Business Strategy

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Strategic planning
Strategic thinking:
What is Strategic Thinking?
Strategic thinking focuses on finding and developing unique opportunities to create value by enabling a
provocative and creative dialogue among people who can affect a companys direction. It is the input to
strategic planninggood strategic thinking uncovers potential opportunities for creating value and
challenges assumptions about a companys value proposition, so that when the plan is created, it targets
these opportunities.
Strategic thinking is a way of understanding the fundamental drivers of a business and rigorously (and
playfully) challenging conventional thinking about them, in conversation with others.
Strategic thinking must take into account:
Competencies and Skills:
What are the companys strengths?
How can these be used to create a unique competitive advantage? What are the companys weaknesses that
might leave it vulnerable?
Products and Offerings:
What is the portfolio of offerings (product, service, price and image bundles) that the company provides to
the market? What are the overlaps or white spaces among the offerings? What is the rationale or logic for
these offerings? What makes them unique? What are the brands associated with these offerings? How do
these brands fit with the companys image? With each other?
Environment and Industry:
What is the overall economic context in which the company competes? What is the regulatory or
governmental environment, and how does this impact the company? What is the structure of the industry?
Where is this industry headed, and where do we want it to be? What is our position in the industry, and what
do we want it to be? How does this industry connect with others, and what are the implications of that for
our positioning?
Markets and Customers:
Who are the target customers for the offerings? What are their needs? How is the company uniquely suited
to meet these particular needs?
Competitors and Substitutes:
What is the nature of competition in our industry? What other companies have offerings that could meet the
same needs? What are their unique strengths and strategies? How are they similar to or different from us?
How might they respond to our strategies? Are there companies not yet in the market who might choose to
enter it? What are their strengths and strategies? What market conditions might lead to action on their part?
Suppliers and Buyers: What other companies do we need to work with in order to make and sell our
offerings? What is their relative power compared with us? What are their strategies and strengths, and are
these aligned with ours? Whats in it for them?

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Process Considerations
As important as the content of strategic thinking is the process by which it takes place. Processes are needed
to ensure that strategies are:
Aligned:
A companys strategies must fit with its mission, vision, competitive situation and operating strengths.
Goal-oriented:
Strategies are the means by which a company sets out to achieve its goals. Effective strategies, then, set
clear expected outcomes and make explicit links between these outcomes and the companys goals.
Fact-based:
The best strategies are based on and supported by real data. While strategic thinking by its very nature
requires assumptions about the future, these assumptions must be educated guesses, based on factsfor
example, actual performance data or results of some kind of pilot test or experiment.
The logic behind the strategy must be clear. Effective strategies tell believable stories.
Based on Broad Thinking:
Companies that are strategically nimble are able to consider multiple alternatives at once and to consider a
range of scenarios in making strategic choices.
Focused:
No company can do everything or be all things to all people. Strategy setting involves making choices about
what a company will do andas importantwhat it will not do. Strategies provide clear guidance about
how a companys activities will be prioritized, and how its limited resources will be deployed.
Agreed upon:
Especially in large, complex organizations, successful strategies must gain the support of multiple
stakeholders. This often requires a process of developing strategies that is interactive in gathering multiple
points of view and in sharing the thinking behind the strategy as it evolves.
Engaging:
Strategies that will need to mobilize broad resources must be easily articulated so that they can capture the
attention of the people who will be asked to carry them out.
Adaptable: Strategies need to be able to be adjusted to build on learning from experimentation, errors and
new information. At the same time, there needs to be some thoughtfulness in these adjustments so that they
are responsive without being overly reactive or knee jerk.
Implementable:
Because effective strategies draw on the particular strengths and skills of an organization, they include
explicit considerations of how they will be implemented. Implementable strategies provide clear guidance
for decision making in order to shape behavior throughout the company.

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Good strategic thinkers:

Identify relationships, patterns, and trends while noticing patterns across seemingly unrelated events,
and categorize related information to reduce the number of issues with which one must grapple
concurrently;

Think creatively by generating alternatives, visualizing new possibilities, challenging assumptions,

and opening themselves to new information;

Analyze data while prioritizing the most important information;

Prioritize action steps to stay focused on key objectives while handling multiple demands and
competing priorities;

Make trade-offs while understanding the potential advantages and disadvantages of an idea or course
of action. From that, they make choices trying to balance short- and long-term concerns.
You can develop your strategic thinking ability by practicing the following:

Curiosity: being genuinely interested in what transpires in your company, department, industry, and
wider business environment;

Flexibility: trying new approaches and ideas when new information suggests the need to do so;

Focus on the future: thinking about your companys operational conditions that may change in the
coming months and years. Remaining alert for opportunities that may prove valuable in the future as well
as threats that may be looming;

Maintain a positive outlook: viewing challenges as opportunities, and believing that success is
possible;

Openness: welcoming new ideas from others, including outside stakeholders such as customers,
suppliers, and business partners;

Self-expansion: continually working to broaden your knowledge and experience. Doing so will help
you to see connections and patterns across seemingly unrelated fields of knowledge.
Portfolio analysis
The business portfolio is the collection of businesses and products that make up the company. The best
business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.
The company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or less
investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same
time deciding when products and businesses should no longer be retained.
The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and
the McKinsey / General Electric Matrix (discussed in this revision note). In both methods, the first step is to
identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the
company that has a separate mission and objectives and that can be planned independently from the other
businesses. An SBU can be a company division, a product line or even individual brands - it all depends on
how the company is organized.
Boston Consulting Group Portfolio Matrix

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The BCG Matrix method is the most well-known portfolio management tool. It is based on product life
cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be
used to determine what priorities should be given in the product portfolio of a business unit. To ensure longterm value creation, a company should have a portfolio of products that contains both high-growth products
in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group
Matrix has 2 dimensions: market share and 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.

The four segments of the BCG Matrix

Placing products in the BCG matrix provides 4 categories in a portfolio of a company:
Stars (high growth, high market share)
Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate
large amounts of cash.
Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to
hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.
Cash Cows (low growth, high market share)
Profits and cash generation should be high. Because of the low growth, investments which are needed
should be low.
Cash Cows are often the stars of yesterday and they are the foundation of a company.
Dogs (low growth, low market share)
Avoid and minimize the number of Dogs in a company.
Watch out for expensive rescue plans.
Dogs must deliver cash, otherwise they must be liquidated.
Question Marks (high growth, low market share)

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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.
If the market share remains unchanged, Question Marks will simply absorb great amounts of cash.
Either invest heavily, or sell off, or invest nothing and generate any cash that you can. Increase market share
or deliver cash.
the BCG Matrix and one size fits all strategies
The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits
all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of
say 9,5% for an entire corporation.
In such a scenario:
Cash Cows Business Units will reach their profit target easily. Their management have an easy job.
The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash
amounts in their mature businesses.

Dogs Business Units are fighting an impossible battle and, even worse, now and then investments
are made. These are hopeless attempts to "turn the business around".

As a result all Question Marks and Stars receive only mediocre investment funds. In this way they
can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these
SBUs should receive enough investment funds to enable them to achieve a real market dominance and
become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any
possible cash from the Question Marks that were not selected.

Other uses and benefits of the BCG Matrix

If a company is able to use the experience curve to its advantage, it should be able to manufacture
and sell new products at a price that is low enough to get early market share leadership. Once it becomes a
star, it is destined to be profitable.

BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash
Cows, Question Marks and Dogs.

BCG method is applicable to large companies that seek volume and experience effects.

The model is simple and easy to understand.

It provides a base for management to decide and prepare for future actions.
Limitations of the BCG Matrix
Some limitations of the Boston Consulting Group Matrix include:

It neglects the effects of synergy between business units.

High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.

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The problems of getting data on the market share and market growth.

There is no clear definition of what constitutes a "market".

A high market share does not necessarily lead to profitability all the time.

The model uses only two dimensions market share and growth rate. This may tempt management
to emphasize a particular product, or to divest prematurely.

A business with a low market share can be profitable too.

The model neglects small competitors that have fast growing market shares.

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