UNIT – 3

1 Strategy Formulation
 Books Recommended
2  1. Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman and
Charles E. Bamford, “Concepts in Strategic Management and
Business Policy”, Pearson Education Limited, NewDelhi, 2018.
 2. Fred R. David and Forest R. David “Strategic Management:
Concepts and Cases - A Competitive Advantage Approach”,
Pearson Education Limited, New Delhi
 References:
 1. Charles W. L. Hill and Gareth R. Jones, Strategic
Management Theory: An Integrated Approach, Cengage
Learning, New Delhi, 2010.
 2. Hitt, Ireland, and Huskisson “Strategic Management:
Competitiveness and Globalization (Concepts and Cases)”,
Cengage Learning, New Delhi, 2017. • John A Pearce, Richard
B Robinson and Amita Mittal, “Strategic Management:
Formulation, Implementation, and Control”, McGraw Hill,
NewDelhi,201
 UNIT-III
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Strategy Formulation framework,
SWOT Matrix,
Boston Consulting Group (BCG)
Matrix,
GE Matrix,
The Grand Strategy Matrix-
Blue ocean strategy,
Resource based strategy
formulation
 SWOT Matrix
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 SWOT Matrix
5  Strengths: Strength is a resource, skill, or other distinctive
advantage in relation-to the competition. In general, what
are the areas where an institution is doing well? Examples
of strength are:
The size of the institution relative to others
Cash flows
Perception of the institution products (students)
Perception of the institution
 Weaknesses: A weakness is a limitation or deficiency in
resources, skills, and capabilities that seriously impedes
effective performance. Some weaknesses are : •
Deteriorating balance sheet
Poor perception of institution’s products(students)
Lack of management or other employee talent,
 SWOT Matrix
6  Opportunities: An opportunity is a major favorable situation in an
institution’s environment. One has to focus towards the external factors
such as identification of changes in competitive or regulatory
circumstances, technological changes, and improved relationships with
community could represent opportunities for an organization.
 New markets for products
 New technologies which can be adopted
 Changes in regulations
 Internal efficiencies
 Threats: A threat is a major unfavourable situation in the business
organization’s environment. It can act as a key impediment to the
organization’s current and/or desired future position. Examples are:
 The entry of a new competitor,
 increased bargaining power of the suppliers and buyers,
 major changes in technology
 government regulations,

 SWOT Analysis - Example
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 SWOT Analysis - Example
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 Boston Consulting Group (BCG)
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 Boston Consulting Group Matrix
10  Question Marks
The businesses have high growth rate but with low
market share.
High growth rate demands higher cash requirement
but low market share results in lower cash
generation.
Strategic option is to invest more to gain market
share, pushing from low share to high.
 Stars
 The business whose growth rate is high and the
company’s relative market share is also high.
 Such businesses not only generate but also consume
large amounts of cash.
 Such businesses represent high profits and the best
investment opportunities for growth.
 Boston Consulting Group Matrix
11  Cash Cows
 The business with low growth rate and high market share
find place in this quadrant.
 High market share leads to high cash generation and profits.
 Low growth rate implies that the cash demand for the
business would be low.
 Cash cows provide financial base for the company.
 Dogs
 The business whose growth rate is low and the company’s
relative market share is also low.
 Low market share implies poor profits.
 Low growth rate demands high investments.
 General Electric (or McKinsey) Matrix
12  General Electric (or McKinsey) matrix uses market
attractiveness as not merely the growth rate of sales of the
product, but as a compound variable dependent on different
factors influencing the future profitability of the business
sector.
 These different factors are either subjectively judged or
objectively computed on the basis of certain weights, to
arrive at the Market Attractiveness Index.
 The Index is thus based on a thorough environmental
assessment influencing the sectoral profitabilities.
 Market attractiveness depends upon different factors
(considered subjectively or objectively) on the basis of
certain weightages to formulate Industry Attractiveness
Index.
 General Electric (or McKinsey) Matrix
13  Factor determining Industry Attractiveness:

Factors Typical
Weightage

Size of market 10%

Rate of growth of sales and cyclic nature of business 15%

Nature of Competition (domestic and foreign) 15%

Susceptibility to technological obsolescence and new 10%

products

Entry conditions and social factors 10%

Profitability 40%

Total 100%
 General Electric (or McKinsey) Matrix
14  A typical scoring of company's Competitive Position:
Factors Typical Rating Score ( 1- 10)
Weightage

Market Share and 20% 7 1.4

Capacity

Rate of growth 10% 7 0.7

Location & Distribution 10% 5 0.5

Management Skill 15% 6 0.9

Workforce Harmony 20% 7 1.4
Technical Excellence 20% 8 1.6
(product and process
Engineering)

Company Image 5% 8 0.4

100% 6.9
 General Electric (or McKinsey) Matrix
15  The Market (Industry)Attractiveness Index is then plotted along the vertical
axis and divided into low, medium and high sectors.
 Correspondingly, the Competitive Position is plotted along the Horizontal
axis divided into Strong, Average and Weak Segments.
 For each product in the portfolio, a circle denoting the size of the market
(industry) is shown in the 3x3 matrix grid while shaded portion corresponds
to the company's market share.
 GE rates each of its businesses every year on such a framework.
 If Market Attractiveness as well as GE's Competitive Position is
low, a no-growth red stoplight strategy is adopted. Thus, GE
expected to generate earnings but does not plan for any
additional investments in this business.
 If for a business the Industry Attractiveness is medium and GE's
Competitive Position is high; a growth green stoplight strategy
is evolved for further investment.
 But if a product has high Market Attractiveness index and low
GE's Competitive Position, this is branded as yellow stoplight
product that may be moved either to growth or no growth
 General Electric (or McKinsey) Matrix
16  The Industry Attractiveness Index is plotted along the vertical axis and
divided into low, medium and high sectors.
 The competitive Position is plotted along the Horizontal axis.
 Circle denotes the size of the industry and the shaded portion
corresponds to the company’s market share.
 General Electric (or McKinsey) Matrix
17  Each axis should be defined in terms that are meaningful to that
company. Some examples are given below:
Competitive Strength Industry Attractiveness
Relative market share Market size, growth, diversity
Distribution/brand strength Inflation recovery
Technology strengths Technology protection
Innovation/management Socio/political risks
Profit margins relative to competitors Economies of scale

Ability to compete on price and Seasonality

quality

Knowledge of customer and market Cyclicality

Calibre of management Barriers to entry and exit

 The Grand Strategy Matrix
18  The Grand Strategy Matrix (GSM) is a tool used in
strategic management to help enterprises determine the best
strategy to pursue based on their competitive position and
market growth.
 It was developed by Fred David, a renowned strategic
management expert, and is widely used by businesses to
analyze their current position and make informed decisions
about their future direction.
 By analyzing the position of the Grand Strategy Matrix,
businesses can determine the most appropriate strategic
direction to pursue, whether it be
 aggressive growth,
 conservative stability,
 competitive improvement, or
 defensive survival.
 The Grand Strategy Matrix
19  .
 The Grand Strategy Matrix
20  The Grand Strategy Matrix is a four-quadrant framework
that categorizes businesses into one of four quadrants based
on two key factors:
 Market Growth Rate and,
 Competitive Position
 The four quadrants are:
1. Quadrant I: Rapid Growth/Strong Competitive
Position
2. Quadrant II: Rapid Growth/Weak Competitive
Position
3. Quadrant III: Slow Growth/Strong Competitive
Position
4. Quadrant IV: Slow Growth/Weak Competitive
Position
 The Grand Strategy Matrix
21  Each quadrant represents a different strategic approach that
businesses can take to achieve their goals.
 Quadrant I enterprises are in an ideal position to pursue
aggressive growth strategies, while
 Quadrant II businesses may need to consider strategic
partnerships or alliances to strengthen their competitive
position.
 Quadrant III businesses can focus on market penetration
and product development, while
 Quadrant IV businesses may need to consider
retrenchment or divestiture strategies.
 By analyzing their position in relation to market
growth, businesses can make informed decisions about
where to focus their resources and how to achieve
their long-term goals.
 Blue Ocean Strategy
22  Blue Ocean Vs Red Ocean Strategies
 Blue Ocean Strategy
23  Blue Ocean Strategy is about creating and capturing
uncontested market space, thereby making the competition
irrelevant.
 It is based on the view that market boundaries and industry
structure are not a given and can be reconstructed by the
actions and beliefs of industry players.
 In blue oceans, demand is created rather than fought over.
 There is ample opportunity for growth that is both
profitable and rapid.
 A blue ocean is an analogy to describe the wider, deeper
potential to be found in unexplored market space.
 A blue ocean is vast, deep, and powerful in terms of
profitable growth.
 Blue Ocean Strategy
24  Blue Ocean Strategy pivots on two main principles: value
innovation and the creation of uncontested market space.
 Value innovation involves delivering superior value to
customers through differentiation and low cost.
 It’s not about beating the competition but making it
irrelevant by redefining the industry boundaries.
 The strategy also emphasizes the creation of uncontested
market space, or ‘blue oceans,’ rather than competing in
existing ‘red oceans.’
 This is achieved by expanding existing industry boundaries
or creating entirely new industries.
 These principles guide businesses to break away from the
competition and achieve sustainable growth.
 Blue Ocean and Read Ocean Strategies - Differences
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 Blue Ocean Strategy – Four Actions Framework
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 Blue Ocean Strategy – Four Actions Framework
27  The Blue Ocean Strategy involves four key steps:
 Eliminate: Identify and eliminate aspects of the
industry that do not add value to customers, such as
unnecessary features or services.
 Reduce: Identify areas where the industry is over-
servicing customers, and reduce those services to
create a more cost-effective offering.
 Raise: Identify aspects of the industry that are
underserving customers, and raise those services to
meet customers' needs more effectively.
 Create: Develop new features or services that do not
currently exist in the industry, and create a unique
value proposition that sets the company apart from
competitors.
 Example of Blue Ocean Strategy
28  Casella Wines created [yellow tail] :
 Example of Blue Ocean Strategy
29  Casella Wines created [yellow tail] :
 Example of Blue Ocean Strategy
30  The case of Cirque du Soleil
 Example of Blue Ocean Strategy
31  The case of Cirque du Soleil
 Resource Based Strategy Formulation
32  Resource-based theory contends that the possession of
strategic resources provides an organization with a
golden opportunity to develop competitive advantages
over its rivals.
 These competitive advantages in turn can help the
organization enjoy strong profits, especially over time.
 The resource-based view (RBV) is a model that sees
resources as key to superior firm performance.
 If a resource exhibits VRIO attributes, the resource
enables the firm to gain and sustain a competitive
advantage.
 Strategy - Resource Based View
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 Resource Based Strategy Formulation
34  Two types of resources: tangible and intangible.
 Tangible assets are physical things. Land, buildings,
machinery, equipment and capital – all these assets are
tangible. Physical resources can easily be bought in
the market, so they confer little advantage to the
companies in the long run because rivals can soon
acquire identical assets.
 Intangible assets have no physical presence but can
still be owned by the company. Brand reputation,
trademarks and intellectual property are all intangible
assets. Unlike physical resources, brand reputation is
built over a long time and is something that other
companies cannot buy from the market. Intangible
resources usually stay within a company and are the
main source of sustainable competitive advantage.
 Resource Based Strategy Formulation
35  The two critical assumptions of RBV are that resources must also
be heterogeneous and immobile.
 Heterogeneous.
 The first assumption is that skills, capabilities and other
resources that organizations possess differ from one
company to another.
 If organizations had the same amount and mix of
resources, they could not employ different strategies to
outcompete each other.
 RBV assumes that companies achieve competitive
advantage by using their different bundles of resources.
 Example: Apple competes with Samsung in tablets and
smartphone markets, where Apple sells its products at
much higher prices and, as a result, reaps higher profit
margins. Samsung does not have the same brand
reputation or is capable of designing user-friendly
products like Apple does. (heterogeneous resources)
 Resource Based Strategy Formulation
36  Continued....
 Immobile
 The second assumption of RBV is that resources are not mobile
and do not move from company to company, at least in the short-
run.
 Due to this immobility, companies cannot replicate rivals’
resources and implement the same strategies. Intangible
resources, such as brand equity, processes, knowledge or
intellectual property, are usually immobile.
 VRIO Framework
37  VRIO framework adopted from Rothaermel’s (2013)
‘Strategic Management’, p.91
 Example of Resource Based Strategy
38  Southwest Airlines culture arose from its very humble
beginnings.
 The airline had so little money that at times, it had to temporarily
“borrow” luggage carts from other airlines and put magnets with
the Southwest logo on top of the rivals’ logo.
 While in theory, other airlines could replicate Southwest’s
culture, Southwest’s “rags to riches” story evolved across several
decades.
 Unless the airline is brand new and with no existing culture, it
takes a lot of time and continuous effort to create a Southwest
culture.
 Example of Resource Based Strategy
39  A resource is nonsubstitutable when competitors cannot find
alternative ways to gain the benefits that a resource provides.
 A key benefit of Southwest’s culture is that it leads employees to
treat customers well, which in turn creates loyalty to Southwest
among passengers.
 Executives at other airlines would love to attract the customer
loyalty that Southwest enjoys, but they have yet to find ways to
inspire the kind of customer service that the Southwest culture
encourages.
 Southwest Airlines - Example
40  .
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