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Competitive Analysis

and Corporate Strategy

Abhishek Amarnani
Pooja Rawat
Dilip Sridhar Koty
Kuldeep
Ankit singh
•Corporate level strategy may Strategic planning for Multiproduct Companies is a complex problem & is
deliberately impair the usually handled by forming Strategic Business units (SBU).
performance of one unit to
optimize the performance of Corporate
the other. Parent level
•BCG argues, without an Organisation
integrated strategy, a strategy
multiproduct company is not
even as good as the sum of its SBU 1 SBU 2 SBU 3
parts.
•The BCG approach assigns a
role to each product & division
& integrates these roles into a Business level strategy 3
portfolio strategy. Business level strategy 2
•Product roles are assigned on Business level strategy 1
the basis of cash flow potential
& cost position relative to
competition. Example, the Parent
•Above factors will determine Organisation may decide to
products for investment slow the growth of SBU 1 in
opportunities & elimination. order to fund SBU 3.
Competitive Portfolio Analysis
A typical Growth/ Market Share Matrix of a strong diversified company

•First, we construct Growth/ 20%


Market Share Matrix.
•Product-market growth and
relative market share for each Product
product is calculated. market
• Each product is represented growth
by a circle whose diameter is rate
proportional to its sales.
• Similar matrices are made for
competitors. 10%
• Developing such charts for
points in time, one can trace
both the direction & the rate of
movement of each product
over time.
• The validity of the analysis
depends on an apt definition of
the ‘product’ & ‘market share’.

Relative Market 0.5


4.0 2.0 1.0 0.25
share
High Growth market

• Use of product portfolio charts

Profitability
hinges upon the know relationship
between market share and High market share,
profitability. higher profitability
• In high growth markets, market
dominance is the apt competitive
strategy.
• In low growth markets, the apt
strategy is to maximize cash flow, Market share
even while losing market share.
• The strategy depends upon Low Growth market
competitive strength, cost of
gaining market share, funds
available etc.
•Portfolio chart helps in assessing High market share,
Profitability

likely competitive reactions to lower profitability


strategy of dominance or cash
generation.

Market Share
• A business with range of products
Product Portfolio

External factors

Market growth rate Market Share


Four Areas of Product Categorization

1. Stars
MARKET GROWTH

2. Cows

3. Question mark

4. Dogs

MARKET SHARE
Assumptions of Growth /Share Matrix
• High
• Market share generates cash revenues

• Market growth uses more cash resources


GROWTH RATE (CASH USE)
HIGH
LOW

MARKET SHARE (CASH GENERATION)


HIGH LOW
• High growth products

• Strong when compared


with competition

• Need heavy investment


to sustain growth
• Low growth products with
high market share

• Need less investment

• Need to managed for


continued profit to generate
strong cash flows .
• Products with low market
share operating in high
growth market

• Need substantial
investment to grow market
share.

• Slow progress in
experience curve.
• Products with low market
share in low growth markets

• Slow progress in experience


curve

• Cost disadvantages and few


growth opportunities

• Usually sold and closed


Eliminated
Product & Markets
• One of the art of Using the BCG Matrix for competitive
analysis, lies in correctly differentiating the products and the
market-BCG
• The whole process of competitive analysis will be invalid if the
products do not compete in same segment.

Segment 2
Segment 1
Different
Segments Segment 3

Wrong
Method
Portfolio Analysis
Right Method Of Portfolio Analysis
• The Portfolio Analysis must be done of the products which
compete in same segment of the market

Product 2
Product 1
Same
Segment
Product 3

Right
Method
Portfolio Analysis
Basis of Segmentation???
• BCG has found from experience that most effective basis is
the functional differentiation rather than product or user
characteristics
• For example, ‘Philips lighting solutions’ have functional
segmentation.

Philips Hospitality Philips Outdoor


Solutions Solutions
Philips Lighting Solutions

Philips Industrial
Philips Healthcare Solutions
Solutions
Five Step Competitive Analysis
Internal
Balance

Financial
Trends
Balance

Industry Competitive
Position Evaluation
1. Internal Balance

• Appropriate
distribution of
products
• Proper
Categorization
into Cows, Stars,
Question Marks
and Dogs
A typical Growth/ Market Share Matrix of a strong diversified company

20%

Product
market
growth
rate

10%

Relative Market 2.0 1.0 0.5 0.25


4.0
share
1. Internal Balance

Modest positive or Large negative cash


negative cash flow flow
High

Cash use
(market
growth)
Large positive cash Modest positive or
flow negative cash flow
Low

High Sales (market share) Low


2. Trends
• Projecting these Projected
trends out in the Chart
forthcoming five
year period will
indicate where
each product Decisions Targets
would be if
present policies
were maintained
for that period. Compare
3. Competitive Evaluation
• Competitors Growth
Chart Products

• One product at
a time
• Avoid low D & D Candidates Products Share
Maintenance
growth
segments
• Tentative
division of Depletion
Products
products
4. Industry Position
• Portfolio Strategy
4. Industry Position
• Maximum sustainable growth rate
G = D/E (R-i)p + R(p)
Where
G = maximum sustainable long term asset growth rate
D/E= debt Equity ratio
R = desired return on assets
P = earnings retention rate
I = current cost of debt
5. Financial Balance
• Cash flow analysis
• Cash flow chart
• Dogs and Question
marks are milked for
cash
• Stars and cash cows
produce the internally
generated funds
• Reclassification of
products
• Dogs and question
marks may have to be
abandoned
Some application considerations

• Market share/Cash generation should be


used for long range planning

• Shouldn’t be used for interim adjustments


to product portfolio

• More experience doesn't guarantee high


cash generation
Limitations
• Rigid classification of SBUs

• High market share doesn’t guarantee high profits

• Dogs can be vital to business

• Focuses only on major competitors

• High market share is not the only success factor


Limitations

• Business units are not independent

• Dogs can become cash cows

• Problem of data collection

• Not useful for short term planning


THANK YOU ALL !!!