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UNIT 10: STRATEGIC CHOICE

UNIT 10: STRATEGIC CHOICE. Strategic Analysis takes place at two levels in big, diversified companies: - Corporate level - Business level. Corporate Level Two issues have to be resolved here: What business will the company be in?

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UNIT 10: STRATEGIC CHOICE

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  1. UNIT 10: STRATEGIC CHOICE

  2. Strategic Analysis takes place at two levels in big, diversified companies: - Corporate level - Business level

  3. Corporate Level Two issues have to be resolved here: • What business will the company be in? • How will the company allocate resources across the business? These issues give rise to fundamental strategy challenges at this level: • How attractive is the group of businesses the company is in? • If the company retains its current businesses how good is its performance outlook in the future? • How can the company strengthen its business portfolio?

  4. What is needed is a technique for categorizing the various businesses of a company and ranking them on the basis of attractiveness. This can be done by constructing portfolio matrices.

  5. The Growth-share Matrix (BCG Matrix) • The BCG portfolio matrix compares a diversified company’s businesses on the basis of two criteria. • Market (Industry) Growth (Index of industry attractiveness) • Relative market share (Index of relative strength in market)

  6. Market Growth Rate at which industry sales are growing. Use economics growth to judge growth in industry sales. Relative Market Share Ratio of the company’s market share to the market share held by the biggest rival in the industry. By dichotomizing these two measurement criteria, a 2 x 2 matrix is created and all the businesses of the company are plotted on this matrix.

  7. Market Growth High Low High Low Relative Market Share

  8. Strategy Prescriptions • Stars - Strong business in good markets - Defend and grow these businesses - Best businesses in portfolio - Generate and use a lot of cash • Question Marks - Need to invest and grow these businesses • Heavy net cash users • Today’s question marks are likely to be tomorrow’s stars

  9. Cash Cows - Cash-rich businesses - Maintain (milk) the businesses for cash - Use the cash to develop businesses with better future prospects (Question marks) • Dogs - Weak businesses - Drain for cash and eventually divest The entire portfolio should be in cash balance

  10. 9 cell portfolio matrix – An improvement of the growth matrix - Market attractiveness and business strength Composite (more reliable) measures • 3 x 3 matrix better than 2 x 2 matrix Logic of portfolio matrices is similar.

  11. Business Level Strategic Analysis The basic question here is how to succeed in the market place. A choice has to be made between various strategy options such that the company’s competitive position will enhanced. How will a solid and sustainable competitive advantage be developed for each business?

  12. Porter Approach • Overall cost leadership • Differentiation • Focus Pearce & Robinson Grand strategies (12)

  13. Ansoff’s Approach

  14. Evaluation of Strategy Options Decide on evaluation criteria in advance. Evaluate the main strategy options using these criteria (Rank the options). Some pertinent evaluation criteria • Improvement in competitiveness • Potential competitive advantage • Likely competitor responses • Financial benefits

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