BMT1035- STRATEGIC MANAGEMENT

FALL SEMESTER: 2021-22

DIGITAL ASSIGNMENT-07

NAME: Vasu Dev Kancheti

Reg. Number: 20BBA0054

References:

 Barksdale, H. C. and Harris Jr., C. E. (1982). Portfolio Analysis and the

Product Life Cycle. Long Range Planning. (Vol. 15 Issue 6). p74-83.
 http://www.niklasblanke.com/ge-mckinsey-matrix.html
 https://strategicmanagementinsight.com/tools/ge-mckinsey-matrix/

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BCG Matrix:
The BCG matrix is intended to aid in long-term strategic planning by examining a company's
product portfolio to determine where to invest, terminate, or create items. The Growth/Share
Matrix is another name for it.

1. Dogs: These are low-growth or low-market-share items. Dogs symbolize enterprises with
low market share in slow-growing sectors. They don't create money and don't need a lot
of it. These business units experience cost disadvantages as a result of their limited
market share. Retrenchment techniques are commonly used since these companies can
only acquire market share at the expense of competitors/rivals. Due to exorbitant
expenses, poor quality, inefficient marketing, and other factors, these businesses have a
low market share. If there are fewer chances for a dog to acquire market share, it should
be liquidated unless it has some other strategic goal. In an organization, the number of
dogs should be avoided and kept to a minimum.

2. Question Marks: Products with low market share in high-growth areas. Business units
with a low relative market share that are located in a high-growth industry are represented
by question marks. To retain or acquire market share, they need a lot of money. They
necessitate attention in order to establish whether the endeavor is viable. Question marks
are usually new products or services with a promising business future. There is no one-
size-fits-all technique that can be implemented. If the company believes it has a dominant
market share, it can pursue an expansion plan; otherwise, it can pursue a retrenchment
approach. Most businesses begin as questions as they attempt to join a high-growth
industry where they already have a market share. If left unanswered, question marks may
turn into dogs.

3. Stars: Products having a large market share in high-growth markets. Business units with
a substantial market share in a fast-growing industry are represented by stars. They may
make money, but in order to preserve their position in the market, celebrities must make
significant investments. In most cases, net cash flow is minimal. SBUs in this cell are
appealing since they are located in a thriving industry, and these business units are highly
competitive. When the industry grows, a celebrity will become a cash cow if they are
successful.

4. Cash cows: Products have a large market share in low-growth areas. Business units with
a substantial market share in a mature, slow-growing sector are referred to as Cash Cows.
Income cows are low-cost investments that generate cash that may be used to fund other
business ventures. These SBUs, which are primarily the main business, are the
corporation's primary source of cash. They form an organization's foundation. Stability is

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 a common strategy used by these firms. When cash cows lose their luster and begin to
deteriorate, a retrenchment strategy may be implemented.

HIGH LOW

HIGH

LOW

LIMITATIONS OF BCG MATRIX:

 The BCG Matrix creates a framework for allocating resources across distinct business
units and allows for quick comparisons of many business units. However, there are
several limitations to BCG Matrix, such as:
 Businesses are classified as low or high in the BCG matrix, but they can also be classified
as medium. As a result, the fundamental essence of business may be obscured.
 In this paradigm, the market is not clearly defined.
 A large market share does not automatically imply a large profit margin. With a large
market share, there are also substantial costs.
 Profitability is measured not just by growth rate and relative market share. Other
profitability metrics are ignored by this methodology.
 Dogs may sometimes assist other firms in acquiring a competitive advantage. They can
occasionally earn even more than cash cows.
 The four-celled technique is seen to be overly simple.

The BCG Matrix may be thought of as a portfolio of products or services; hence it is more
applicable to bigger enterprises with many services and markets. Smaller business marketers, on
the other hand, might use portfolio thinking to their products or services to increase leads and
sales.

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Dog products: The standard marketing advice is to exclude any dogs from your product line
since they are a resource drain. In the automobile industry, for example, even after a car line is
discontinued, spare components are always required.

Products with a question mark: It's unclear if they'll become a star or fall into the dog quadrant,
as the name implies. To get into the star quadrant, these items frequently demand a large
expenditure. The problem is that getting a return may take a significant amount of money.

Star products: They have the potential to be market leaders, but they will require constant effort
to maintain. They have a higher return on investment than other product categories.

Cash Cow products (Products with a high profit margin): 'Milk these goods as much as possible
without killing the cow!' is the simple guideline here. Products those are often mature and well-
established.

GE- Mc Kinsey Matrix:

GE-McKinsey is a strategy-based tool that includes a nine-box matrix that gives multi-business
corporations a systematic approach to prioritize their investments among its components
(business units). In basic words, the GE-McKinsey Matrix is a framework for evaluating a
portfolio of companies, gaining insights on strategic implications, and allocating investment
priorities for each business unit.

This matrix is also known as the McKinsey Nine Box Matrix, and it is utilized by multi-business
corporations for portfolio planning. A business portfolio is a collection of enterprises that work
together to establish a corporation. Strategic business units are the broad name for these self-
contained enterprises.

Due to the rising scarcity of resources, today's corporate sector is focused more on investment
decisions. Businesses must make decisions based on the best use of their cash and capital in
order to achieve maximum return on investment in this environment of limited resources (Return
on investment). Disputes over investments may be seen at every level of a company, including
within teams, departments, business units, and divisions. In the case of diversified firms, the
resource allocation debate becomes more complicated since several brands, products, and
portfolios must be controlled. As a result, deciding how to proceed becomes a pain for
individuals or management.

Diversified firms handle sophisticated company portfolios, which often include a wide range of
products and services. In terms of functionality, future prospects, and performance, these diverse
goods or business units differ from one another. As a result, deciding which goods to invest in
becomes extremely challenging for businesses. Here is where the GE-McKinsey Matrix comes
in, as it assists firms in making better informed and methodical decisions. It's a strategic tool that

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solves the investment dilemma by comparing company units and then categorizing them into
groups that are either worth investing in or should be disposed or harvested.

The GE-McKinsey Matrix was created in the 1970s when GE (General Electric) recruited
McKinsey & Company to produce a tool or model for the study and management of a business
portfolio that best meet their needs. The essential criteria for corporations to make investment
decisions in the 1970s were estimates linked to future cash flows, market expansion, and so on.
This was not a reliable method of allocating resources to various goods. GE was in charge of a
big and complicated portfolio of products that were unrelated to one another. GE, on the other
hand, was dissatisfied with the returns on its product investments.

GE had roughly 150 business units at the time and was utilizing the BCG (Boston Consultancy
Group) Matrix, but as time went on, a more complex tool was needed to assist the corporation in
choosing which units deserved to be funded for development. So, with the aid of McKinsey &
Company, a nine-box tool called the GE-McKinsey Matrix was created, which is a strategy tool
that helps businesses decide whether or not to invest in their sub-business units or products.

The business units are plotted on 9 cells of the GE-McKinsey Matrix, which reveals if the
corporation is safe to invest in a product. Harvest or unload the product if it is too risky to invest
in or if further study is needed on product investment, i.e. either hold for the time being or use a
selective investment approach. The evaluation of business units is based on two axes: the
business unit's competitive strength and the industry's attractiveness.

Instead of relying on estimates for each business unit's future prospects, the corporation may use
the GE-McKinsey Matrix tool's above two elements to determine if a business unit will produce
superior returns in the near future. A rational and analytical blueprint for their appropriate
administration is offered by arranging business units within the 9-box matrix. Business units that
are above the diagonal in the GE-McKinsey diagram may be pursued by a company for more
investments and growth.

Whereas company units located along the diagonal may be considered for a selected investment
plan, those located below the diagonal should be harvested or divested. For subsequent
judgement, it is critical to assign business units into these three categories of the matrix at the
outset of the investigation.

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IN
D
U
S Selective investment/ Safe Investment to Safe Investment to
T High
HOLD GROW GROW
R
Y
Danger Zone Selective investment/ Safe investment to
A Medium
HARVEST HOLD GROW
T
T
R Danger zone Danger zone Selective investment/
Low
HARVEST HARVEST HOLD
A
C
TI Low Medium High
V
E
N
E
SS COMPETITIVE STRENGTH OF BUSINESS UNIT

INDUSTRY ATTRACTIVENESS:

While company units located along the diagonal may be considered for a selected investment
plan, those located below the diagonal should be harvested or divested. For further analysis, it is
critical to assign business units into these three categories of the matrix at the outset of the
process.

 In the long run, the growth rate

 Size of the business
 The Industry's Profitability: This comprises barriers to entrance and departure, supplier
and buyer power, and the danger of available complements and replacements.
 Industry structure
 Modifications to the Product Life Cycle
 Changes in demand
 Price Changes
 Environmental issues at a macro level
 Availability of labor
 Segmentation of the market
 Seasonality

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COMPETITIVE STRENGTH OF BUSINESS UNIT:
The matrix analyses a business unit's strength against its primary rivals in addition to industry
attractiveness. Company managers examine business strength to assess whether or not a business
unit has a sustainable competitive advantage. In the event that it is there, the next question that
emerges is the duration for which it will be maintained. The following elements influence a
business unit's competitiveness:

 In the market, there is a total share.

 Market share growth in comparison to competitors
 Brand value or brand strength is two terms that can be used interchangeably.
 Profitability of the company
 Customer loyalty is important.
 VROP resources or capabilities
 Strength of a company unit's ability to achieve important industry success elements
Strength of a supply chain
 Level of product differentiation
 Production adaptability

MERITS:

Complexity can be increased in businesses with more than a hundred business units.
Furthermore, firms do not have unlimited resources for investing. The GE-McKinsey Matrix
assists firms in analysing their portfolio of business units in order to discover:

 Units of business that should receive less or more funding.

 New goods that should be included in the company's repertoire.
 Divestment of products or business divisions is required.

It aids in increasing awareness of the performance of business units or goods in the industry or
market in question. It also aids in the formulation of strategies to maximize the use of existing
resources. Extracting information about a business unit's strengths and limitations, as well as
using methods to improve business unit performance, is made easier. Assists firms in their
growth and serves as a source of knowledge for future market prospects.

Limitations:

It is extremely difficult to assess a market's attractiveness, especially one that operates in a

constantly changing environment.

It's also difficult to identify a business unit's strength and measure it against the industry's appeal.
As a result of the mismatch of factors, a corporation may invest in the expansion of a business
that would otherwise have to be held back, resulting in excessive resource waste.

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EXAMPLES of GE Mc Kinsey matrix:
 Ford electric car (Grow Strategy):
Even though Ford is one of the most well-known automakers in the world, it did not
invest in electric vehicles a few years ago. There were two key causes behind this,
namely:

1. Ford has a significant presence or core competency in the traditional automotive

market, but not in the electric vehicle sector. In terms of powertrain, engine, and
other aspects, designing and manufacturing an electric automobile is considerably
different from designing and manufacturing a standard automobile. The
components are vastly different from those found in an electric vehicle, a field in
which Ford has little experience.
2. Another factor was the market, which was growing in demand for electric
vehicles while individuals favored traditional vehicles. As a result, the electric
vehicle market was not expanding at the time since the sector was not very
appealing to the electric car segment.
To find a solution, Ford conducted study, and after they established a strong basis in the
electric vehicle market, as well as the industry's attractiveness, Ford invested in it.

 Apple Inc.:
The corporation operates a number of multi-businesses or multi-business units in many
areas, including laptops, desktops, tablets (iPads), cellphones (iPhones), portable music
players (iPods), and so on. Apple also creates software to make these items easier to use.
Apple's competitors might map their business divisions in the matrix in order to obtain
competitive access to Apple's operations. The opponent may use this information to
figure out which business units Apple is planning to spend heavily in, exit from, or
develop selectively.

In the scenario of competing in the same market, the x-axis, i.e. industry attractiveness,
would be relatively straightforward to access for a rival, given it incorporates Apple's
external determinants. This includes facts that may be easily divulged, such as the
market's growth rate, present size, and so on. Nonetheless, a few aspects, such as entrance
obstacles and technology advancement, would need to be properly investigated. On the
other side, assessing the competitive strength of the business unit, i.e. the y-axis, would
be difficult because it involves internal Apple elements such as access to resources,
managerial strength, and customer loyalty. Secondary sources, such as the media and the
internet, might be quite useful in obtaining a large number of data in this case.

THANK YOU