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Choosing a Strategy

BCG Matrix, Grand


Strategy
Choosing a Strategy
• A firm’s present strategies, objectives, mission, vision,
values combined with external and internal audit
along with a menu of strategies leads to generating
and evaluating feasible alternative strategies
• Alternative strategies represent incremental steps that
move the firm from its present position to a desired
future position
• A manageable set of alternative strategies have to be
developed
• Advantages, disadvantages, trade-offs, costs and
benefits of these strategies should be determined
• Based on these, appropriate strategies have to be
chosen that fits a firm’s situation. They should be
prioritized.
• There are several tools and techniques for strategy
formulation
Choosing a Strategy 2
Strategy Formulation Analytical
Framework
Stage 1 : The Input stage
External Factor Competitive Internal Factor
Evaluation Profile Evaluation
( EFE ) Matrix Matrix ( CPM ) ( IFE ) Matrix

Stage 2 : The Matching stage


SWOT Strategic GE Boston Internal Grand
Matrix Position and Nine - cell Consulting External Strategy
Action Evaluation Matrix Group ( IE ) Matrix Matrix
( SPACE ) Matrix ( BCG ) Matrix

Stage 3 : The Decision stage


Quantitative Strategy Planning Matrix ( QSPM )

Choosing a Strategy 3
BCG Matrix
Quadrant Quadrant
2 1
Industry Sales Growth
Rate (%)

Quadrant Quadrant
3 4
Relative Market
Share
Choosing a Strategy 4
BCG Matrix
• Profit centres of a firm make up a Business
Portfolio
• They are likely to be present in different
industries
• Helps formulate strategy for multi-division
firms
• Relative Market Share on X-axis and
Industry Growth Rate on Y-axis (%)
• Quadrant 1 – Question Marks
• Quadrant 2 – Stars
• Quadrant 3 – Cash Cows
• Quadrant 4 - Dogs Choosing a Strategy 5
BCG Matrix
• Quadrant 1 – Question Marks
– Low relative market share, but high growth
industry
– Cash needs high, cash generation low
– Strengthen them by pursuing Intensive Strategy
(Market Penetration, Market Development, or
Product Development) or sell them???
• Quadrant 2 – Stars
– Best long term opportunity for growth and
profitability
– Need investment to maintain dominant position
– Cash cows of tomorrow
– Should consider Integration strategies, Market
penetration, Market development, Product
developmentChoosing
and ajoint ventures
Strategy 6
BCG Matrix
• Quadrant 3 – Cash Cows
– Generate cash in excess of their needs
– Maintain strong position as long as possible
– Pursue Product Development, Concentric
Diversification are good strategies
– When it stops being a cash cow,
Retrenchment or Divestiture is a better
option
• Quadrant 4 - Dogs
– Weak internal and external position
– Good strategy are Retrenchment,
Divestiture and Liquidation
– Choosing a Strategy 7
Grand strategy matrix
• All firms can be positioned in one of
the quadrants of the GSM. Applies
to a firm’s divisions also
• Based on two dimensions –
Competitive Position and Market
Growth
• Appropriate strategies to consider
are placed in sequential order of
attractiveness in each quadrant
Choosing a Strategy 8
The Grand Strategy Matrix
Quadrant 2 RAPID MARKET GROWTH Quadrant 1
1 . Market development 1 . Market development
2 . Market penetration 2 . Market penetration
3 . Product development / Innovation 3 . Product development / Innovation
4 . Divestiture 4 . Forward integration
5 . Liquidation 5 . Backward integration
6 . Horizontal Integration
7 . Concentric Diversification

WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Quadrant 3 Quadrant 4
1 . Retrenchment 1 . Concentric Diversification
2 . Concentric Diversification 2 . Horizontal diversification
3 . Horizontal diversification 3 . Conglomerate diversification
4 . Conglomerate diversification 4 . Joint ventures / Strategic alliance
5 . Divestiture
6 . Liquidation

SLOW MARKET GROWTH

Choosing a Strategy 9