Unit 3: Strategic Alternatives/Options/Choice/Selection

Concept of Strategic Alternatives/Options: Strategic alternative refer to identify the alternative

strategies that organization might pursue, it serves at the basis for making the choices of
direction that a firm adopts in order to achieve its objectives and provides basic future direction
to the organization. The strategic alternatives are sometimes used as strategic choices and
strategic option. They enhance managers to identify strategic option. For the strategic option the
business should analyse strength and weakness and threats and opportunities. At the same time
organization economic, personnel, administration, products market and pricing policies should be
analysed. Strategic options are the alternative directions and methods available for formulating
the organizations strategy. This phase develops strategic alternatives or options. Organization
should develop the strategic alternatives to link between organizations strength and weakness
with environmental opportunity and threat. Analysis of strategic options seeks to determine the
alternative courses of action that could best enable the firm to achieve its mission and objectives.
Strategic alternative is a choice between three options which may depend on the particular
situation of the organization.
Identify Strategic Options/Alternatives:
a) Generic strategies: is the bases in which an organization might seek to achieve lasting
position or survive in the competitive environment. It is called generic simply because it can be
persuade by almost all companies. Many scholars have employed different business strategy
into different situation as generic strategies. It consists of (a) Grand strategies; they are
stability, expansion, retrenchment and combination strategies. (b) market oriented strategies;
they are low cost leadership product differentiation and focused strategies. They can also be
based on strategy clock.
b) Direction of strategy: is the bases in which an organization might choose to develop generic
strategies. They are available to the organization in terms of market coverage, products and
competence base of the organization. It is directed towards; (a) protect/build: it can be through
consolidation or penetration in home market. (b) product development: it develops new
products for home market (c) Market development: it offers existing products in new markets.
(d) Diversification: It is going away from existing market and products. It can be related or
unrelated.
c) Methods of strategy development: shows the methods by which the directions of strategies
might be achieved. The methods of strategy development can be(a) Internal development:
developing new products & new markets. (b) Mergers & Acquisitions: taking over ownership
of other organizations.
1: Grand Generic Strategy: Grand generic strategies at corporate level. They provide basic
future direction to the organization. They are based on business definition and pace of effort. It
can be:
a. Stability strategies: Stability grand strategy is strategy that an organization pursues when it
continuous to serve the public in the same product or serve, market, and functional sectors as
defined in its business definitions. If the existing product or market condition is satisfactory then,
this type of strategy is selected. They do not want to go over a new activity. This strategy
highlights the non acceptance of new strategy. The existing strategic options are continued. At

this time the environment is also seem stable, no movement, and no new opportunities. So, they
dont want to change their strategy. Sometimes, it may be very dangerous for organization.
b. Expansion strategy: New products, market and functions are added. The pace of activities
increases. The product is in the growth stage of product lifecycle. Expansion is through increased
market share and production capacity. This aim is high growth through diversification
integration, cooperation and globalization. Expansion strategy is followed, when an organization
substantially broadened the scope of its customer, group customer functions and alternative
technologies.
c. Retrenchment strategy: This strategy is persuading in threatening environment. Products,
markets and functions are reduced. The pace of activities decreases. The product is in the decline
stage of product lifecycle. The cash flow is negative. Retrenchment is aimed through reduced
market share, dropping the product lines and markets and investment. The aim is contraction of
activities through turn around, sale of portion of business, liquidation and increasing cash flows.
Generally it is not preferred because of managers capabilities may be questioned.
d. Combination strategy: Combination grand strategy is followed when an organization adopts
a mixture of stability, expansion and retrenchment, either at the same time, in its different
business or at the different time in the same business with the aim of improving it performances.
The organization has several strategy business units (SBU). It simultaneously uses combinations
of stability, expansion and retrenchment strategies to different parts of the organization. Old
products, markets and functions are continued, dropped and expanded. Product lifecycles are in
different stages. The aim is to improve performance. The combination can be simultaneous
sequential or both.
2: Market-based Generic Strategies: Market based generic strategies are concerned with
competing successfully in the market by providing superior value to customers, they are SBU
divisional level strategies. It strategies can be based on cost, differentiation and focus and also
sought and type of market target. It consists of:
(i) Low-Cost Leadership Strategy: The focus of this strategy is on cost. Low-cost leadership
means low overall costs. Low-cost means lower prices relative to competitors. This strategy aims
to achieve low costs relative to competitors. The organization becomes the industrys lowest cost
provider of products. It finds ways to reduce costs by reducing waste. This strategy appeals to a
broad segment of price-sensitive buyers. Standardized products are offered. There are two ways
to reduce costs, control cost driver and revamp value chain.
(ii) Broad Differentiation Strategy: This strategy focuses on differentiation. Differentiation
aims to establish uniqueness of a brand relative to competing brands in the perception of
consumers. It is making products different from competitors products. It incorporates
differentiating product features that are valued by customers. They cause customers to prefer a
firms brand over the broad over the brand of rivals. Customer perceives superior value in
differentiation. They are not sensitive to price.
(iii) Best-Cost Provider Strategy: This strategy aims at giving customers more value for
money. It strives to have the lowest cost with good quality relative to rivals. Products with
comparable attributes are offered. The provider has resources and competencies to combine low
cost with attractive features.
Best cost provider strategy is a hybrid strategy. It balances low cost with product
differentiation. The market target is value conscious customers. This strategy is appealing to
price-sensitive buyers who prefer product differentiation.

(iv) Focused/Market Niche Strategies: The focused strategies concentrate on a niche of the
market. Niche is a narrow piece of the total market. It is identified by dividing a market segment
into sub-segments. It consists of fairly small groups of customers whose needs have not been
well served. They require special attention. The market is narrow but well-defined. It can be
defined as demographic characteristics, geographical uniqueness, specialized requirements and
special product attributes.
Tools to be used to Deduct Strategic Alternatives-3: Three have been many tools available for
deducting the environment. The selection of the best alternatives also requires for proper
evaluation through these tools. These tools educate about future trends and events. For our study,
we focus the following tools:
1. SWOT Analysis: SWOT is an acronym used to describe the particular strengths, weakness,
opportunities and threats that are strategic factors for a company. During the analysis of various
alternatives, SWOT plays great role for appropriate evaluation of each alternative. Among the
many tools, SWOT is an important tool for evaluation.
SWOT analysis is a systematic identification of internal strengths and weakness of a
business and external opportunities and threats facing the business. This analysis helps to
formulate the strategies that reflect the best match between them. The best matching may be the
potential strategic alternative among the various alternatives. It is based on the logic that an
effective strategy maximizes a business strengths and opportunities but at the same time
minimizes its weaknesses and threats. The objective of SWOT analysis is to provide a
framework to reflect organizational capabilities to avail opportunities or to overcome threats
presented by the environment. The SWOT matrix is an important matching tool that helps
managers develop and analyze strategies. The SWOT matrix is also called TOWS matrix.
(a) Strength (S); Strengths is the basic capabilities of the organization in which it can be used to
gain competitive advantages. It is a distinct competence of an organization which gives the
competitive advantage. During the strategic alternative analysis, some of the factors related to
the strengths of an organization need to be analyzed with respect to each alternative:
Well developed strategy
Strong financial condition
Human resource competencies
Strong brand name/image/reputation
Strong advertising
Broad market coverage
(b) Weaknesses (W): It is the basic limitation or constraint of the organization which creates
competitive disadvantages. It is the deficiency in resource, skills, capabilities and knowledge
which negatively affect the performance of an organization. Following are some of the examples
of weaknesses.
Weak marketing plan
No clear strategic direction
Weak financial position
Inadequate human resources
Obsolete technology
Loss of brand name

 Raising manufacturing cost etc.

(c) Opportunities (O): It is the favorable conditions in the organizations external environment
which enables its strength in its position. It provides competitive advantages to the firm
exploiting organizations strength in relation to its competitors. Examples of the opportunities of
an organization are:
Expanding new geographical areas/new market segment
Diversify the business
Acquisition of rivals
Alliance or joint venture
Expand core business
Exploit new technologies
Serving additional customer groups
(d) Threats (T): It is an unfavorable condition of the organizations external environment which
causes risk for or damage to the organizations positions. The examples of the threats of an
organization are:
Growing power of customers and suppliers
Keen competition
Change in consumer taste. Fashion, likes etc.
Rise of new or substitute product
Increase in industry rivalry
Raising labor costs
Attack on core business etc.
Application of SWOT analysis: SWOT analysis provides a logical framework guiding
systematic discussions of the business situation, formulation of alternative strategies and the
choice of strategy. An opportunity observed by one executive may consider the potential threat
by another one. Similarly, the strength in one angle to the manager may be the weakness from
another perspective. However, the systematic SWOT analysis analyzes all aspects of a firms
situation and provides a dynamic and useful framework for formulation and selection of strategy.
The opportunities and threats of the organization are systematically compared to internal
strengths and weaknesses through SWOT analysis. It helps to develop structured approach to
identify four distinct patterns between the firms internal and external situations as shown in
figure.
Numerous Environmental Opportunities

Cell 1
Cell 3
Supports turnaroundSupports
orientedAggressive
strategy Strategy

Substantial Internal Strengths

Critical Internal Weakness

Cell 4
Cell 2
Supports Defective Strategy
Supports

Diversification Strategy

Major Environmental Threats

Fig: Four Quadrants of SWOT Analysis

Cell 1: This is the most favorable situation. The firm has several environmental opportunities
and has numerous strengths which encourage pursuing such opportunities. In this situation, it is
better to follow growth oriented strategy as an aggressive strategy to exploit the numerous
opportunities.
Cell 2: This is the situation where the firm has key strengths but faces unfavorable environment.
In this situation, strategists should use current strengths to build long-term opportunities using
key strengths. The firm has to diversify the business for long-term opportunities.
Cell 3: In this situation, the firm faces impressive market opportunities but is constrained by
several internal weaknesses. Business in this condition is like low market share although it
competes in high growth industry. The firm has to focus to eliminate internal weaknesses to
pursue market opportunities.
Cell 4: It is the least favorable situation in which the firm faces major environmental threats and
critical internal weaknesses. This condition clearly calls to strategists to reduce involvement in
the product market expansion. It also suggests that firm either defined or withdraw the business
to secure another business opportunity.
2. PEST Analysis/Remote Environment: A PEST analysis refers to the systematic analysis of
the macro environmental forces, such as, political-legal, economic, socio-cultural and
technological forces influencing the organizations capability to work in the future and to pursue
its strategy to compute in the market. It provides enough back ground to formulate and
implement a good strategy. Such environmental factors are usually beyond the firms control and
sometimes present themselves as threats. However, changes in the external environment also
create new opportunities. The environmental forces are also interacting together and creating
more pressures to change our organizations in the society. PEST comprises the four forces.
PEST analysis helps identify future opportunities and threats to the organizations. An
opportunity is a favorable condition in the environment. It enables and organization to consulate
and strengths its strategic position. Threats are an unfavorable condition in the environment. It
creates risk and causes changes to the organizations strategic position. PEST analysis indicates
which environmental forces are affecting the organization and which of them are the most
important. The impact differs according to the nature of the organization.
Components of PEST Analysis-4:
1. Political legal:a Political forces:- They are represented by political system, institutions and philosophy. The
government formulates policies and regulations regarding human resource management. The
policies regarding equal employment opportunities, quotas in employment for woman,

disadvantaged and indigenous people affect acquisition aspect of human resource management.
Government agencies act as regulatory agencies. They minimum wage of workers.
b Legal forces:- it consists of laws, rules, regulations, court cases, and institutions. Labour laws
generally protect the interests of employees.
2. Economic forces:a Economic forces: Globalization:- It refers to borderless trade through extension of operations in several
countries. The human resources in a global organization have also assumed global
dimensions.
Demographics:- It is concerned with human population and its distribution. The forces
consist of population size, growth, age mix, urbanization and migration.
Economic health:- The level of income, the stage of business cycle, inflationary pressures
and fiscal policies of the government affect the compensation of employees. Economic
groupings, such as European Union and SAARC facilitate cross border mobility of human
resources.
b Labour Market Forces:- A labour forces is a geographical area within which people looking
for work interact with employers looking for people. It can be two types: Tight labour market
and loose labour market.
3. Socio-cultural forces:a Social forces: Social Norms: They affect attitudes and expectations toward organization and the work itself.
Changing social values have significant implications for HRM.
Life style: It is a persons pattern of living reflected in his activities, interests and opinions.
Changes as life styles have resulted in shorter work weeks, flexible working hours and work at
home patterns of work.
b Cultural forces: Culture is the complex whole of knowledge, customer, traditions, values,
religion, language and works of art and architectures. It is created by society and is handed
down from generation to generation.
4. Technological forces:Technology makes work more efficient. It consists of skills, methods, systems and equipment.
Automation, computerization, digitalization, robotics, informatics, and artificial intelligence have
all affected the field of human resource.
a Level of technology:- It can be labour based or capital based and appropriate or
sophisticated.
b Technological change: The speed of technological change dislocates employees by
eliminating old jobs, creating new jobs and increasing professionalization of jobs.

I.

3. Five Forces Analysis/Competitive Analysis/ Porters 5 Force Model:

Analyzing this model, we can say that high force among five factors result as a threat
because they are likely to reduce profits. A low force in contrast can be viewed as an opportunity
because it may allow the company to earn greater profits. A strategist should analyze any
industry by rating each competitive force as high, medium or low in strength. The five forces of
industry competition are mentioned below.
Threats of New Entrants: New entries to an industry bring new capacity to gain more market
share and substantial resources. Therefore, they are threats to the existing firms. The threat of
entry depends on the presence of entry barriers and reactions that can be expected from existing

competitors. If entry barrier is not tightened, more threats exist from new entrants and vice versa,
entry barriers further depends in the following factors:
i.
Economies of scale
ii.
Product (brand) differentiation
iii.
Capital requirements
iv. Switching cost
v. Access to distribution channels
vi.
Government policy
II. Threats of substitutes: Substitute products and services are those products which may appear
to be different but satisfy the same needs as another product. For example, Fax is a substitute for
FedEx. Gas central heating system is in competition with solid fuel system. The main threat
posed by substitutes is that they limit the price for products. Tea can be considered as a substitute
for coffee. Plastic container producers competing with glass, paperboard etc. the presence of
substitute products puts a ceiling on the price that can be charged before consumers will switch
to the substitute product. Companies can reduce the risk of substitute by building in switching
costs through added product or service benefits meeting buyers needs.
III. Bargaining power of buyers/customer/consumer: Buyers can exert bargaining power over
a suppliers industries by forcing its prices down, reducing the amount of goods they purchase
from the industry, demanding better quality for the same price. When customers are concentrated
buy in volume, their bargaining power represents a major force affecting the intensity of
competition in an industry. Rival firms may offer extended warrantees or special services to gain
customers loyalty whenever the bargaining power of consumers is substantial. Bargaining power
of consumers is also higher when the products being purchased are standards.
IV. Bargaining power of suppliers: It refers to the situation where suppliers force the firms to
pay higher prices. The bargaining power of suppliers affects the intensity of competition in an
industry, especially when there is a large number of a supplier, when there are only a few good
substitute raw materials or costly raw materials. It is often in the best interest of both suppliers
and producers to assists each other with reasonable prices, improved quality, development of
new services, just in time deliveries and reduced inventory cost, thus enhancing long term
profitability for all concern.
V. Rivalry among existing firms: Rivalry among competitive firms is usually the most powerful
of the 5 competitive forces. It takes place between the organizations that make similar products
and services and sell them in the same market. The strategies persuade by 1 firm can be
successful only to the extent that they provide competitive advantage over the strategies persuade
by rival firms. Rivalry occurs because one or more competitors either feel the pressure or see the
opportunities to improve the position.
Evaluation of Strategic Alternatives-3: The criteria used for evaluation of strategic alternatives
are:
[1] Suitability-2: It is concerned with environmental fit of the strategic alternative. It also
provides the rationale to a strategy. It indicate whether the strategic alternative make sense in
relation to environmental circumstances. It is also a basic of qualitative assessment concerned
with testing out the rational of strategy and is useful for screening options. The assessment of
suitability consists of 2 stages. (a) Establishing the rational: Various tools and techniques are
used to establish the rational which describes the ideas whether they are good or not some of
these tools are lifecycle portfolio matrix, positioning, value chain analysis and portfolio analysis.

(b) Screening Options: Suitability of a specific strategic option is relative to other available
options. The methods used for understanding suitability are ranking, decision tree and scenarios.
[2] Acceptability-3: It is concerned with the expected performance outcomes of a strategic
alternative. It is strongly related to people expectations and therefore the issues of require careful
analysis. The criteria for acceptability of strategic alternative are
(a) Return-3: Expected return from specific strategic options is assessed. The various
approaches to analyze return are
(i) Profitability analysis: It assesses financial return to investment. The tools used for this
analysis are return on capital employed, pay back period, and discounted cash flow
(ii) Cost benefit analysis: It assesses the overall economic impact of strategic options. This
analysis attempts to put a money value of all the costs and benefits of strategic options.
(iii) Shareholder value analysis: It assesses the impact of strategic options in generating
shareholders value. The shareholder value is the total shareholder return.
(b) Risks: It involves probably estimate about robustness of strategic options. The level of risk is
important for acceptability of strategic options. New product development carries high level of
risks. The approaches for analyzing risks are.
(i) Financial ratio projection, (ii) Sensitivity analysis (iii) Simulation modeling (iv) Heuristic (v)
Decision matrices:
(c) Stakeholder : It provides political dimensions to the organizations acceptability of a strategic
alternative. The approaches of stakeholder are (i) stakeholder mapping (ii) game theory.
[3] Feasibility-3: It is concerned with availability of resources and competencies to deliver
strategic alternatives. It determines an option implement ability and work ability in practice. It
assesses the organizations capability to make the strategic alternatives succeed. The approaches
for available to understand feasibility are
(a) Funds flow analysis: It assesses financial feasibility. It forecasts the funds required and the
likely resources of funds for strategic alternatives.
(b) Break even analysis: It studies costs volume profit relationships to assess financial feasibility.
This analysis identifies BEP when revenue equal costs.
(c) Resource deployment analysis-2: It identifies need for resources and competencies for
specific strategic alternatives. It is used to judge (i) sufficiency of current resources and
competencies to pursue a strategic options.
(ii) Need for unique resources and competencies to sustain strategic advantages.
STRATEGY SELECTION METHOD: What is important is to select only those strategies
based on the criteria of suitability, acceptability and feasibility analysis. Some important methods
for the selection of future strategy are following:1 Formal planning and evaluation: formal planning and evaluation, as means of raising the
level of debate among the decision makers. Managers working in different levels of
organization can be involved in the process to improve the selection of quality strategy. Some
group decision making tools such as, strategy workshops, brainstorming, nominal group
technique and the Delphi technique can be used to select strategies.
2 Enforced choice: Sometimes, organizations have no control over the strategy selection. It is
due to changes in technology or the political system enforces a strategic choice. In such a
case, there is no role of managers in planning and evaluating to select a strategy in a much
planned way. The organization becomes a victim of the environmental surroundings and has

to make an enforced choice may have negative impact in the future survival and growth of an
organization. However, the use of scenario and contingency plan can minimize such risks.
Learning from experience: Obviously, functional departments in an organizations are facing
environmental challenges and managers working in these department are experienced enough
to work on these challenges by selecting an appropriate strategy. Otherwise, inefficiency will
increase. Therefore the selection of a certain strategy is the result of learning from the
experience of success in failure working in different functional departments of the
organization.
Commands: Some organizations use command approach to select strategies. In this case,
decisions are made by the upper level of management involving insider and outsider experts.
A command approach will be followed to make a strategic choice. Using the command
approach, peoples participation in the process of strategy implementation will be enhanced,
ensuring that they are well informed on the matter by top management. this approach
minimizes the risk of a strategic drift which occurs because of changes in the way we do
things in the organization,. The role of CEOs is important in command approach, where they
attempt to make the organization a centre of excellence.

Issue Governing the Selection of Strategic Alternatives: Strategy selection is governed by four
managerial selection factors. They can be explained as:
1. Managerial perceptions of external dependence: firms depend on external units (factors) for
their survival and prosperity. These units include the owners, competitors, customers,
government, and community. Strategic choices result from interactions of the firm with its
environment. The dependence can be objectively measured. For example, a stockholder who
controls 51 percent of the voting stock clearly has more power, and the firm is more dependent
on the wishes of the majority owner. Two firms of equal power can be headed by executives
who see the firms differently. One firms executives can see their firm as weak and dependent,
the other as strong. Thus the weights they put on the strategic alternatives can vary.
2. Managerial attitudes toward risk: Another governing factor that influences strategic
selections high much risk the firm, its stockholders, and management can tolerate. The risk
averters probably view the firm as very weak and will accept only defensive strategies with
very low risks. Risk attitudes can change, and vary by industry volatility and environmental
uncertainty. In very volatile industries, executives must be capable of absorbing greater
amounts of risks; otherwise, they cannot function. Thus assessing the managers perception of
risk will help you understand the potential acceptability of a given strategic option.
3. Managerial awareness of past strategies: Past strategies are the beginning point of strategic
choice and may eliminate some strategic choices. The initial question may be: Will the
continuation of our strategy lead to the expected attainment of desired objectives? To the extent
that the gap is small, past strategy will be continued. And to the extent that managers are
committed to continuing the strategy, other alternatives will be ignored. Corporate cultures also
get in the way of choosing a new strategy. A corporate culture is the personality of an
organization. Changing a corporate culture represents new patterns of resource allocation,
norms, leadership, rewards, and so on.
4. Managerial power relationships: Power is the mechanism by which expectations are able to
influence purposes and strategies. It has been seen that, in most organization, power will be
unequally shared between the various stakeholders. Here power means the ability of
individuals or groups to persuade encourage or force others to follow certain courses of action.

Both internal and external stakeholders influence a particular strategy selection because the
relative importance of these stakeholders varies over time. For example, consumers
knowledge of different companies offerings through internet browsing has increased their
power considerably.
The SWOT Matrix: The SWOT analysis is also called TWOS matrix. It is an important
matching tool that helps manager develop 4 types of strategies. SO(strength-Opportunities)
Strategies, WO(Weaknesses-Opportunities) strategies, ST (Strength-Threats) Strategies, and
WT(Weakness-Threats) Strategies. Matching key external and internal factors is the most
difficult part of developing a SWOT matrix and required and there is no one best of matches.
1 SO Strategies uses a firms internal strengths to take advantage of external opportunities. All
managers would like their organizational to begin a position in which internal strengths can be
used to take advantages of external trends and events.
2 WO Strategies aim at improving internal weakness by taking advantage of external
opportunities. Sometimes key external opportunities exist, but a firm has internal weakness that
prevent it from exploiting those opportunities. For e.g. there may be high demand for electronic
devices to control the amount and timing of fuel injection in automatic engines (opportunities),
but a certain auto parts manufacturer may be lack the technology required for producing these
devices (weakness). One possible WO strategy would be to acquire this technology by forming
a joint venture with a firm having competency in this areas. An alternative WO strategy would
be to hire and train people with the required technical capabilities.
3 ST Strategies use a firms strength to avoid to reduce the impact of external threats. This doesnt
mean that a strong organization should always meet threats in the external environment.
However, when an excellent firm (strength) couldnt complete with the alliance firm. Rival
firms that copy ideas innovations, and patented products are a major threat in many industries.
This is still a major problem for U.S. firms selling products in china.
4 WT strategies are defensive tactics directed at reducing internal weakness and avoiding external
threats. AN organization faced with numerous external threats and internal weakness may
indeed be in precarious (insecure) position. In fact, such a firm have to fight for its survival,
merge, retrench, declare bankruptcy or choose liquidation. There are eight steps involved in
constructing a SWOT matrix.
i list the firms key external opportunities.
ii List the firms key external threats
iii List the firms key internal strength
iv List the firms key internal weakness
v Match internal strength with external opportunities and record the resultant SO strategies in the
appropriate cell.
vi Match internal weaknesses with external opportunities, and record the resultant WO strategies.
viiMatch internal strength with external threats and records the resultant ST strategies.
viii
Match internal weaknesses with external threats, and record the resultant WT strategies.
Tools for Strategies Selection (Portfolio Analysis): The tools for strategy selection are:
1. BCG Matrix (Boston Consulting Group Matrix): It was developed by Boston Consulting
Group, USA in the mid 1960s. BCG is designed specifically to enhance a multidivisional firms
efforts to formulate strategies. The concept tells the position each business has within the 2
divisional matrix. It means BGM reveals differences among division in terms of relative market
share positions and industry growth rate. Market share is the share in relation to the largest

competitor. Market growth is the annual market growth rate. It is considered as the best single
indicator of the market strength. They both affect cash flow. The growth rate is the projected rate
of sales growth for the market served by a particular business whereas market share is usually
expressed as the ratio of businesss market share divided by the market share of the largest
competitor in that market. The BCG matrix is divided into 4 cells which can be described as:
(a) Stars: Stars represented the organizations best long run opportunities for growth and
profitability. This is the position where is high market share and high market growth rate. The
firms in this state are the leaders in their business and generate large amounts of cash. They
require substantial investment to maintain and expand their dominant positions in a growing
market. The appropriate strategies for the firms could be forward and backward integration,
market development and joint etc.
(b) Cash Cows: Cash cows are low growth but high market share products or divisions because
of their high market share, they have low costs and generate cash. It is called cash cows because
they generate cash in excess of their needs they are often milked. Many of todays cash cows
were yesterday star. Cash cow dividends should be managed to maintain their strong position.
Product development or concentric diversification may be attractive strategies for strong cash
crows. Product development or concentric diversification may be attractive strategies for strong
cash cows. However, as a cash cows division becomes weak, retrenchment or divestiture can
become more appropriate.
(c) Question Marks: The business units in the question marks have a low relative markets share
position. Yet they complete in a high growth industry. Generally thee firms cash needs have high
and their cash generally is low. These businesses are called question marks because the
organization must decide whether to strengthen them by pursuing an intensive strategy or sell
them.
(d) Dogs: such divisions of the organization have low relative market share position and
complete in a slow or no market growth industry. Because of their weak internal and external
positions, these businesses are often liquidated or divested through retrenchment. When a
division first becomes a dog, retrenchment can be the best strategy to pursue because many dogs
have bounced back, after trough assets and cost control to become viable division.
Limitations of BCG Matrix:
Market share and market growth are not the sole dimensions of profitability.
Suitability for large multi product companies only.
Business is not only classified as high ad low. It can be classified into high, medium and low
which are missed in BCG matrix.
Accurate measurement of market share and market growth rate can be a problem.
Some companies with low market share can generate superior profitability and cash flow funds
with strategies based on differentiation, innovation or market segmentation.
2. GE Matrix: GE Nine cell matrixes have been developed to overcome the limitations of 4 cell
matrix. This concept was developed by general electric company. This matrix uses relationship
between market attractiveness and competitive position. It focuses on the attractiveness of SBUs.
The indicators of these 2 dimensions are:
1. Market Attractiveness: All strengths and resources relating to marketing. Size, growth,
customer satisfaction levels, commitment, price levels, profitability, technology, government
regulations, economies of scale, seasonality, overall possibility, social, political factors.

2. Competitive Positions: Composition of several factors. They include market share, customer
loyalty/brand reputation, share growth, profit margin, distribution network, promotional
effectiveness, technological capability, organization and management, R & D performance,
product quality & services, productive capacity and efficiency and per unit costs of productions.
GE matrix is divided in 9 cells. Successful SBUs in GE matrix require high market
attractiveness and strong competitive positions. The matrix further can be divided into 3 zones.
1 Cell 1, 2, 4 (Invest/Grow): Strategic business units in these cells are successful. They should be
given priority in portfolio (i.e. invest and grow). More investment should be allocated for
growth.
2 Cell 3, 5,7 (Grow/Let go): SBUs in these cells have medium success and attractiveness. They
should be included on selective basis for investment. It means the company should pursue
selectivity and manage for earnings.
3 Cell 6, 8,9 (Harvest/Divest): These cells have low success and attractiveness. They should be
divested or closed down. It means company should give serious thought to
harvesting/producing or divesting these business units.
GE model helps managers to select strategies. The positioning of SBUs in the cells is
judgmental. Moreover unattractive SBUs is not necessarily be unprofitable. GE model provides
broad strategy guidelines only.
3. Hofers Model: Hofer developed a 15 cell matrix. In this matrix businesses are plotted in
terms of the industrys stage in the evolutionary life cycle the business units competitive
position. The industrys stage in the evolutionary life cycle consists of the following stages:
early development, growth, competitive shakeout(less successful), maturity and decline. The
industrys stage in the evolutionary life cycle represents the vertical axis whereas the
businesses units competitive position represents the horizontal axis. The stage of the product
life cycle describes the market situation. The competitive position can be strong, average and
weak. The poison of SBU within life cycle determines investment. The guidelines for strategy
selection can be:
Push: Invest aggressively. It includes cell, which are cell 1,2,4,5 and 7.
Caution: invest selectively. It includes cells, which are cell 3, 6,8,10 and 11.
Danger: Harvest. It includes cell 9,12,13,14 and 15.