The BCG Matrix Grand Strategies in Steatergic Management Studies mba 4 sem

THE BCG
MATRIX GRAND
STRATEGIES
Babasab Patil09/12/13
Babasabpatilfreepptmba.com 1

Grand Strategies
 Grand strategies provide basic direction for
strategic actions.
 They are the basis for coordinated and sustained
efforts directed towards achieving long-term
business objectives.
 They indicate a time period over which long-term
objectives are to be achieved.
 Firms involved with multiple industries, businesses,
product lines or customer groups usually combine
several grand strategies.
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The fifteen grand principles are:
1. Concentrated growth e.g. e-bay in online auction
2. Market development e.g. J&J catering to the adults, using sachets for market
penetration
3. Product development e.g. personal care products from HUL, newer version of
books,
4. Innovation
5. Horizontal integration
6. Vertical integration
7. Concentric diversification
8. Conglomerate diversification
9. Turnaround
10. Divestiture e.g. Sale of TOMCO by Tata, selling of cement division by L&T
11. Liquidation
12. Bankruptcy
13. Joint ventures
14. Strategic alliances
15. Consortia e.g. Mitsubishi, LG

Innovation
 Innovation is needed since both consumer and
industrial markets expect periodic changes and
improvements in the products offered.
 Firms seeking to making innovation as their grand
strategy seek to reap the initially high profits
associated with customer acceptance of a new or
greatly improved product.
 As the products enters the maturity stage these
companies start looking for a new innovation.

Innovation
 The underlining rationale is to create a new product
life cycle and thereby make similar existing products
obsolete.
 This strategy is different from the product
development strategy in which the product life cycle
of an existing product is extended.
 e.g. Polaroid which heavily promotes each of its
new cameras until competitors are able to match
its technological innovation; by this time Polaroid
normally is prepared to introduce a dramatically
new or improved product.
 Intel, 3M

Turnaround
 Sometimes the profit of a company decline due to
various reasons like economic recession, production
inefficiencies and innovative breakthrough by
competitors.
 In many cases the management believes that such
a firm can survive and eventually recover if a
concerted effort is made over a period of a few years
to fortify its distinctive competences.
 This is known as turnaround strategy.

Turnaround typically is begun with one or both of the
following forms of retrenchment being employed
either singly or in combination.
1. Cost reduction
 It is done by decreasing the workforce through
employee attrition, leasing rather than purchasing
equipment, extending the life of machinery,
eliminating promotional activities, laying off
employees, dropping items from a production line
and discontinuing low-margin customers.

2. Asset reduction
 This includes sale of land, buildings and equipment
not essential to the basic activity of the firm.
 Research have showed that turnaround almost
always was associated with changes in top
management.
 New managers are believed to introduce new
perspectives, raise employee morale and facilitate
drastic actions like deep budgetary cuts in
established programs.

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Turnaround situation
 The model begins with the depiction of external and
internal factors as causes of a firm's performance
downturn.
 When these factors continue to detrimentally impact
the firm, its financial health is threatened.
 Unchecked decline places the firm in a turnaround
situation.
 A turnaround situation represents absolute and
relative to the industry declining performance of a
sufficient magnitude to warrant explicit turnaround
actions.

Turnaround situation
 A turnaround situation represents absolute and
relative to the industry declining performance of a
sufficient magnitude to warrant explicit turnaround
actions.
 Turnaround situations may be a result of years of
gradual slowdown or months of sharp decline.
 For a declining firm, stabilizing operations and
restoring profitability almost always entail strict cost
reduction followed by shrinking back to those
segments of the business that have been the best
prospects of attractive profit margins.

Situation severity
 The urgency of the resulting threat to company
survival posed by the turnaround situation is known
as situation severity.
 Severity is the governing factor in estimating the
speed with which the retrenchment response will be
formulated and activated.
 When severity is low stability can be achieved
through cost reduction alone.

Situation severity
 When severity is high cost reduction must be
supplemented with more drastic asset reduction
measures.
 Assets targeted for divestiture are those determined
to be underproductive.
 More productive resources are protected and will
become the core business in the future plan of the
company.
 E.g . strategy adopted by Citibank

Turnaround response
 Turnaround response among successful firms
typically include two strategic activities:
 Retrenchment phase
 Recovery phase

Retrenchment phase
 It consists of cost-cutting and asset-reducing
activities.
 The primary objective of this process is to stabilize
the firm's financial condition.
 Firms in danger of bankruptcy or failure attempt to
halt decline through cost and asset reductions.
 It is very important to control the retrenchment
process in a effective and efficient manner for any
turnaround to be successful.
 After the stability has been attained through
retrenchment, the next step of recovery phase
begins.

Recovery phase
 The primary causes of the turnaround situation will
be associated with the recovery phase.
 For firms that declined as a result of external
problems, turnaround most often has been
achieved through creative new entrepreneurial
strategies.
 For firms that declined as a result of internal
problem, turnaround has been mostly achieved
through efficiency strategies.
 Recovery is achieved when economic measures
indicate that the firm has regained its predownturn
levels of performance.

Turnaround Strategy
Changing the
Leadership
The MainThe Main
Steps of TurnaroundSteps of Turnaround
17

Turnaround Strategy
Redefining the Strategic
Focus
The MainThe Main
18

Turnaround Strategy
Asset Sales and
Closures
The MainThe Main
19

Turnaround Strategy
Improving
Profitability
The MainThe Main
20

Turnaround Strategy
Acquisitions
The MainThe Main
21

BCG MATRIX
&
GE NINE CELL
PLANNING GRID
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BCG MATRIX
 A concept developed by the Boston
Consulting Group that evaluates SBUs with
respect to the dimension of business growth
rate and market share.
 Mix of business units and product lines that fit
together in a logical way to provide synergy
and competitive advantage
 ALSO CALLED AS PORTFOLIO STRATEGY
23

Reviewing the Corporate
Portfolio
 Portfolio Planning
 Identifying SBUs
 Assessing and Comparing SBUs
 Relative Market Share
 Relative Growth Rate
24

Formulating Business-Level
Strategy
 It is a strategy formulation within the strategic
business unit in which the concern is how to
compete.
 The same three GRAND strategies (growth,
stability, and retrenchment) apply at the
business level, but they are accomplished
through competitive actions rather than the
acquisition or divestment of business
divisions.
25

Portfolio Strategy
26
BCG
Matrix

The BCG Matrix
High
High
Low
Low
IndustryGrowthRateIndustryGrowthRate
Relative Market ShareRelative Market Share09/12/13Babasabpatilfreepptmba.com
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High
High
Low
Low
Relative Market ShareRelative Market Share
Stars
28

1. Stars
(=High growth, high market share)
 The business has high market share compared to
competitors and it is doing business in high-growth
market
 Use large amounts of cash and are leaders in the
business so they should also generate large amounts
of cash.
 Frequently roughly in balance on net cash flow.
However if needed any attempt should be made to
hold share, because the rewards will be a cash cow if
market share is kept.
29

High
High
Low
Low
The BCG Matrix
Cash Cows
30

2.Cash Cows
(=low growth, high market share) The market is not very attractive – low market growth rate,
however the business has high market share compared to
competitors.
 Profits and cash generation should be high , and
because of the low growth, investments needed should
be low. Keep profits high
 Foundation of a company
31

High
High
Low
Low
The BCG Matrix
Dogs
32

3. Dogs
(=low growth, low market share)
 This business has low market share and operates in low-
growth market.
 Avoid and minimize the number of dogs in a company.
 Beware of expensive ‘turn around plans’.
 Deliver cash, otherwise liquidate
33

High
High
Low
Low
The BCG Matrix
???? ????
Question Marks
34

Question Marks
(= high growth, low market share)
 The business unit has low market share
compared to competitors, however it is doing
business in high-growth market.
 Have the worst cash characteristics of all,
because high demands and low returns due
to low market share
 If nothing is done to change the market
share, question marks will simply absorb
great amounts of cash and later, as the
growth stops, a dog.
 Either invest heavily or sell off or invest
nothing and generate Whatever cash it can.
Increase market share or deliver cash.
35

High
High
Low
Low
The BCG Matrix
???? ????
Question Marks
Cash Cows
Dogs
Stars
36

Analysis of Your Enterprise Position
Stars Cash
Cows
Question
Marks
Dogs
High growth
High share
Low growth
High share
High growth
Low share
Low growth
Low share
Business is
likely to
generate
enough
cash to be
self
sustaining.
Business can
be used to
support
other
business
units.
• defend &
maintain
Business
requires a
lot of cash
to maintain
market
share.
• invest more
cash
• or, divest
Business is a cash
trap.
• focus on short term
• avoid risky project
• limited future

Reviewing the Corporate Portfolio
Strategic Implications
 Cash Surplus from Cash Cows Used to
Support Question Marks and Stars
 Question Marks Divested
 Exit Industry Where SBU is a Dog
 Firm with Insufficient Cash Cows, Stars, or
Question Marks Should Consider Acquisitions
and Divestments
39

Limitations of BC G Model:
 Defining a market, measuring share and growth rate
difficult.
 In the matrix average growth rate & average market
share not recognized.
 The relationship between market share and profitability
underlying the BCG matrix – the experience curve effect
-varies across industries and market segments.
 The BCG matrix is not particularly helpful in comparing
relative investment opportunities across different
business units in the corporate portfolio.
 Strategic evaluation of a set of business requires
examination of more than relative market shares and
market growth.
 It oversimplifies the four classifications.
40

G E nine cell planning grid
41

Introduction
 GE came up with the multifactor portfolio matrix in the
1970’s for the assessment of their SBU’s.
 It is similar to BCG matrix
 Vertical axis represents industry attractiveness and
the horizontal axis represents the company’s strength
in the industry or business position
42

G E Nine cell planning grid
 The General Electrical company is highly admired for
the sophistication, maturity& quality of its planning
system.
 It uses a 3×3 matrix called the General Electric’s
Stoplight matrix to guide the allocation of resources.
43

B
U
S
I
N
E
S
S
S
T
R
E
N
G
T
H
weak
averag
e
stron
g
Industry Attractiveness
High Medium Low
General Electric’s Nine-cell (multi-factor) Port-
folio Matrix
0
100
0
Invest/grow
Selectivi
ty/earni
ng
Harvest/divest
legend
44

 This matrix calls for evaluating the business of a firm in
terms of two key uses:
 Business Strength : How strong is the firm vis-à-vis its
competitors ?
 Industry strength : What is the attractiveness or
potential of the industry ?
45

G E’s Nine-cell Planning Grid:
 Business Strength: Industry Attractiveness:
 Re lative m arke t share Marke t Siz e and g ro wth
rate
 Pro fit m arg ins Industry Pro fit m arg ins
 Ability to co m pe te o n Co m pe titive inte nsity
price and q uality Se aso nality
 Kno wle dg e o f custo m e r Cyclical
and m arke t Eco no m ie s o f scale
 Co m pe titive stre ng th and Te chno lo g y
we akne sse s So cial, e nviro nm e ntal,
le g al,
 Te chno lo g icalcapabilitie s and hum an im pacts09/12/13Babasabpatilfreepptmba.com
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 The commitment of resources to various business is
guided by how they are rated in terms of above two
dimensions.
 Business which are favorably placed justify substantial
commitment of funds.
 Business which are unfavorably placed call for
divestment.
 And business which are placed in between quality for
modest investment. 09/12/13Babasabpatilfreepptmba.com
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 More advanced than BCG matrix in three ways:
 Market growth is replaced be market attractiveness
 Market share is replaced by competitive strength
 GE uses 6 step approach (BCG-2*2, GE -3*3)
48

Attractiveness include
 Broader range of factors other than market growth
rate.
 Depending on the product characteristics, different
parameters can select to measure market
attractiveness.
49

Market attractiveness factors
 MARKET SIZE
 MARKET GROWTH
 MARKET PROFITABILITY
 PRICING TRENDS
 COMPETITIVE INTENSITY
 OPPORTUNITY TO DIFFERENTIATE PRODUCTS
AND SERVICES
 DISTRIBUTOIN STRUCTURE (EG: RETAIL,
DIRECT, WHOLESALE)
50

Factors that affect competitive strength
 STRENGTH OF ASSETS AND COMPETENCIES
 RELATIVE BRAND STRENGTH
 MARKET SHARE
 CUSTOMER LOYALTY
 RELATIVE COST POSITION
 DISTRIBUTION STRENGTH
 RECORD OF TECHNOLOGICAL AND OTHER INNOVATION
 ACCESS TO FINANCIAL AND OTHER INVESTMENT RESOURCES
51

Plotting the Information:
1. Select factors to rate the industry for each product
line or business unit. Determine the value of each
factor on a scale of 1 (very unattractive) to 5 (very
attractive), and multiplying that value by a weighting
factor.
Industry attractiveness = factor value1 x factor
weighting1
+ factor value2 x factor weighting2
.
.
.
+ factor valueN x factor weighting N

2. Select the key factors needed for success in each of
the product line or business unit. Determine the
value of each key factor in the criteria on a scale of
1 (very unattractive) to 5 (very attractive), and
multiplying that value by a weighting factor.
Business strengths/competitive position = key factor value1 x factor
weighting1
+ key factor value2 x factor weighting2
.
.
.
+ key factor value N x factor weighting N

3. Plot each product line's or business unit's current
position on a matrix.
4. The individual product lines or business units is
identified by a letter and plotted as circles on the
GE Business Screen.
5. The area of each circle is in proportion to the size
of the industry in terms of sales. The pie slice within
the circles depict the market share of each product
line or business unit.
6. Plot the firm's future portfolio assuming that present
corporate and business strategies remain
unchanged. This is shown as an arrow which starts
from the circle representing the current position and
the tip of the arrow will be the tentative center of
the future circle.

Strategic Implications
• Resource allocation recommendations can be
made to grow, hold, or harvest a strategic business
unit based on its position on the matrix as follows:
1. Grow strong business units in:
– attractive industries
– average business units in attractive industries
– strong business units in average industries.

1. Hold average business units in:
– average industries
– strong businesses in weak industries
– weak business in attractive industries.
1. Harvest weakbusiness units in:
– unattractive industries
– average business units in unattractive industries
– weak business units in average industries.

The McKinsey Matrix
Competitive PositionCompetitive Position
IndustryAttractivenessIndustryAttractiveness Good Medium Poor
High
Medium
Low
Winner
Winner
Winner
Profit
Producer
Average
Business
Question
Mark
Loser
LoserLoser
58

 There are strategy variations within these three
groups. For example, within the harvest group the
firm would be inclined to quickly divest itself of a
weak business in an unattractive industry, whereas it
might perform a phased harvest of an average
business unit in the same industry.
 GE business screen represents an improvement
over the more simple BCG growth-share matrix.

 Limitations
 It presents a somewhat limited view by not
considering interactions among the business units
 It neglects to address the core competencies
leading to value creation
 Rather than serving as the primary tool for
resource allocation, portfolio matrices are better
suited to displaying a quick synopsis of the
strategic business units.

Protect position
Invest at maximum
Digestible rate
Concentrate effort on
maintaining strength
Invest to build
Build selectively on
strengths
Reinforce
vulnerable areas
Challenge for
leadership
Build selectively
Seek ways to overcome
weaknesses
Specialize around
limited strengths
Build selectively
Invest heavily in most
attractive segments
Emphasize profitability
by raising productivity
Manage for
earnings
Protect existing
business
Concentrate
investments in
segments with good
profits, low risk
Limited expansion
Rationalize operations
Protect and refocus
Manage for current
earnings
Defend strength
Manage for
earnings
- Protect position in
most profitable
segments
Divest
Sell at time that will
maximize cash value
 cut fixed cost
 Avoid investment
I
n
d
u
st
r
y
a
tt
r
a
ct
iv
e
n
e
ss
h
ig
h
m
e
d
i
u
m
l
o
w
strong Average weak
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Strategies for SBU at different
quadrants
62

PRESENTATION
ON
COMPANY GOALS &
COMPANY PHILOSOPHY
63

• Goals describe future expected outcomes or states. They provide
programmatic direction. They focus on ends rather than means.
• Example 1: provide high quality information services that satisfy
user needs.
• Example 2: acquire or make available, in a timely manner, all
externally produced information resources needed by the
organization
64

Company goals effectively state what a company does; it is
the main objective value that a company should be gauged
against. It gives the public a window on how they operate and
what that certain institution means to achieve. The
development of metrics should be gauged on this aspect of the
company..
65

Key Characteristics of Goals
 Goals must be realistic
 Goals must include everyone
 Goals need to be communicated
 Goals should have different ranges
Have first your long-term goals. This may range from one to
two years, to even five years. Yearly goals should be next,
then quarterly goals, monthly goals, weekly goals, and
ultimately daily goals.
66

SMART illustrates the 5 characteristics of an efficient
objective; it stands for Specific - Measurable
- Attainable -Relevant - Timely.
1. Be SPECIFIC!
When it comes of business planning, "specific" illustrates a
situation that is easily identified and understood. In this case,
being "specific" means being "precise".
67

Contd…
2. Be measurable!
3. Be attainable!
4. Be relevant!
5. Be timely!
68

The Importance of Setting
goals
 It gives a target to aim to, therefore all actions and efforts will be
focused on attaining the objective instead of being inefficiently
used;
 It gives participants a sense of direction, a glimpse of where they're
going to;
 It motivates the leaders and their teams, since it is quite the custom
of establishing some sort of reward once the team successfully
completed a project;
 It offers the support in evaluating the success of an action or
project.
69

Financial Goal Examples
 To be earning Rs 6,00,000 a month by 24th December 2010.
 To have paid off Rs 1,00,000 mortgage by 30th June 2011.
70

Business Goal Examples
 To have grown business by 50% by 30th November 2011.
71

EX: B. Braun Corporate
Video
 Growth as a family enterprise - Growth from our own resources.
 One true company - Strength in unity worldwide.
 Worldwide engagement - Improving market position.
 The divisions' fields of competency - Oriented to customer needs.
 Modern products - Enhanced by service.
 Improved supply chain management - Release of working capital.
 Qualified employees - A prerequisite for success.
 Benchmarking - Learning from the best
 Innovation as motivation - In all fields
72

Company philosophy
73

Tips for Developing a
Company Philosophy
 Establishing a solid business philosophy on sets an ethical
precedent within a company, but also enables an organization to
improve relations with employees, partners and customers.
 it is essential to avoid becoming overly elaborate. A philosophy
should be clear and memorable, according to experts,
74

Ex : VOLVO CAR PHILOSOPHY
 Volvo Cars' company philosophy, Our
Tomorrow, describes the values that guide
the company and relates them to
profitability and customer's demands.
 What makes Volvo Cars unique in the
automotive world is its focus on human
values in life. Caring about customers and
others; the safety concept encompasses
not only the passengers of the car, but also
passengers in other cars. Environmental
care goes beyond legislation.
75

Brand
76

Work culture
77

Strategic management proceSS
Vision
and
Mission
Vision
and
Mission
External
Audit
External
Audit
Internal
Audit
Internal
Audit
Long-
term
objectives
Long-
term
objectives
Generates
evaluates
select
strategy
Generates
evaluates
select
strategy
Implement
strategy
mgt issues
Implement
strategy
mgt issues
Implement
strategies
marketing,
Finance/A/c
R&D &CIS
Implement
strategies
marketing,
Finance/A/c
R&D &CIS
Measure&
evaluate
performance
Measure&
evaluate
performance
78

Strategy Implementation
 So far we have studied strategy formulation, analysis of
alternative strategies, and then making a strategic choice.
What Next ?
 The strategy must be translated into concrete action, and
 That action must be carefully implemented.
Implementation is initiated in three stages:
1. Identification of annual objectives
2. Development of specific functional strategies
3. Development and communication of concise policies to guide
decisions. 09/12/13Babasabpatilfreepptmba.com
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Implementing Strategy:
Strategy
Implementer’s
Action Agenda
Strategy
Implementer’s
Action Agenda
Building a
Capable
Organization
Allocating Resources
Establishing Strategy-
Supportive Policies
Instituting Best
Practices for
Continuous
Improvement
Installing Support
Systems to Carry
out Strategic RolesTying Rewards
to Achievement
of Key Strategic Targets
Exercising
Strategic
Leadership
Shaping Corporate
Culture to Fit
Strategy
80

Factors Influencing Managers in Leading Implementation
Process
 Experience and knowledge of business
 New to job or seasoned
 Network of personal relationships
 Diagnostic, administrative, interpersonal, and
problem-solving skills
 Authority given manager
 Leadership style most comfortable with
 View of role to get things done
 Context of organization’s situation
81

Strategy choice & implementation – the ‘Nestle’ story.
 Nestle has a presence in India over a century !!
 For a long time it imported condensed milk (milk maid) &
infant food items.
 Lately, it woke up to the food- market potentials in India and set
long-term objectives:
 Launch variety of dairy products – Milk, Butter, curd
 Increase food products – instant coffee (nescafe), Maggie,
KitKat, Cerelac, Nestrum, Munch etc.
 Penetrate vast rural, middle-class segments
 Maintain competitive edge (HLL. Cadburry, Heinz & locals)
The Strategy
 Nurture the best selling brand, Price cuts, economy packs at
different price points, strengthen distribution network, expand
product base to include daily consumable items, build volumes09/12/13Babasabpatilfreepptmba.com
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Nestle Story – the current market scenario:
 Milk Products & Baby food: Amul has focussed on Milk
Products and Babyfood- giving tough competition. Local coops.
Entering the market, Britania JV with Fonterra is a big
challenge.
 Beverages: HLL’s Bru favoured in South India, the coffee belt,
Barista-Tata coffee poses threat, Bisleri & Kinley price war
 Processed Food: HLL making strong bid, locals like MTR in
the fray.
 Chocolate & Confectionery: Cadbury adopting Nestle’s
strategy, ITC, Amul, HLL in the fray using their distribution
network to their advantage. 09/12/13Babasabpatilfreepptmba.com
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Strategy Implementation
Operationalizing strategy
 This phase is the translation of the agreed upon long term
objectives, the strategic plan, into organizational action.
 Here the focus shifts from strategy formulation to strategy
implementation.
 There are four important things to be done well to make this
transition:
1. Identify short term objectives
 They translate long term objectives into annual targets for
action.
 They provide clarity and can be very powerful motivator09/12/13Babasabpatilfreepptmba.com84

2. Initiate specific functional strategies
 They translate business strategy into daily activities.
 Functional managers are involved in developing these tactics
and their participation helps in clarifying what needs to be
done to implement the strategy.
3. Communicate policies that empower people in the organization
 Policies are empowerment tools that simplify decision
making by empowering operational managers and their
subordinates.
 They empower the people involved in execution by reducing
the time required to decide and act.
4. Design effective rewards
 It is aimed at rewarding the desired actions and results.09/12/13Babasabpatilfreepptmba.com85

Annual or short term objectives
 They provide a guidance to the people in the organization as
to what needs to be done currently to make the long term
objectives become reality.
 They provide specific guidelines about the things to be done.
 They "operationalize" long -term objectives. e.g. if the long
term, say five year plan is to gain forty percent market share
from the current twenty percent, then what needs to be done in
this year to increase the current market share by "X" percent

Annual or short term objectives
 Discussion and agreement on short-term strategies help raise
issues and potential conflicts that requires coordination to
avoid serious consequences.
 It identifies measurable outcomes of action plans or functional
activities, which can be used to make feedback, correction,
and evaluation more relevant and acceptable.

Short-term objectives are accompanied by action
plans, which help short-term objectives in three
ways:
1. These action plans identify functional tactics and activities that
will be undertaken in the next week, month or quarter to build
competitive advantage. They specify what exactly needs to be
done.
2. They provide a time frame for completion - a schedule with
starting and ending dates.
3. It identifies who is responsible for each action in the plan.

Qualities of effective short-term objectives
1. Measurable
 Short-term objectives are more consistent when they clearly
state
 what is to be accomplished
 when it will be accomplished
 how its accomplishment will be measured
 This helps in effectively monitoring each activity and the
progress across several interrelated activities.
 Measurable objectives make misunderstanding less likely
among interdependent managers who must act on the plans.
 It is easier to quantify objectives of line units (e.g.
production) than staff areas (e.g. personal).
 Difficulties in quantifying objectives often can be overcome
by initially focusing on measurable activity and then09/12/13Babasabpatilfreepptmba.com90

2. Priorities
 Some annual objectives would require higher priority either
because of the timing considerations or because of their
effect on a strategy's success. E.g. new product
development may be more important than promotional
activities
 Not prioritizing will lead to conflicting assumptions which
may inhibit progress towards strategic effectiveness.
 The various ways on which priorities can be established
are:
1. Ranking method
2. Terms such as primary, top and secondary can be used.
3. Objectives can be given weights (e.g. 0 to 100 percent)09/12/13Babasabpatilfreepptmba.com91

3. Linked to long-term objectives
 Short-term objectives can add specificity in identifying
what must be accomplished to achieve long-term objective.
 e.g. Adobe systems has an long-term objective of achieving
five percent of its total revenue to come from India in the
next 5 years. To achieve this it can have a series of short-
term objectives like focusing on particular products.
 The link between the short-term and long-term objectives
should resemble cascades through the firm, from basic long-
term objectives to specific short-term objectives in key
operational areas.
 The cascading effect provides a clear reference for
communications and negotiation, which may be necessary

Characteristics of Industry Maturity
 Slowing demand breeds stiffer competition
 More sophisticated buyers demand bargains
 Greater emphasis on cost and service
 “Topping out” problem in adding
 production capacity
 Product innovation and new end uses
 harder to come by
 International competition increases
 Industry profitability falls
 Mergers and acquisitions reduce the
 number of industry rivals
93

Strategy Options for Competing in a Mature Industry
 Prunemarginal products and models
 Emphasize innovationin the valuechain
 Strong focus on cost reduction
 Increasesales to present customers
 Purchaserivals at bargain
 prices
 Expand internationally
 Build new, more flexible
 competitivecapabilities
94

Strategic Pitfalls in a Maturing Industry
 Employing a ho-hum strategy with no distinctive features
 thus leaving firm “stuckinthemiddle”
 • Concentratingon short-termprofits rather than
 strengthening long-term competitiveness
 • Beingslow to adapt competencies to
 changing customer expectations
 • Beingslow to respond to price-cutting
 • Havingtoo much excess capacity
 • Overspendingon marketing
 • Failingto pursue cost reductions aggressively
95

Stagnant or Declining Industries: The Standout Features
 Demand grows more
 slowly than economy
 as whole (or even declines)
 • Competitive pressures
 intensify--rivals battle for
 market share
 • To grow and prosper, firm must take market share
from
 rivals
 • Industry consolidates to a smaller number of key
players
 via mergers and acquisitions
96

Strategy Options for Competing in a Stagnant or Declining
Industry
 Pursue focus strategyaimed at fastest growing market
 segments
 Stress differentiationbased on quality improvement or
 product innovation
 Work diligently to drivecosts down
– Cut marginal activities from value chain
– Use outsourcing
– Redesign internal processes to exploit e-commerce
– Consolidate under-utilized production facilities
– Add more distribution channels
– Close low-volume, high-cost distribution outlets
– Prune marginal products
97

Competing in a Stagnant Industry :The Strategic
Mistakes
 Getting embroiled in a profitless battle for market
 share with stubborn rivals
 -Diverting resources out of the
 business too quickly
 -Being overly optimistic about
 industry’s future (believing things will get better)
98

Competitive Features of Fragmented Industries

Absence of market leaders with large market shares
 Buyer demand is so diverse and geographically scattered that many
 firms are required to satisfy buyer needs
 Low entry barriers
 Absence of scale economies
 Buyers require small amounts of customized or
 made-to-order products
 Market for industry’s product/service may be globalizing, thus putting
 many companies across the world in same market arena
 Exploding technologies force firms to specialize just to keep up in their
 area of expertise
 Industry is young and crowded with aspiring contenders, with no firm
 having yet developed recognition to command a large market share
99

Examples of Fragmented Industries
 Book publishing
 Landscaping and plant nurseries
 Auto repair
 Restaurant industry
 Public accounting
 Women’s dresses
 Meat packing
 Paperboard boxes
 Hotels and motels
 Furniture
100

Competing in a Fragmented Industry: The
Strategy Options
 Construct and operate “formula”facilities
 • Become a low-cost operator
 • Specializeby product type
 • Specializeby customertype
 • Focus on limitedgeographic area
101

Strategies for Sustaining Rapid Growth
 Companies desirous of growing revenues and earnings
 rapidly year-after-year have to have a portfolio of
strategies
 – Horizon 1: Strategic initiatives to fortify and extend their
position in
 existing businesses
 – Horizon 2: Strategic initiatives to leverage existing
resources and
 capabilities by entering new businesses with promising
growth
 potential
 – Horizon 3: Strategic initiatives to plant new seeds for
venturing into
 businesses that are just emerging or do not even exist
yet
102

Three Strategy Horizons for Sustaining Rapid Growth
Portfolio of
Strategy Initiatives
Short-jump”
initiatives to
fortify
and extend
current
businesses
• Immediate
gains in
revenues and
profits
Medium-jump”
initiatives to
leverage
existing
resources
and capabilities
to
pursue growth in
new businesses
• Moderate
revenue
and profit gains
now,
but foundation
laid
for sizable gains
over next 2-5
“Long-jump”
initiatives to sow
the
seeds for growth
in
businesses of the
future
• Minimal revenue
gains now and
likely
losses, but
potential
for significant
contributions to
revenues and
profits
in 5-10 years
Time
103

Risks of Pursuing Multiple Strategy Horizons
 Firm should not pursue all options to avoid
 stretching itself too thin
 Pursuit of medium- and long-jump initiatives may
 cause firm to stray too far from its core competencies
 Competitive advantage may be difficult to achieve in
 medium- and long-jump businesses that do not mesh
 well with firm’s present resource strengths
 Payoffs of long-jump initiatives may prove elusive
104

Characteristics of Industry Leaders
 Stronger-than-average to powerful position
 Well-known reputation
 Proven strategies
 Strategic concern -- How to sustaindominant
 leadershipposition
105

 Strategy Options: Industry Leaders
1. Stay-on-the-offensive strategy
2. Fortify-and-defend strategy
3. Muscle-flexing strategy
Stay-on-the-Offensive Strategies
Be a first-mover, leading industry change
Best defense is a good offense
Relentlessly pursue continuous improvement and
innovation
• Force rivals to scramble to keep up
• Launch initiatives to keep rivals off balance
• Grow faster than industry, taking market from rivals
106

 Fortify-and-Defend Strategy: Objectives
 Make it harder for new firms to enter and for
 challengers to gain ground
 •Hold onto present market
 share
 Strengthen current market position
 Protect competitive advantage
Fortify-and-Defend: Strategic Options
Increase advertising and R&D
• Provide higher levels of customer service
• Introduce more brands to match attributes of rivals
• Add personalized services to boost buyer loyalty
• Keep prices reasonable and quality attractive
• Build new capacity ahead of market demand
• Invest enough to remain cost competitive
• Patent feasible alternative technologies
• Sign exclusive contracts with best suppliers and
distributors
107

 Muscle-Flexing Strategy: Objectives
Play competitive hardball with smaller rivals that
threaten leader’s position
• Signal smaller rivals that moves to cut into leader’s
business will be hard fought
• Convince rivals they are better off playing
“follow-the-leader” or else attacking each other rather then
industry leader
Muscle-Flexing: Strategic Options
• Be quick to meet price cuts of rivals
• Counter with large-scale promotional campaigns if rivals
boost advertising
• Offer better deals to rivals’ major customers
• Dissuade distributors from carrying rivals’ products
• Provide salespersons with documentation about
weaknesses of competing products
• Make attractive offers to key executives of rivals
• Use arm-twisting tactics to pressure present customers not
to use rivals’ products 09/12/13Babasabpatilfreepptmba.com
108

Obstacles Runner-Up Firms Must Overcome
 When bigsizeis a competitiveasset, firms
 with low market shareface obstacles
 – Less access to economies of scale
 – Difficulty in gaining customer recognition
 – Inability to afford mass media advertising
 – Difficulty in funding capital requirements
Competitive Strategies for Runner-Up
Firms: Building Market Share
Strategic options for building market share to overcome cost
advantage of larger rivals
– Use lower prices to win customers from weak, higher-cost
rivals
– Merge or acquire rivals to achieve size needed to capture
greater
scale economies
– Invest in new cost-saving facilities and equipment,
perhaps 09/12/13Babasabpatilfreepptmba.com
109

Growth-via-Acquisition Strategies for Runner-Up Firms
 Frequentlyusedstrategyof ambitious runner-up
 firms
 To succeed, top managers must have skills to
– Assimilate operations of acquired firms, eliminating
 duplication and overlap,
– Generate efficiencies and cost savings
 Specialist Strategy for Runner-Up Firms-Strategyconcentrated on
being a leader based
– Specific technology
– Product uniqueness
– Expertise in
 Special-purpose products
 Specialized know-how
 Delivering distinctive customer services
110

 Distinctive Image Strategy for Runner-Up Firms
Strategy concentrated on ways to stand out
from rivals
• Approaches
– Reputation for charging lowest price
– Prestige quality at a good price
– Superior customer service
– Unique product attributes
– New product introductions
– Unusually creative advertising
Superior Product Strategy for Runner-Up Firms
Differentiation-based focused strategy
based on
– Superior product quality or
– Unique product attributes
• Approaches
– Fine craft man ship
– Prestige quality
– Frequent product innovation
– Close contact with customers to gain input for
better quality product
111

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