWS
emphasizes the external environment
whilst SWOT emphasizes the internal
environment
 The TOWS Matrix
STRENGTHS - S WEAKNESSES - W

List strengths List weaknesses

OPPORTUNITIES - SO STRATEGIES WO STRATEGIES

O
Use strengths to Overcome
List take advantage of weaknesses by
opportunities opportunities taking advantage
of opportunities
THREATS - T ST STRATEGIES WT STRATEGIES

List threats Use strengths to Minimize

avoid threats weaknesses and
avoid threats
 The
The BCG
BCG Matrix
Matrix
Relative Market Share

High
Low

Stars Question Marks

Market
High ?
Growth
Rate Cash Cows Dogs

Low
The Boston Consulting Group Matrix has 2
dimensions:
• market share
• market growth.

The basic idea behind it is: if a product has a

bigger market share, or if the product's market
grows faster, it is better for the company.

It is based on the combination of market growth

and market share relative to the next best
competitor.
 QUESTION MARKS
High growth , Low market share
• Most businesses start of as question marks.
• Question Marks have the worst cash characteristics of all, because
they have high cash demands and generate low returns, because
of their low market share.
• 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.
• The marketing strategy is to get markets to adopt these products
so as to convert them to Stars for the company.
• The best way to handle Question marks is to either invest heavily
in them to gain market share or to sell them.
 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
• If market share is kept, Stars are likely to grow into cash
cows.
 CASH COWS
Low growth , High market share

• They are foundation of the company and often the stars of

yesterday.
• They generate more cash than 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.
• If competitive advantage has been achieved, cash cows have
high profit margins and generate a lot of cash flow.
• Because of the low growth, promotion and placement
investments are low.
• Investments into supporting infrastructure can improve
efficiency and increase cash flow more.
• Cash cows are the products that businesses strive for.
 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.
• Dogs must deliver cash, otherwise they must
be liquidated.
 MAIN STEPS OF BCG
MATRIX
• Identifying and dividing a company into SBU.
• Assessing and comparing the prospects of each
SBU according to two criteria :
1. SBU’S relative market share.
2. Growth rate OF SBU’S industry.
• Classifying the SBU’S on the basis of BCG matrix.
• Developing strategic objectives for each SBU.
BCG MATRIX WITH CASH FLOW
 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
company’s future growth and profitability.
 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.
The Boston Consulting Group approach
THE GROWTH-SHARE MATRIX
(The Brand Portfolio Matrix)

20%
Stars Question Marks
4
1
15% 3
Market Growth rate

10%
Cash Cow Dogs

5% 7
6

0
10x 5x 1x .5x .2x .1x
Relative Market Share
 The General Electric Model
Market Attractiveness-Competitive-Position
Portfolio Classification and Strategies
Business Strength

Strong Medium Weak

5.00
High
Market Attractiveness

3.67
Medium

2.33
Low

1.00
5.00 3.67 2.33 1.00
 Strategic planning at BU Level…ctd.
Level
 The two basic types of competitive advantage leads
to three generic strategies:
– Cost Leadership
– Differentiation
– Focus
• Cost Focus
• Differentiation Focus
 Each of the generic strategies involve a
fundamentally different route to competitive
advantage.
– Cost Leadership & Differentiation strategies seek
advantage in a broad range of industry segments;
– Focus strategies seek aim at advantage in a narrow
segment.
– Specific actions required vary widely from industry to
industry.
 Strategic planning at BU Level…ctd.
Level
A basis for ‘Competitive Advantage’:
Superior

Relative Differentiation Position

Cost & Differentiation Differentiation

Advantage. Advantage.
e.g. Arcelor – Mittal e.g. Arcelor

Low - Cost “ Stuck in the

Advantage. Middle”
e.g Mittal Steel

Inferior
lower Higher
Relative Cost Position
 Strategic planning at BU level…ctd.
level
BCG Matrix: BU Mission
Hi Cash Source Lo
Hi
Market Growth rate Hi

STAR ???

“Hold” “Build”

Cash Use
Cash Cow DOGS

“Harvest” “Divest”

Lo Lo
Hi Lo
Relative Market Share
 Strategic planning at BU level…ctd.
level
• The GE/McKinsey model uses a 3x3 matrix to
advocate the same principles, using:
– Business Strength (instead of ‘relative market share’) to
gauge the business’s current competitive position based on
multiple factors e.g. market share, distribution, engineering,
financial strengths etc.
– Industry attractiveness (instead of ‘industry growth rate’ as
a proxy), as determined by weighted judgements on market
size, growth rate, entry barriers, technology status etc.
They lead to the same set of strategic mission for
various business units. Therefore, the choice of tool
is not critical.
These planning models can aid in the formulation of
missions: but they are not ‘mantras’ or ready-made
success formulae.
 GE 9-CELL
McKinsey matrix / GE matrix
portfolio analysis model
 GE McKinsey Matrix

• The GE matrix / McKinsey matrix

is a model to perform a business
portfolio analysis on the Strategic
Business Units of a corporation.
GE MATRIX Vs BCG MATRIX
Market (Industry)
attractiveness
Competitive strength.
GE / McKinsey Matrix - 3*3 grid
BCG Matrix - 2*2
•  
 VERTICAL AXIS - industry
attractiveness
Market growth rate
Market size
Demand variability
Industry profitability
Industry rivalry
Global opportunities
Macro environmental factors
HORIZONTAL AXIS- strength of the business
unit

Market share
Growth in market share
Brand equity
Distribution channel access
Production capacity
Profit margins relative to competitors
 Industry attractiveness and business unit strength are
calculated by first identifying criteria for each, determining
the value of each parameter in the criteria, and multiplying
that value by a weighting factor. The result is a
quantitative measure of industry attractiveness and the
business unit's relative performance in that industry
Industry attractiveness =
factor value1 x factor weighting1
+ factor value2 x factor weighting2+…
Each business unit can be portrayed as a circle plotted
on the matrix, with the information conveyed as
follows:
Market size is represented by the size of the circle.
Market share is shown by using the circle as a pie
chart.
The expected future position of the circle is portrayed
by means of an arrow.
 LIMITATIONS OF GE- MATRIX

• Valuation of the realization of the various factors

• Aggregation of the indicators is difficult
• Core competencies are not represented
• Interactions between Strategic Business Units are not
considered
 Porter’s Generic Competitive
Strategies
• Cost Leadership
• Focus
• Differentiation
 Porter’s Generic Competitive
Strategies
Competitive Advantage

Lower Cost Differentiation

Broad Target

Cost Leadership Differentiation

Competitive Scope

Narrow Target

Cost Focus Focused

Differentiation
 Porter’s Five Forces Model
• Given by – Michael Porter ( for
environmental scanning)

• Understand how industry structure

drives competition and level of industry
profitability

• Evaluate industry attractiveness

• Identify opportunities to change industry

structure
 Porter’s Five Forces Model

Supplie
rs
Firm
Potenti Substitut
al es
Entrant (Intensity of)
Rivalry
s

Buyers
 Entry Barriers
Economies of Scale
Brand Identity Rivalry Determinants
Capital RequirementsIndustry Growth
New Fixed Costs
Product Differences
Determinants of Supplier Entrants Brand Identity
Power
Switching Costs Exit Barriers
Supplier Volume
Impact Industry
Forward Integration
Competitors
Suppliers Buyers
Intensity
of Rivalry Determinants of Buyer Pow
Buyer Concentration
Determinants of Buyer Volume
Substitution Threat Backward Integration
Relative Price
Performance Substitutes
Switching Costs
Threat of Entry & Entry Barriers

• Economies of Scale
• Product Differentiation
• Cost Advantage Independent
of Scale
• Contrived Deterrence
• Government Regulation
• Other Barriers
 Economies of Scale

• Cost-volume relationship - steel

• Economies of scope - joint costs

 Product Differentiation

• Brand identification
• Customer loyalty
• Trade off betn. Cost of
differentiation & potential
return
Cost Advantages Independent of
Scale

• Proprietary Technology
• Know-how & competence
• Favourable access to RM
• Favourable geo. locations
• Learning or Exp. curve
 Contrived Deterrence

• Investments by the
incumbents with the sole
objective to deter entry
• Sending signals
Government Policy

• Regulation - FERA, MRTP,

Licensing
• Direct & Indirect Policy
Interventions
 Other Barriers to Entry

• Capital requirements
➝Size of investment & risks
• Switching cost of buyers
• Access to existing distribution
channels
• Entrant’s expectation about
retaliation
 Exit Barriers

• Economic
• Specialised assets - high transfer cost
• Fixed costs of exit
• Strategic inter-relationships &
importance - commitment
• Emotional barriers
• Government and/or social
restrictions
 Threat of Substitute
• Products that can serve the same utility
- satisfy same customer needs
• Substitutes can replace an industry’s
products
• Potentially dangerous substitutes are
those that are:
◗ improving price-performance trade off
◗ produced by more profitable industries
 Bargaining Power of Suppliers
A supplier group is more powerful if -
• Dominated by a few firms & more concentrated
than the industry it sells to
• Highly differentiated products
• No threat of substitute supplies
• Industry is not an important customer
• Buying firms face major switching costs
• It poses a credible threat of forward integration
 Bargaining Power of Buyers
• Relative volume purchased by a given buyer
• Cost of purchases as a fraction of tot. purchases
• Importance of the product to buyer
• Availability of substitutes
• Whether product is standard & undifferentiated or not
• Switching costs faced by both buyers and sellers
• Whether buyer poses a credible threat of backward
integration
• Information available to buyer
 Intensity of Rivalry

• Many equally balanced firms

• Slow industry growth
• High fixed costs, high storage cost
• Low product differentiation
• Productive capacity added in large
increments
• High strategic stake for some firms
• High exit barriers
 Strategic Implications of the
Five Competitive Forces
• Competitive environment is
unattractive from the standpoint
of earning
good profits when:
– Rivalry is strong
– Entry barriers are low
and entry is likely
– Competition from
substitutes is strong
– Suppliers and customers have
considerable bargaining power