Assignment – 1

STRATEGIC
MANAGEMENT

Submitted To: Submitted By:

Mrs. Jyotsana Chawala Dipesh Mishra
19001701016
MBA 2 (A)
Strategic Analysis & Choice of strategy
Important Techniques of Strategic Analysis
Strategic analysis is done at two levels –
1. Corporate Level –
Different SBUs (Strategic Business Units) in the company portfolio where company is
diversified. It helps to determine in which dir. to proceed; stability, growth,
retrenchment or combo thereof.
2. Business Level –
Focus is on Individual Business. It helps to analyse the markets and industries which it
competes. It helps to determine in which dir. to proceed; low cost, differentiation, or
focus.

Portfolio analysis –
At Corporate level there are several SBUs which have a varying future prospect, similarly at
Business level there are several products in its portfolio. Portfolio analysis is a set of
techniques which strategic makers use to take strategic decisions concerning SBUs or
products in the portfolio of the firm. It helps a firm to balance its investments in different
SBUs or products in terms of cash flows, risks, product development, etc.
Some of the portfolio techniques are as follows –
1. BCG (Boston Consulting Group) growth-share Matrix
2. GE (General Electric) nine-cell Matrix
3. Product-market evolution Matrix
4. Directional policy Matrix
5. Strategic position and Action evaluation (SPACE) Matrix

1. BCG Matrix –

The BCG matrix is designed to help with long-term strategic planning, to help a business consider
growth opportunities by reviewing its portfolio of products to decide where to invest, to discontinue
or develop products. It's also known as the Growth/Share Matrix.

The Matrix is divided into 4 quadrants based on an analysis of market growth and relative market
share, as shown in the diagram below.
 1. Dogs:
These are products with low growth or market share.

2. Question marks or Problem Child:

Products in high growth markets with low market share.

3. Stars:
Products in high growth markets with high market share.

4. Cash cows:
Products in low growth markets with high market share

Limitations –
1. BCG matrix categorises businesses as low and high, but in India businesses are
medium also. Thus, the true nature of business may not be reflected.
2. In India, high market share does not always lead to high profits. There are high costs
also involved with high market share.
3. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.
4. BCG MATRIX uses only two dimensions, Relative market share and market growth
rate.
5. Problems of getting data on market share and market growth.
 2. GE Nine-Cell Matrix –

GE matrix helps to determine how to allocate resources but it allows more flexibility than
BCG matrix.
It is superior to BCG matrix in two ways –
1. It considers more factors in assessing the industry attractiveness and business
strength.
2. It contains 3 degrees; high, medium & low.

Industry Attractiveness –
It includes the following factors:

1. Market size
2. Market growth
3. External factors
1. Political
2. Economical
3. Social
4. Technological
5. Environmental
6. Legal
4. Porters five forces
1. Competitive rivalry
2. Buyer power
3. Supplier power
4. Threat of new entrants
5. Threat of substitution
5. Industry profit margin
6. Economies of scale.

Business Strength/ Competitive Position –

It includes the following factors:

1. Total market share

2. Market share growth compared to rivals
3. Brand strength (use brand value for this)
4. Profitability of the company
5. Customer loyalty
6. Level of product differentiation
7. Production flexibility
8. Knowledge of customer and market
9. Competitive Strength & Weakness
10. Calibre of management

Now the measurements can be plotted for business units on the GE matrix and depending on
where they are plotted will determine the strategy from one of the following:

● Invest/Grow –

Company should invest into the business units that fall into these boxes as they promise the
highest returns in the future. These business units will require a lot of cash because they’ll be
operating in growing industries and will have to maintain or grow their market share. It is
essential to provide as much resources as possible for SBUs so there would be no constraints
for them to grow. The investments should be provided for R&D, advertising, acquisitions and
to increase the production capacity to meet the demand in the future.

● Selectivity/Earnings –

Company should invest into these SBUs only if it has the money left over the investments in
invest/grow SBUs group and if it believes that SBUs will generate cash in the future. These
business units are often considered last as there’s a lot of uncertainty with them. The general
rule should be to invest in business units which operate in huge markets and there are not
many dominant players in the market, so the investments would help to easily win larger
market share.
 ● Harvest/Divest –

The SBUs that are operating in unattractive industries, don’t have sustainable competitive
advantages or are incapable of achieving it and are performing relatively poorly fall into
harvest/divest boxes. If the SBUs generates surplus cash, companies should treat them the
same as the business units that fall into ‘cash cows’ box in the BCG matrix. This means that
the companies should invest into these business units just enough to keep them operating and
collect all the cash generated by it.

The SBUs that only make losses should be divested. If that’s impossible and there’s no way
to turn the losses into profits, the company should liquidate the business unit.

Limitations –
1. A major assumption behind the GE-McKinsey matrix is that it can operate when the
economies of scale are achievable in production and distribution. Unless the same holds true,
the concept of leveraging the competencies of the firm and the SBU falls flat.
2. Also, some of the factors of competitive strength and market competitiveness may be
extremely important for a particular instance, while another instance may even require even
other factors. The top management of the organization should decide upon these factors very
carefully as there is no generic set of factors with which all SBUs may be evaluated.
3. The relative weightage given to each of the factors of competitive strength and market
competitiveness is often arbitrary.
4. The core competencies of the firm or the corporation are not represented in this analysis. The
core competencies may be leveraged across SBUs and can be a deciding factor while judging
the competitive strength of the SBUs.

3. Strategic Position and Action Evaluation (SPACE) Matrix –

It is a 4D model. The 4Ds are; firms’ competitive advantage (internal), financial strength
(internal), industry strength (external) & environmental stability (external). It helps to
determine the strategic posture of the organisation in the industry. The factors considered in
determining these Ds are given in the table below:

Competitive Advantage (CA) Financial Strength (FS)

1. Market Share 1. Return on investment
2. Product Quality 2. Leverage liquidity
3. Product life cycle 3. Capital Required/Available
4. Product Replacement cycle 4. Cash Flow
5. Customer Loyalty 5. Ease of exit from market
6. Competitor’s Capacity Utilization 6. Risk involved in business
7. Technological knowhow
8. Vertical integration

Industry Strength (IS) Environmental Stability (ES)

1. Growth potential 1. Technological charges
2. Profit potential 2. Rate if inflation
3. Financial Stability 3. Demand variability
4. Technological know how 4. Prices of competing products
5. Resource utilization 5. Barriers to entry into market
6. Capital intensity 6. Competitive pressure
7. Ease of entry into market 7. Price elasticity of demand
8. Productivity
9. Capacity Utilization
Using the SPACE Matrix method, the strategist finds the strategic position/posture of an
organisation. By evaluating these four dimensions, strategy maker will determine the strategy
from one of the following:

1. Aggressive Posture –

It indicates that the company can fully exploit available opportunities and enhance its
market share. As the company has high financial strength, high industry strength,
enjoys competitive advantage and belongs to an attractive industry and operates in a
relatively stable environmental condition.

2. Competitive Posture –
It indicates limited financial strength, medium competitive advantage in an attractive industry
and operating in a relatively volatile or unstable environment, necessitating the
company to maintain and enhance competitive advantage by improving/
differentiating product; widening the product line, improving marketing effectiveness
and mobilizing, augmenting financial resources.

3. Conservative Posture –
It indicates a company having limited competitive advantage, in a not so attractive industry
but enjoying financial strength and operating in a relatively stable environment. Such
a company should endeavour to cut down non-performing product, control costs,
improve productivity, introduce new products and enhance sales by profitable market
expansion.

4. Defensive Posture –
It indicates a company that lacks both competitive advantage and financial strength and
belongs to a not-so-attractive industry and operates in an unstable environment. All
the four dimensions are weak and works against the company. It is advisable for a
such a company to initiate measures like discontinue nonviable products, tightly
control costs and monitor cash flows strictly, cutting down/reducing capacity
and postponing or limiting investments.

Limitations –
1. It is a snapshot in time.
2. There are more than four dimensions that firms could/should be rated on.
3. The directional vector could fall directly on an axis, or could even go nowhere if the
coordinate is (0,0).
4. Implications of the exact angle of the vector within a quadrant are unclear.
5. The relative attractiveness of alternative strategies generated is unclear.
6. Key underlying internal and external factors are not explicitly considered.
Strategic Choice
It involves the selection of one or more strategies that an organization will use to achieve
objectives. In other words, “Strategic choice is the decision to select from among the
alternative grand strategies concerned, the strategy which will best meet the enterprise
objectives. The decision involves focusing on a few alternatives, considering the section
factors, evaluating the alternatives against these criteria, & making the actual choice”.

Process of Strategic Choice

1. Focusing on strategic alternatives:

It involves identification of all alternatives. The strategist examines what the organization
wants to achieve (desired performance) and what it has really achieved (actual performance).
The gap between the two positions constitutes the background for various alternatives and
diagnosis. This is gap analysis. The gap between what is desired and what is achieved widens
as the time passes if no strategy is adopted.

2. Evaluating strategic alternatives:

The next step is to assess the pros and cons of various alternatives and their suitability. The
tools which may be used are; corporate portfolio analysis, GE business screen and corporate
Parenting.

3. Considering decision factors:

(a) Objective factors:

(I)        Environmental factors -

o Volatility of environment

o Input supply from environment

o Powerful stakeholders

(II)        Organizational factors -

o Organization’s mission

o Strategic intent

o Business definition

o Strengths and weaknesses

(b) Subjective factors:

o Strategies adopted in the previous period;

o Personal preferences of decision- makers;

o Management’s attitude toward risk;

o Pressure from stakeholders;

o Pressure from corporate culture; and

o Needs and desires of key managers.

4. Constructing Corporate scenario:

Corporate scenario consists of proforma balance sheets and income statement which forecasts
the strategic alternative’s impact on various divisions.

First: 3 sets of estimated figures for optimistic, pessimistic and most likely conditions are
manipulated for all economic factors and key external strategic factors.

Second: Common size financial statements with projections are drawn.

Third: Based on historical data from previous years balance sheet projection for next 5 years
for Optimistic (O), Pessimistic (P), and Most likely (M) are developed.

Corporate scenario is constructed for every strategic alternative considering both

environmental factors and market conditions. It provides sufficient information for a
strategist to make final decision.

5. Process of Strategic Choice:

Two techniques are used in the process of selection of a strategy, namely:

(i)          Devil’s Advocate – It is responsible for identifying potential pitfalls and problems in
a proposed strategic alternative by making a formal presentation in the process of decision-
making.

(ii)         Dialectical inquiry – It involves making two proposals with contrasting assumptions
for each strategic alternative. The merits and demerits of the proposal will be argued by
advocates before the key decision-makers. Finally, one alternative will emerge viable for
implementation.

CASE STUDY
1. Various emerging opportunities before OCIL:

A) Wedding clothes retail shops/ supplying to boutiques:

People spend a lot of money on their wedding dresses. It is very trendy nowadays. Also, it
fetches the fattest margin.

B) Exporting Overseas:
They can sell their Raw as well as their finished goods in developed (like North America &
Europe) and developing (Brazil) economies. This world is a big market in this age of
globalization.

C) Start a Cloth Boutique/ Showroom:

A boutique retail store is quite profitable as supplier is directly in contact with the consumer
and can fetch a good margin on the sale. All they need is to have a proper knowledge
of market, the latest ongoing trends and the fabric in fashion these days.

D)Setting-up affordable fashion stores as a subsidiary:

India is a developing country. Not everyone can buy new fashionable & trendy clothes at the
prices at which they are offered in the market. They can target lower middle and
middle class as a new segment.

E) Khadi clothes:
They can manufacture Khadi marked readymade garments. Along with their usual
production.

F) Getting into new ventures:

They can get into new ventures with the companies who are trying to enter the market from
abroad.

G)Entry in Real Estate Business:

They can enter real estate business as well. The price of real estate is always on the rise.

2. Going for Forward Integration:

● Forward Integration –
It is a part of vertical integration where company expands its operation forward into an
industry that uses, distributes or sells company products. Also, a taper integration
model within the forward integration.

● Taper Integration -
It an integration where company gets materials/ products from outside suppliers along with
in-house suppliers and the manufacturing is completely in-house and the finished
goods are sold to the customers by in-house distributors as well as Independent
distributors.

My views regarding forward integration are negative due to the following reasons –

●  Increased cost structure

●  Technological change
●  Demand unpredictability

The company is already suffering huge losses & implementing this model would only
increase the costs which will be a burden. Also, Bureaucratic cost, changing technology or
demand uncertainty limits the vertical integration.
Instead, they should go for a horizontal integration.

● Horizontal Integration –
 It is the process of acquiring or merging with competitors to achieve competitive
advantage that come with large scale & scope.

● Merger –
It happens when two or more companies with equal standing pool their operation and
create new entity.
My views regarding horizontal integration are positive due to the following reasons –
● Lower cost structure
● Increase product differentiation
● Replicate business model
● Reduce rivalry within industry
● Increase bargaining power over suppliers and buyers
The company could benefit from it if the merging organizational culture of two companies is
maintained properly. Also, the confrontation with regulating authorities should be minimized
at all levels of the management.

3. The Steel Business:

No, it should not dump its steel business as The Steel Business is their “Cash-Cow”.
They should keep “milking” it to get as much cash out of it as possible. Usually, the
cash obtained from cash cows is invested into “Stars” but here the steel business is
there is their star. So, dumping their income from their Cash-Cow would be a bad
strategy. My views regarding the steel business would be:
● Product Development
● Diversification
● Divestiture retrenchment

4. The Strategic Intent:

Yes, they should redefine their strategic intent because the very first step for strategy
formulation process is selecting corporate mission and major goals which includes –
● Mission & Vision –
Mission defines what is the company does and Vision is about what company want to
achieve, some futuristic state. 
● Values –
Values of company reflected from the conduct of managers and employees and these
helps drive and shape the behavior in the company.
● Organization culture –
 Set of values, norms and standards which specifies how the employees work to
achieve the organization mission and goals.
● Goals –
A precise and measurable desired future state that a company contemplate to realize.
These goals should be –
o Precise & measurable
o Address critical issue
o Challenging but realistic
o Time bound

Which gives them the correct answer of “What they are trying to accomplish?”

o A new strategic intent can provide a sense of direction, a particular point of view
about the long-term market or competitive position the organization hopes to
develop and occupy.

o A new strategic intent can provide a sense of discovery in that it holds out to the
organization’s members the promise of learning about other organizations that
operate in the same market, adopting their best practices and avoiding pitfalls.

o A new strategic intent can provide a sense of destiny, a worthwhile goal around
which energies can be focused across the organization.