Corporate and Division Strategic Planning

Three characteristics of SBUs

Single business or collection of related businesses that can be planned for separately Has its own set of competitors Has a manager who is responsible for strategic planning and profit

The Boston Consulting Groups Growth-Share Matrix

20%18%16%14%12%10%8%6%4%2%0

Market Growth Rate

Stars

Question marks

?
2x 1.5x 1x

5
Cash cow

?2
7

Dogs

8 6
10x 4x .5x .4x .3x .2x .1x

Relative Market Share

Boston Consulting Group (BCG) Approach

Stars

Market Growth Rate

High

High growth & share Profit potential May need heavy investment to grow Cash Cows Cash Cows Low growth, high share Low growth, high share Established, successful Established, successful SBUs SBUs Producecash Produce cash

? High growth, low share

High growth, low share Dogs Dogs Low growth & share Low growth & share Low profit potential Low profit potential

Question Marks Question Marks

Build into Stars or phase out Build into Stars or phase out Require cash to hold Require cash to hold market share market share

Low

Relative Market Share

High Low

BCG Strategies
After the classification of its SBUs to determine what role each will play in the future
Question mark Strong cash cow Star

Build Hold

To increase market share by investing heavily in marketing activities to beat the competition To defend current market share and maintain customer loyalty To increase short-term cash flow regardless of the long-term effects To sell or liquidate the unprofitable business

Weak cash cow Dog, Question mark Harvest Dog Question mark

Divest

Corporate and Division Strategic Planning

The General Electric Model

The GE Model
Business Strength Market Attractiveness
5.00 5.00 High 3.67 Medium 2.33 Low 1.00 Strong Invest/ grow Invest/ grow Selectivity/ earnings 3.67 Medium Invest/ grow Selectivity/ earnings Harvest/ divest 2.33 Weak Selectivity/ earnings Harvest/ divest Harvest/ divest 1.00

The GE Model
Market Attractiveness Overall market size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerability Energy requirements Environmental impact Social/political/legal Business Strength Market share Share growth Product quality Brand reputation Distribution network Promotional effectiveness Productive capacity Productive efficiency Unit costs Material supplies R&D performance Managerial personnel

GE Strategies
Business Strength Market Attractiveness
5.00 5.00 High 3.67 Medium 2.33 Low 1.00 Strong Protect position Build selectively Protect and refocus 3.67 Medium Invest to build Selectively manage for earnings Manage for earnings 2.33 Weak Build selectively Limited expansion or harvest Divest 1.00

Corporate and Division Strategic Planning

Critique of Portfolio Models
Help managers to think more strategically. Understand economics better. Pinpoint information gaps and important issues Eliminate weaker businesses. Strengthen investment in promising businesses.

Problems With Matrix Approaches

Can be Difficult, Time-Consuming, & Costly to Implement Can be Difficult, Time-Consuming, & Costly to Implement

Difficult to Define SBUs & Measure Market Share/ Growth Difficult to Define SBUs & Measure Market Share/ Growth

Focus on Current Businesses; provide little advice for future planning Focus on Current Businesses; provide little advice for future planning

Can Lead to Unwise Expansion or Diversification Can Lead to Unwise Expansion or Diversification