PRESENTATION PREPARED BY : JASPINDER SINGH
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PRESENTATION
PREPARED BY :- JASPINDER SINGH
CONTENTS
BCG MATRIX
GE9 CELL MATRIX
HOFER’S MODEL
BCG MATRIXBCG MATRIX
EVALUATING DIVERSIFIED PORTFOLIOS
THE BCG GROWTH-SHARE MATRIX (Boston Consulting Group)
DIMENSIONSIndustry Growth Rate
Compared to GDPRelative Market Share
Uses ratios instead of absolute market shares
CLASSIFICATIONSQuestion Marks (or Problem Children or Wildcats)StarsCowsDogs
ADVANTAGES & IMPLICATIONS
It is quantifiable and easy to use
Easy to remember terms and their meaning when referring to business units
Each business unit moves across the matrix in predictable ways over time
Focuses attention on cash flows and needs
WEAKNESSES IN THE BCG GROWTH-SHARE MATRIX
TOO SIMPLISTIC—IT ONLY HAS A FOUR-CELL MATRIXWHERE DO “AVERAGE” BUSINESSES BELONG?
PREJUDICIAL CLASSIFICATION SCHEMEDOGS & PROBLEM CHILDREN v. STARS & COWS…VERY BIASED TERMSTHE TRENDS & MOVEMENTS OF THESE UNITS SEEM MORE IMPORTANT
DOES HIGH MARKET SHARE ALWAYS MEAN HIGH PROFITABILITY?FIRMS CAN LOSE MONEY WHILE HOLDING A LARGE MARKET SHARELOW-SHARE BUSINESSES CAN ALSO BE PROFITABLE
ONLY CONSIDERS RELATIONSHIP TO THE MARKET LEADER—WHILE OTHERS ARE IGNOREDWHAT ABOUT SMALL COMPETITORS WITH FAST-GROWING MARKET SHARES?
GROWTH RATE IS ONLY ONE ASPECT OF INDUSTRY ATTRACTIVENESS
MARKET SHARE IS ONLY ONE ASPECT OF OVERALL COMPETITIVE POSITION
THE BCG GROWTH-SHARE MATRIX
GE 9 CELL MATRIXGE 9 CELL MATRIX
TWO DIMENSIONS(McKinsey & Co)
Industry Attractiveness
MARKET SIZE & GROWTH RATE
INDUSTRY PROFITABILITY
INTENSITY OF COMPETITION
BARRIERS TO ENTRY / EXIT
TECHNOLOGICAL & PRODUCT CONSIDERATIONS
CAPITAL REQUIREMENTS
EMERGING OPPORTUNITIES & THREATS
SOCIAL, ENVIRONMENTAL, & POLITICAL FACTORS
Business Strength / (Competitive Position) RELATIVE MARKET SHARE
RELATIVE PRICE, QUALITY, & SERVICE v. RIVALS
PROFIT MARGINS and COST POSITION v. RIVALS
KNOWLEDGE OF CUSTOMERS & MARKETS
TECHNOLOGICAL CAPABILITY & LEADERSHIP
FINANCIAL & PHYSICAL RESOURCES
CALIBER OF MANAGEMENT & STAFF
COMPETENCIES MATCH KEY SUCCESS FACTORS
STRENGTHS
Uses more comprehensive measures and variables in assessing industry attractiveness and business strength / competitive position.
It does not lead to as simplistic conclusion as the BCG grid.
In this 9 cell approach allows for intermediate rankings between high /low and strong / weak .
It stresses channeling of resources to areas with the greatest probability of achieving competitive advantage and superior performance .
WEAKNESSES :-
It provides no real guidance on the specifics of what strategy to follow ….its too general.
It cannot spot units that area about to become winners because their industries are entering the takeoff stage.
The use of numeric estimates seems objective, but is really very subjective.
WEAKNESS OF GE 9 CELL MATRIX
Brief History- hofer matrix
The principal purpose of analysis for strategic planning is to identify the major opportunities and threats a business unit faces in the future and to identify the skills around which it can develop a strategic intelligence plan to exploit the opportunities and negotiate around the threats.
Hofer and Schendel felt that the major weakness with the General Electric business screen was that it didn’t effectively depict the positions of new businesses that are just starting to grow in new industries.
They suggested in 1975 that changes in basic competitive positions are easier to accomplish at certain stages in the evolution of an industry than others.
THE HOFER LIFE-CYCLE MARKET EVOLUTION MATRIX
TWO DIMENSIONS (Charles Hofer & A. D. Little, Co)
Stage of Industry / Market EvolutionEARLY DEVELOPMENTRAPID GROWTH / TAKE-OFFSHAKE-OUTMATURITY / SATURATIONDECLINE / STAGNATION
Business Strength / (Competitive Position) SAME DIMENSIONS AS USED IN THE GE BUSINESS SCREEN
ADVANTAGES
Can be used to identify and track developing winners
Illustrates how the firm’s businesses are distributed across the stages of industry evolution
THE HOFER LIFE-CYCLE MARKET EVOLUTION MATRIXBUSINESS STRENGTH / COMPETITIVE
POSITION
STRONG AVERAGE WEAK
EARLY - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DEVELOPMENT- - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -STAGE OF RAPID GROWTH /
TAKE-OFFINDUSTRY / MARKET - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - SHAKE-OUT
EVOLUTION- - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -MATURITY /SATURATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DECLINE /STAGNATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREENExcept for the Stage of Market Evolution, this model is identical to the GE
Business Screen
IN SUMMARY: USING PORTFOLIO ANALYSISPROS AND CONS
STRENGTHS
• It encourages top management to evaluate each line of business separately , and to set objectives and allocate resources to each .
• It stimulates the use of externally oriented data to supplement management judgment.
• It raises the issue of cash flow availability for use in expansion and growth .
• It graphically communicates the mix of business in which part firm has invested in .
WEAKNESSES
• Defining product or market segments is very difficult .
• It suggests standard strategies that can miss opportunities or be impractical.
• It provides an illusion of scientific rigor ,when positions are really based on subjective judgments.
• It does not always make clear that what makes an industry attractive and where a product is in the life cycle.
• Following portfolio prescription may reduce profits – dogs can make money!
IN SUMMARY: USING PORTFOLIO ANALYSIS CONS
EVALUATING INDUSTRY ATTRACTIVENESS(UNWEIGHTED)
INDUSTRY FACTOR CLASSIFIED AS
MARKET SIZE & GROWTH RATE AVERAGE
INDUSTRY PROFITABILITY ATTRACTIVE
INTENSITY OF COMPETITION UNATTRACTIVE
BARRIERS TO ENTRY/EXIT UNATTRACTIVE
SEASONALITY/CYCLICALITY AVERAGE
TECHNOLOGY & PRODUCT CONSIDERATIONS AVERAGE
CAPITAL REQUIREMENTS UNATTRACTIVE
EMERGING OPPORTUNITIES & THREATS AVERAGE
SOCIAL, REGULATORY, & POLITICAL FACTORS AVERAGE
STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS ATTRACTIVE
OVERALL EVALUATION = AVERAGE
EVALUATING BUSINESS STRENGTH / COMPETITIVE POSITION
(UNWEIGHTED)
USE THE FOLLOWING SCHEME TO CLASSIFY EACH BUSINESS STRENGTH FACTOR…STRONGAVERAGEWEAK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BUSINESS STRENGTH FACTOR CLASSIFIED AS
OUR RELATIVE MARKET SHARE STRONGOUR RELATIVE PRICE v. RIVALS AVERAGEOUR QUALITY & SERVICE v. RIVALS AVERAGEOUR RELATIVE COST POSITION v. RIVALS STRONGOUR PROFIT MARGINS v. RIVALS STRONGKNOWLEDGE OF CUSTOMERS & MARKETS AVERAGETECHNOLOGICAL CAPABILITY / LEADERSHIP WEAKFINANCIAL & PHYSICAL RESOURCES AVERAGECALIBER OF MANAGEMENT & STAFF STRONGCOMPETENCIES MATCH KEY SUCCESS FACTORS AVERAGE
OVERALL EVALUATION = AVERAGE to STRONG
WHICH BUSINESS UNITS HAVE THE BEST/WORST PERFORMANCE?
ASSESS THE TRENDS RE:Sales GrowthProfit GrowthContribution to Company EarningsReturn on Capital Invested in the Business (ROA)Cash Flow Generated
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