UNIT 2

Analyzing Company’s
Internal Environment
UNIT 2 SYLLABUS
 Analyzing Company’s Internal Environment: Resource
based view of a firm.
 Analyzing Company’s Resources and Competitive Position -
meaning, types & sources of competitive advantage,
competitive parity & competitive disadvantage.
 VRIO Framework, Core Competence, characteristics of core
competencies, Distinctive competitiveness. Benchmarking
as a method of comparative analysis.
 Value Chain Analysis Using Porter’s Model: primary &
secondary activities. Organizational Capability Profile:
Strategic Advantage Profile,
 Concepts of stretch, leverage & fit, ways of resource
leveraging – concentrating, accumulating, complementing,
conserving, recovering.
 Portfolio Analysis: Business Portfolio Analysis – BCG
Matrix – GE 9 Cell Model. (7+2)
ANALYZING COMPANY’S INTERNAL ENVIRONMENT: RESOURCE
BASED VIEW OF A FIRM.

Strategic Advantage

Organizational
Capability

Competencies

Synergistic Effects

Strengths and
Weaknesses

Organizational Organizational
Resources Behaviour

Framework for the development of strategic advantage by an organization

ORGANIZATIONAL RESOURCES
 According to Barney(1991), who developed the theory:- A firm is a
bundle of resources- tangible and Intangible.
 That include all assets, capabilities, organizational processes,
information, knowledge
 The physical resources are technology, plant and equipment,
geographic location, access to raw materials.
 The human resources are the training, experience, judgment,
intelligence, relationships present in an organization.
 The organizational resources are the formal systems and structures
as well as informal relations among groups.
 These resources will lead to strategic demand if they possess four
characteristics:-
 1) If these resources are valuable
 2) They are rare
 3) Costly to imitate
 4) Non substitutable
 Other resources that cannot be imitated or substituted are superior
long term performance and sustainable strategic advantage
ORGANIZATIONAL BEHAVIOUR
 Organizational behaviour is the manifestation of the
various forces and influences operating in the internal
environment of an organization that create the ability
for, or place constraint on, the usage of resources
 It gives a special identity and character of an
organization.
 Some of the important forces and influences that affect
organizational behaviour are: the quality of
leadership, management philosophy, shared values
and culture, quality of work environment and
organizational climate, organizational politics, use of
power.
STRENGTHS AND WEAKNESSES
 Strength is an inherent capability which an
organization can use to gain strategic advantage.
 A weakness is an inherent limitation or constraint
which creates a strategic disadvantage for an
organization.
 Strength eg. Availability of sources of finances, low
cost of capital, efficient use of funds.
 Weakness eg. Weakness in the operations area which
results due to inappropriate plant location and layout,
obsolete plants and machinery, uneconomical
operations
SYNERGISTIC EFFECTS
 Here we have is a situation where attributes do not add
mathematically, but combine to produce an enhanced or a
reduced impact. Such a phenomenon is known as the
synergistic effect. Synergy is an idea that the whole is
greater or lesser than the sum of its parts.
 It is also expressed as the two plus two is equal to five or
three effect.
 E.g. with in a functional area, say of marketing, the
synergistic effect may occur when the product, pricing,
distribution and promotion aspects support each other,
resulting in a high level of marketing synergy. On the other
hand, a marketing inefficiency reduces productions
efficiency, the overall impact being negative, in which case
negative synergy occurs.
COMPETENCIES
 Competencies are special qualities possessed by an
organization that make them withstand the pressures of
competition in the marketplace
 The strategic advantages and disadvantages that exist for
an organization determines its ability to compete with its
rivals.
 Some of the Competencies are unique resources, core
capabilities, invisible assets, embedded knowledge.
 When a specific ability is possessed by a particular
organization exclusively or relatively in large measure, it is
called a distinctive competence.
ORGANIZATIONAL CAPABILITY
 Organizational capability is the inherent capacity or
potential of an organization to use its strengths and
overcome its weaknesses in order to exploit the
opportunities and face the threats in its external
environment.
 Organizational capability is the capacity or potential of an
organization, it is a measurable attribute.
 As an attribute it is the sum total of resources and
behaviour, strengths and weaknesses, synergetic effects
occurring in and the competencies of any organization.
STRATEGIC AND COMPETITIVE ADVANTAGE
 Strategic advantages are the outcomes of organizational
capabilities.
 They are the results of organizational activities leading to
rewards in terms of financial parameters, such as profit or
shareholder value and/or non-financial parameters, such as
market share or reputation.
 In contrast, strategic disadvantages are penalties in the
form of financial loss or damage to market share.
 Competitive advantage is a special case of strategic
advantage where there is one or more identified rivals
against whom the rewards or penalties could be measured.
 Competitive Advantage
 Competitive advantage is a favourable position a business
holds in the market which results in more customers and
profits. It is what makes the brand, product, or service to
be perceived as superior to the other competitors.
 When a firm sustains profits that exceed the average of its
industry, the firm is said to possess a competitive
advantage over its rivals.
 There are two basic types of competitive advantage a) Cost
advantage b) Differentiation advantage
 A competitive advantage exists when the firm is able to
deliver the same benefits as competitors but at a lower cost
(cost advantage).
 Deliver benefits that exceed those of competing products
(differentiation advantage)
Competitive parity
It is an area where you achieve standard or average results as
compared to others in your industry. Competitive Parity refers
to spending at par with your competitors.
Competitive advantage
It is an area in which you achieve above average results in your
industry, potentially surpassing all competition. In
competitive advantage we spend to outperform our competitors
Competitive disadvantage
A competitive disadvantage is an unfavorable circumstance or
condition that causes a firm to underperform in an
industry. Disadvantages typically include things such as know-
how, scale, scope, location, distribution, quality, product features,
process efficiency, productivity and costs.
Using resources to gain competitive advantage

Identify and classify resources in terms of strengths and

weaknesses

Combine the firm’s strengths into specific capabilities and

core competencies

Appraise profit potential- Are there any distinctive

competencies?

Select the strategy that best exploits the

firm’s capabilities and competencies relative to
external opportunities

Identify resource gaps and invest in

upgrading weaknesses
 VRIO FRAMEWORK
VRIO Framework is the contribution of Barney. VRIO stands for
Valuable, rare, inimitable and organized for usage

Value Rareness Imitability Organization

•Does it •Do other •Is it costly • Is the firm
provide competitors for other to organized
competitive posses it? imitate? to exploit
advantage? the
resource?
VALUABLE
 The organizational capabilities possessed by the
firm that help it to generate revenues by
capitalising on opportunities and/or to reduce
costs by neutralising threats.
 E.g: The ability to generate an amicable
relationship with the government
 To provide high quality after sales service to the
customers
RARE
 The organizational capabilities that possessed by
the firm exclusively or just by a few other firms
in the industry.
 E.g. Capability derived out of an exclusive
location
 The presence of a highly satisfied and motivated
workforce
INIMITABLE
 The organizational capabilities that possessed by
the firm that are impossible, very difficult or not
worthwhile to duplicate or substituted by the
competitors.
 E.g. A favourable corporate image

 The ability to acquire and integrate new

businesses.
 ORGANIZED FOR USAGE
 The organizational capabilities that possessed by the firm
that could be used through appropriate organizational
structure, business processes, control systems and reward
systems that are present in the firm;
 E.g. The availability of competent R&D personal and
research laboratories to innovate new and improved
products .
 The availability of potential business partners who are
competent and willing to integrate their information
systems with that of the firm.

To summarize the use of VRIO framework for internal analysis, we

note that sustainable strategic advantage results through the use of
capabilities that are valuable, rare, inimitable and for which the firm
is organized for usage.
Core Competence
A unique ability that a company acquires from its founders or develops and
that cannot be easily imitated. Core competencies are what give a company
one or more competitive advantages, in creating and delivering value to its
customers in its chosen field. Also called core capabilities or distinctive
competencies.
A core competency is a concept in management theory introduced by C.
K. Prahalad and Gary Hamel. It can be defined as "a harmonized
combination of multiple resources and skills that distinguish a firm in the
marketplace" and therefore are the foundation of companies'
competitiveness.
Core competencies fulfill three criteria:
1. Provides potential access to a wide variety of markets.
2. Should make a significant contribution to the perceived customer
benefits of the end product.
3. Difficult to imitate by competitors.
E.g.
Amazon constantly delivers on its mission of being “Earth's most
customer-friendly company” due to a consistent reliance on core
competencies such as distribution, logistics, creating platforms and tools
for people, and leveraging technology.
When a specific ability is possessed by a particular organization
exclusively or relatively in large measure, it is called a distinctive
competence.
Distinctive competence refers to some characteristic of a
business that it does better than its competitors. Because the
business is able to do something better than other businesses, that
business has a competitive advantage over other businesses.
Superior product quality on a particular attribute, say a two
wheeler, which is more fuel efficient than its competitor products.
Creation of a marketing niche by supplying highly specialised
products to a particular market segment.

Benchmarking
It is a process where you measure your company’s success against
your competitors to discover how to improve your performance. An
important tool for a company to help them improve and stay
competitive in the market place.
 VALUE CHAIN ANALYSIS
By Porter (1985)
 Value chain a linked set of value creating activities that begin
with basic raw materials coming from suppliers, moving on to a
series of value-added activities involved in producing and marking
a product or service, and ending with distributors getting the final
goods into the hands of the ultimate consumer
 It is a set of interlinked value-creating activities performed by an
organization.

Raw Primary Product

Fabricat-
materials manufa- procedu- Retailer
ion res
cturing
VALUE CHAIN ANALYSIS
Porter divided the value chain of a manufacturing organization
into primary and support activities.
Primary activities are directly related to the flow of the product to
the customer and include five sub activities
 Inbound Logistics: All activities that an organization uses for
receiving, storing and transporting inputs going into the
production process. Typical inbound logistics activities performed
in organizations are materials handling, warehousing and
inventory control.
 Operations: All activities required for transformation of raw
materials to finished products. Typical operations activities
performed in organizations are assembling, fabricating,
machining, maintaining and packaging.
 Outbound logistics: all activities that an organization uses for
receiving, storing and transporting outputs going out of the
production process. Typical outbound logistics activities
performed in an organization are of materials handling, order
processing, physical distribution and warehousing.
 Marketing and sales:- All activities that an organization uses to
market and sell its products to customers. Typical marketing
and sales activities performed by organizations are of pricing,
developing products, advertising, promoting and distributing.
 Service: All activities that an organization uses for enhancing
and maintaining a products value. Typical service activities
performed by organizations are of installation, repair,
maintenance and customer training.

Support activities are provided to sustain the primary activities.

 Firm Infrastructure: All activities that an organization uses for

ascertaining the external opportunities and threats, identifying
strengths and weaknesses and generally managing the
organization for achieving its objectives. Typical firm
infrastructure activities performed by organizations are of
accounting, finance, planning, general management, legal
support and managing government relations.
 Human resource management: All activities that an
organization uses for managing human recourses. Typical
human resource management activities performed by
organizations are of recruitment, selection and training,
developing, appraising and compensating employees.
 Technology Development: All activities that an organization
uses for creating, developing and improving products and
services. Typical technology development activities performed
by organizations are research and development, product design,
process design, equipment design and servicing procedures.
 Procurement: All activities that an organization uses for
procuring inputs needed to produce products or provide services.
Typical procurement activities performed by organizations are
purchasing fixed assets such as machinery and equipments, raw
materials and supplies.
 Value chain of Oil companies in India.
 The value chain is broken down into two parts upstream and
downstream activities
 The upstream activities are oil exploration, drilling and
transporting the crude oil to the refinery.
 The downstream activities are refining and then transporting
and marketing of oil and allied products through distributors
and petrol pumps
 Most integrated oil companies perform all the upstream and
downstream activities in the value chain.
 ONGC is India’s sole oil exploration and production company
 IOC is in refining, transportation and marketing of oil
 BPCL is strong in transportation and marketing, with a
marginal presence in refining.
 Essar oil and Reliance are in oil refining
 IBP is in marketing only
ORGANIZATIONAL CAPABILITY PROFILE
 Organizational capability factors are the strategic
strengths and weaknesses existing in different
functional areas within an organization, which are of
crucial importance to strategy formulation and
implementation.
 The organization capability have been divided into six
largely accepted and commonly understood functional
areas.
 They are Financial Capability, Marketing Capability,
Operations Capability, Personnel Capability,
Information Management Capability and General
Management Capability.
MARKETING CAPABILITY
 Marketing capability factors relate to the pricing, promotion and
distribution of products or services, and all the allied aspects that
have a bearing on an organisation’s capacity and ability to
implement its strategies.
 Factors which influence the Marketing capability of an organisation are:
 1) Product related factors: Variety, differentiation, mix quality,
positioning, packaging
 2) Price related factors: Pricing objectives, policies, changes,
protection, advantages
 3) Place related factors: Distribution, transportation and logistics,
marketing channels, marketing intermediaries.
 4) Promotion related factors: Promotional tools, sales promotion,
advertising public relations.
 5) Integrative and systematic factors: Marketing mix, company
image, marketing system, marketing management information sys.
 E.g. Parle, LG
FINANCIAL CAPABILITY
 Financial capability factors relate to the availability, usages and
management of funds and all allied aspects that have a bearing on
an organization’s capacity and ability to implement its strategies.
 Factors which influence the financial capability of an organisation are:
 1) Factors related to sources of funds: Capital structure,
procurement of capital, financing pattern, working capital
availability, borrowings, capital and credit availability, reserves
and surplus, and relationship with lenders, banks and financial
institutions.
 2) Factors related to usage of funds: Capital investment, fixed asset
acquisition, current assets, loans and advances, dividend
distribution and relationship with shareholders
 3) Factors related to management of funds: Financial, accounting
and budgeting systems: management control system, state of
financial health, cash, inflation, credit, return and risk
management: Cost reduction and control, tax planning
 E.g. Reliance, Tata
OPERATIONS CAPABILITY
 Operations capability factors relate to the production of products or
services, use of material resources and all allied aspects of an
organisation.
 Factors which influence the Operations capability of an organisation are:
 1) Factors related to the production system: Capacity, location,
layout, product or service design, work systems, degree of
automation
 2)Factors related to the operations and control system: Aggregate
production planning, material supply, inventory, cost and quality
control, maintenance systems and procedures.
 3) Factors related to the R & D system: Personnel facilities, product
development, patent rights, level of technology used, technical
collaboration and support.
 E.g. Mumbai Dabbawals
PERSONNEL CAPABILITY
 Personnel capability factors relate to the existence and use of
human resources and skills, and all allied aspects that have a
bearing on an organisation’s capacity and ability to implement its
strategies.
 Factors which influence the personnel capability of an organisation are:
 1) Factors related to the personnel system: Systems for manpower
planning, selection, development, compensation, communication
and appraisal, position of the personnel department within the
organisation.
 2)Factors related to organisational and employee characteristics:
Corporate image, quality of managers, staff and workers perception
about and image of the organisation as an employer, availability of
developmental opportunities for employees, working conditions.
 3) Factors related Industrial relations:Union-management
relationship, collective bargaining, safety, welfare and security,
employee satisfaction and morale.
 E.g. Google
INFORMATION MANAGEMENT CAPABILITY
 Information management capability factors relate to the design and
management of the flow of information from outside into, and within an
organization for the purpose of decision making and all allied aspects that
have a bearing on an organisation’s capacity and ability to implement its
strategies.
 Factors which influence the personnel capability of an organisation are:
 1) Factors related to acquisition and retention of information: Sources,
quantity, quality and timelines of information, retention capacity and
security of information.
 2)Factors related to processing and synthesis of information: Database
Management, computer systems, software capability
 3) Factors related to retrieval and usage of information: availability of
information formats and capacity to assimilate and use information
 4) Factors related to transmission and dissemination: Speed, Scope, width
and depth of coverage of information & willingness to accept information.
 5) Integrative, systematic and supportive factors: availability of IT
infrastructure, up gradation facility, willingness to invest in state-of-the-
art systems, availability of computer professionals.
 E.g. Banking, Online business
GENERAL MANAGEMENT CAPABILITY
 General Management capability relate to the integration, co-
ordination and direction of the functional capabilities towards
common goals and all allied aspects that have a bearing on an
organizations capacity and ability to implement its strategies.
 Factors which influence the general management capability of an organisation are:
 1) Factors related to the General Management system: strategic
management system, processes related to setting strategic intent,
strategy formulation and implementation, strategy evaluation
system, management information system, corporate planning sys.
 2)Factors related to general managers: orientation, risk propensity,
values norms, personal goals, competence, capacity for work
 3) Factors related to external relationships: Influence on and
rapport with the government, regulatory agencies and financial
institutions, public relations, sense of social responsibility, public
image as corporate citizen.
 4) Factors related to organizational climate: organizational culture,
use of power, balance of vested interests, nature of organizational
structure and control.
 E.g. Infosys, Shri Mahila Griha Udyog (MGU)
 Strategic Decisions: Characteristics

•Strategic decisions are concerned with the

scope of an organization’s activities.
•Strategic decisions try to achieve some
advantage for the organization over competition.
•Strategy is a stretch for fit with the business
environment.
•Strategy can be seen as creating opportunities by
building on an organization’s resources and competences.
•Strategy is affected by the values and expectations of
those who have power in and around the organization.
 CONCEPTS OF STRETCH, LEVERAGE & FIT
 Stretch
 Stretch is a misfit between resources and aspirations
 Leverage
 Leverage refers to concentrating, accumulating, complementing, conserving
and recovering resources in such a manner that the meagre resource base is
stretched to meet the aspirations that an organization dare to have.
 Fit
 Fit means positioning the firm by matching its organisational resources to
its environment.
 The strategic fit is central to the strategy school of positioning where
techniques like SWOT analysis can be used to analyze and assess the
organizational capabilities and environmental opportunities.
 Under fit, the strategic intent would seen to be more realistic, under stretch
and leverage it could be idealistic.
 Issue with Strategic Fit
•Slow and Steady wins the race.
•Fast and Steady shall always
beat the slow and steady.
•A tortoise shall always remain beaten by
a hare if the hare takes the race
seriously, then how did it challenge the
hare to a race and won it?
 Concept of Strategic Fit
•Strategic Fit is the degree to which an organization is
matching its resources and competences with the
needs of the external environment.
•It is an attempt to identify the opportunities in the
environment in which the organization works and
then tailoring the strategy of the organization to
capitalize on these.
•However, the strategic intent (or vision) of the
organization may not be limited to the extent of the
external environment or the available opportunities.
– A small organization shall always remain small if
it only tries to match its resources to the available
external environment.
 Concept of Strategic Stretch
•Strategic Stretch is the process of innovation and
development involved in finding new opportunities
and creating a competitive advantage from an
organization’s resources and competencies.
•The difference between the strategic intent and
the available resources is called Strategic
stretch.
– Google could beat Microsoft in search and
categorization of networked information.
•The key to strategic stretch is leveraging resurces.
 Leveraging Resources
•Resources can be leveraged, both financial
and non-financial, in five basic ways:
–Concentrating them strategically
–Accumulating them efficiently
–Complementing one resource with another
–Conserving them
–Recovering them from the market place in
the shortest possible time.
 Concentrating Resources Accumulating Resources

© Copyright 2013 Anupam Kumar 7 © Copyright 2013 Anupam Kumar 8

Complementing Resources Conserving Resources

© Copyright 2013 Anupam Kumar 9 © Copyright 2013 Anupam Kumar 10

Getting Resources from Market

© Copyright 2013 Anupam Kumar 11 13

 BCG MATRIX
BOSTON CONSULTING GROUP (BCG)
 Matrix is developed by Bruce Henderson of the
Boston Consulting Group in the early 1970’s

 According to this technique, business or

products are classified as low or high
performance depending upon their market
growth rate & relative market share.
RELATIVE MARKET SHARE & MARKET GROWTH

 To understand the Boston Matrix you need

to understand how market share & market
growth is interrelated.

 Market Share
 MARKET SHARE

Market share is the percentage of the total

market that is being serviced by your company
measured either in the revenue terms or unit
volume terms.
RELATIVE MARKET SHARE
 MARKET GROWTH RATE
 Market Growth is used as a measure of a market’s
attractiveness.
Individual Sales this year – Individual sales last year
MGR =
Individual Sales last year

 Markets experiencing high growth are the ones where the

total market share available is expanding & there is plenty
of opportunity for everyone to make money
THE BCG GROWTH-SHARE MATRIX
It is portfolio planning model which is based on
the observation that company’s business unit
can be classified in to four categories .

Question Marks
Stars

Cash cows
Dogs

It is based on the combination of market growth &

market share relative to the next based
competitor.
QUESTION MARKS/PROBLEM CHILDREN
(HIGH GROWTH, LOW MARKET SHARE)

 Most business start of as question marks

 They will absorb great amount of cash if the
market share remains unchanged (low)
 Question marks have potential to become star &
evenly cash cow but can also become dog.
 Investment should be high for question marks.
 QUESTION MARKS

• High Growth, Low Market Share

• Question marks are essentially new products
where buyers have yet to discover them. Most
businesses start of as question marks in
growing markets but have low market share
• Question marks have high demand and low
returns due to low market share. Investment
should be high for question marks
• They will absorb great amounts of cash if the
market share remains unchanged
• Question marks have potential to become stars
and eventually cash cow but can become also a
dog
 STRATEGY RECOMMENDATIONS

• Investment
increase market share selectively develop into Stares
• Cash Flow
Require Funds From Other SBUs ( cash cows)
• Unrealized future opportunities
• The marketing strategy is to get markets to adopt
this products
• These product need to increase their market share
quickly or they becomes a dog.
• The best way to handle question marks is to either
invest heavily in them to gain market share or to sell
them
 STARS
(HIGH GROWTH, HIGH MARKET SHARE)

 Stars are leaders in business

 They also require heavy investment to maintain it’s
large market share.
 It leads to large amount of cash consumption & cash
generation.
 Attempts should be made to hold the market share
otherwise the star will became a cash cow.
 STARS
High Growth, High Market Share
•Stares are leaders in
business by having heavy
high market share.
•They also require heavy investment to
maintain its large position in a growing
market share
•Its leads to large amountof
cash consumption and cash generations
 STRATEGY RECOMMENDATIONS

• Investment
Further Growth maintain market
position
• Cash flow
Self sustaining : fund there own
growth
require funds from other SBU (Cash
Cows)
• Assure the future of the company
• Grow into the cash cows
 CASH COWS
( LOW GROWTH, HIGH MARKET SHARE)

 They are foundation of the company & often the

stars of yesterday.
 They generate more cash than required

 They generate more cash than required.

 They extract the profits by investing as little

cash as possible
 They are located in an industry that is mature
not growing or declining
 CASH COW

• Low growth, High Market Share

• They are foundations of the company
and often the stars of yesterday.
• They generate more cash then required.
• They extract the profit by investing as
little cash as possible
• They are located in an industry that is
mature, not growing or declining
 STRATEGY RECOMMENDATIONS

• Investment
maintain market share
maintain capacity
• Cash Flow
positive cash flow
provides funding to support Stars
and ?.
• No potential for profit
growth
 DOGS
(LOW GROWTH, LOW MARKET SHARE)

 Dogs are the cash traps

 Dogs do not have potential to bring

 High cost – Low quality

 Business is situated at a declining stage

 DOGS

• Low Growth, Low Market Share

• Dogs are the cash trap
• Dogs do not have potential to
bring in much cash
• Number of dogs in the company
should be minimized
• Business is situated at declining
stage
 STRATEGY RECOMMENDATIONS

• Investment diversified strategy

reduce capacity to free up resources
• Cash Flow
Goal or positive cash flow
negative cash flow
• No real growth opportunities
WHY BCG MATRIX

To asses
 Profile of product /business

 Cash demands of products

 The development cycle of product

 Resource allocation & divestment decisions

MAIN STEPS OF BCG MATRIX

 Identifying & dividing a company into SBU

Assessing & comparing the prospects of each SBU

according to two criteria
1) SBU’s relative market share
2) Growth rate of SBU’s industry

Classifying the SBU’s on the basis of BCG matrix

Developing strategic objective for each SBU

BENEFITS

BCG matrix is simple & easy to understand

It helps to quickly & simply screen the opportunity
open to you, & help you think about how you can
make the most of them.
It is used to identify how corporate cash resources
can best be used to maximize company’s future
growth & profitability.
LIMITATION

 BCG matrix uses only two dimensions relative

market share & market growth rate.
 Problem of getting data on market share & market
growth
 High market share does not mean profits all time.

 Business with market share can be profitable too.

CONCLUSION

• Though BCG Matrix has its limitations it is one of

the most famous and simple portfolio planning
matrix, used by large companies having multi-
products.
• As long as management understands that the BCG
growth/Share Matrix generates option which is
require further analysis and validation, this tool can
greatly enhance strategic decision making.
Case Study
GE NINE CELL MATRIX
This corporate portfolio analysis technique is by General Electric (GE) company
of the US supported by the consulting firm of the McKinsey & company
Industry Attractiveness

Business Strength /Competitive Position

 GE NINE CELL MATRIX

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix

used to perform business portfolio analysis as a step in the
strategic planning process.

The GE/McKinsey Matrix identifies the optimum

business portfolio as one that fits perfectly to the
company's strengths and helps to explore the most
attractive industry sectors or markets.

The objective of the analysis is to position each SBU on

the chart depending on the SBU's Strength and the
Attractiveness of the Industry Sector or Market on which it
is focused. Each axis is divided into Low, Medium and
High, giving the nine- cell matrix as depicted below.
 GE NINE CELL MATRIX
 Different factors can be used to define Industry Attractiveness. Like:-
Market size & growth rate ,Industry Profit Margin, Competitive
Intensity, Seasonality, Cyclicality, Economies of Scale, Technology,
Social, environmental, legal and human impacts
 Different factors can also be used to define SBU Strength. Like:-
Relative market share, Profit Margins, Ability to compete on price
and quality, Knowledge of customer and market, Competitive
strength and weaknesses, Technological Capability, Caliber of
Management
 The factors and their relative weightings are selected. The rating
values for each factor are entered for each SBU and Industry.
 GE NINE CELL MATRIX
 Grow – Business units that fall under grow attract high
investment. Firms may go for product differentiation or
Cost leadership. Huge cash is generated in this phase.
Market leaders exist in this phase.

 Hold – Business units that fall under hold phase attract

moderate investment. Market segmentation, Market
penetration, imitation strategies are adopted in this
phase. Followers exist in this phase.

 Harvest - Business units that fall under this phase are

unattractive. Low priority is given in these business
units. Strategies like divestment, Diversification,
mergers are adopted in this phase.
 INDUSTRY ATTRACTIVENESS
The vertical axis represents the Industry Attractiveness, which is based on
eight different factors

 Market size & growth rate

 Industry Profit Margin
 Competitive Intensity
 Seasonality
 Cyclicality
 Economies of Scale
 Technology
 Social, environmental,
legal and human impacts
 BUSINESS STRENGTH
The horizontal axis represents business strength competitive position,
which is based on seven factors

 Relative market share

 Profit Margins
 Ability to compete on price
and quality
 Knowledge of customer and
market
 Competitive strength and
weaknesses
 Technological Capability
 Caliber of Management
GE NINE CELL MATRIX
 The nine cells of the GE matrix are grouped on the basis of low
to high industry attractiveness and weak to strong business
stength.
 Three zones of three cells each are made denoting different
combinations represented by Green, Yellow and Red colours.
 So it is also called spotlight strategy matrix.
 Based on the Green Zone the signal is “go ahead” to grow and
build indicating expansion strategies. It also attract major
investment.
 For the Yellow Zone the signal is “wait and see”. Indicating hold-
and-maintain strategy, aimed at stability and consolidation.
 For Red Zone the signal is “stop”, indicating retrenchment
strategies of divestment and liquidation or a rebuilding approach
for adopting turnaround strategies
 GE NINE CELL MATRIX
Industry Business Unit Strength
Attractiveness

Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

 GE NINE CELL MATRIX
Strength
a)It allows intermediate ratings between high and low and between
strong and week
b)Ithelps in channeling the corporate resources to business and
achieving competitive advantage and superior performance.

c)It helps in better strategic decision making and better

understanding of business scope.

Weakness
a)It tends to obscure business that are become to winners because
their industries are entering at exit stage.

b)Assessment of business in terms of two factors is not fair.

CASE STUDY OF GE NINE CELL MATRIX
ABOUT MARUTI UDYOG

• Founded in 1981
• Products are Maruti 800, Omni, Alto,SX4,Swift
Desire,Swift,A-star, Gypsy,Wagon R,Ritz,others.
• Vision – “The Leader in the Indian Automobile
Industry, Creating Customer Delight and
Shareholder’s Wealth;a Pride of India”
• Core Values : Our Core Values drive us in every
endeavour-
 Customer Obession,
 fast, Flexible & first mover,
 Innovation & creativity
 Networking & Partnership
 Openess & Learning
Some Important Points
 ONGC - Oil and Natural Gas Corporation
 IOC - Indian Oil Corporation
 BPCL - Bharat Petroleum Corporation Ltd.
 Essar - Essar Group
 Reliance - Reliance Industries Limited
 IBP - Indo Burma Petroleum Company Ltd
 What do you understand by retrenchment strategies
 A strategy used by corporations to reduce the diversity or the overall
size of the operations of the company. This strategy is often used in
order to cut expenses with the goal of becoming a more financial stable
business.
 Turnaround strategy is a revival measure for overcoming the
problem of industrial sickness. It is a strategy to convert a loss making
industrial unit to a profitable one. Turnaround is a restructuring
process that converts the loss-making company into a profitable one.