1

Strategic Analysis
and Choice in Multibusiness Companies

Irwin/McGraw-Hill

2000 The McGraw-Hill

Balancing Financial Resources:

Portfolio Techniques

BCG Growth-Share
Matrix

Industry
AttractivenessBusiness Strength
Matrix
Irwin/McGraw-Hill

Life CycleCompetitive
Strength Matrix

2000 The McGraw-Hill

Cash Use (Growth Rate)

BCG Growth-Share Matrix

Cash Generation (Market Share)
Description of
High
Low
Dimensions
Market Share:
High

Star

Problem
Child

Low

Cash Cow

Dog

Irwin/McGraw-Hill

Sales relative to
those of other
competitors in
market (dividing
point is usually
selected to have
only 2-3 largest
competitors in any
market fall into
high market share
region)

Growth Rate:
Industry growth
rate in constant
dollars (dividing

2000 The McGraw-Hill

Strategies

Question Marks - Build Market Share

Star - Hold Market Share

Cash Cows - Harvest

Dogs Divest

Irwin/McGraw-Hill

2000 The McGraw-Hill

Factors Considered in Constructing an

Industry Attractiveness-Business
Strength Matrix

Industry Attractiveness Factors

Nature of
Competitive
Rivalry
Number of
competitors

Bargaining
Power of
Suppliers/Custo
mers
Relative size of
typical players

Size of

Numbers of

competitors

Strength of
competitors
corporate
parents

Price wars
Competition on
multiple

Irwin/McGraw-Hill

each

Importance of
purchases from
or dales to

Ability to
vertically
integrate

Threat of
Substitutes/ New
Entrants
Technological
maturity/stabili
ty

Diversity of the
market

Barriers to
entry

Flexibility of
distribution
system
2000 The McGraw-Hill

Factors Considered in Constructing an

Industry Attractiveness-Business
Strength Matrix (continued)
Industry Attractiveness Factors
Economic
Factors

Sales
volatility

Cyclicality of
demand

Market
growth

Financial Norms

Sociopolitical
Considerations

Average

Government

profitability

Typical
leverage

Credit
practices

regulation

Community
support

Ethical
standards

Capital
intensity
Irwin/McGraw-Hill

2000 The McGraw-Hill

Factors Considered in Constructing an

Industry Attractiveness-Business
Strength Matrix (continued)
Business Strength Factors
Cost Position

Economies of
scale

Manufacturing
costs

Overhead

Level of
Differentiation

Response Time

Promotion

Manufacturing

effectiveness

Product quality
Company
image

Scrap/waste/rew Patented
ork

Experience
effects

Labor rates

Irwin/McGraw-Hill

products

Brand

flexibility

Time needed to
introduce new
products

Delivery times
Organizational
flexibility

awareness
2000 The McGraw-Hill

Factors Considered in Constructing an

Industry Attractiveness-Business
Strength Matrix (concluded)
Business Strength Factors
Financial
Strength

Human Assets

Public Approval

Solvency

Turnover

Goodwill

Liquidity

Skill level

Reputation

Break-even

Relative

Image

point

Cash flows
Profitability
Growth in
revenues
Irwin/McGraw-Hill

wage/salary

Morale
Managerial
commitment

Unionization
2000 The McGraw-Hill

Industry Attractiveness-Business
Strength Matrix
Industry Attractiveness
Business Strength

High

High

Invest

Medium

Low

Selecti Grow or
ve
Let
Growth
Go

Selectiv
Grow or
Medium
e
Harvest
Let Go
Growth
Low

Irwin/McGraw-Hill

Grow or
Harvest Divest
Let Go

Description of
Dimensions
Industry
Attractiveness:
Subjective
assessment based
on broadest possible
range of external
opportunities and
threats beyond
control of
management

Business Strength:
Subject assessment
of how strong a
competitive
advantage is
created
by a broad
2000 The McGraw-Hill

10

Irwin/McGraw-Hill

2000 The McGraw-Hill

11

Irwin/McGraw-Hill

2000 The McGraw-Hill

Advantages of the Industry

Attractiveness-Business Strength Matrix
over the BCG Matrix

12

Terminology
is
understandable

Multiple measures associated with each dimension

tap many factors relevant to business strength and
market attractiveness

Allows for broader assessment during both strategy

formulation and implementation for a multibusiness
company

Irwin/McGraw-Hill

less

offensive

and

more

2000 The McGraw-Hill

Market Life Cycle-Competitive Strength

Matrix

13

Stage of Market Life Cycle

Competitive Strength

Introduction Growth

High

Moderate

Low

Irwin/McGraw-Hill

Maturity

Decline

ly
e
iv
:
s
sh es
u
P gr
Ag
t
ly
:
s
e
e
n iv
v
o
t
i
t
c
In
u le
a
C Se
t
s
e
r:
v
e
g st
In
n
e
a
D arv
H

Description of
Dimensions
Stage of Market
Life Cycle: See
page 184

Competitive
Strength: Overall
subjective rating,
based on wide
range of factors
regarding
likelihood of
gaining and
maintaining a
2000 The McGraw-Hill
competitive

14

Contributions of Portfolio
Approaches

Convey
Convey large
large amounts
amounts of
of information
information about
about
diverse
diverse businesses
businesses and
and corporate
corporate plans
plans in
in aa
simplified
simplifiedformat
format
Illuminate
Illuminate similarities
similarities and
and differences
differences
businesses,
businesses, conveying
conveying the
the logic
logic
corporate
corporatestrategies
strategiesfor
foreach
eachbusiness
business

among
among
behind
behind

Simplify
Simplify priorities
priorities for
for sharing
sharing corporate
corporate
resources
resourcesacross
acrossdiverse
diversebusinesses
businesses
Provide
Provideaasimple
simpleprescription
prescriptionof
ofwhat
whatshould
shouldbe
be
accomplished
accomplished -- aa balanced
balanced portfolio
portfolio of
of
businesses
businesses
Irwin/McGraw-Hill

2000 The McGraw-Hill

Irwin/McGraw-Hill

2000 The McGraw-Hill

Behavioral Considerations Affecting

Strategic Choice
Role of
current
strategy
Degree of
firms
external
dependenc
e
Managerial
priorities
different
from
stockholder
Irwin/McGraw-Hill s

Attitudes
toward risk
Internal
political
consideratio
ns

Competitiv
e reaction

2000 The McGraw-Hill

16

Behavioral Considerations Affecting

Strategic Choice
Role

17

of current strategy

What is the amount of time and resources

invested in previous strategies?

How close are new strategies to the old?

How successful were previous strategies?

Degree

of firms external dependence

How powerful are firms owners, customers,

competitors, unions, and its government?

How flexible is firm with its environment?

Irwin/McGraw-Hill

2000 The McGraw-Hill

18

Behavioral Considerations
Affecting Strategic Choice
Attitudes

toward risk

Industry volatility and industry evolution affect

managerial attitudes
Risk-oriented
managers
prefer
offensive,
opportunistic strategies
Risk-averse
managers
prefer
defensive,
conservative strategies

Managerial

priorities
stockholder interests

different

from

Agency theory suggests managers frequently

place their own interests above those of their
shareholders

Irwin/McGraw-Hill

2000 The McGraw-Hill

Behavioral Considerations
Affecting Strategic Choice
Internal

19

political considerations

Major sources of company power are CEO, key

subunits, and key departments
Power
can affect corporate decisions over
analytical considerations
See Fig. 9-6

Competitive

reaction

Probable impact of competitor response must be

considered during strategy design process
Competitor response can alter strategy success

Irwin/McGraw-Hill

2000 The McGraw-Hill