Chapter 5 - Handout

Chapter 5:
Strategy Analysis
and Choice
Business Strategy
SWOT analysis
Strengths and
Weaknesses,
Opportunities
and Threats
BCG matrix
Question Marks (= high growth, low market share)

Question - Either invest heavily or sell off or invest nothing
Marks and generate whatever cash it can. Increase market
share or deliver cash
Stars (=high growth, high market share)

- Require capital expenditure in excess of the
Stars
cash the generate, in order to maintain their
market position.
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BCG matrix
Cash Cow(=low growth, high market share)

Cash - Investments needed should be low because
of the low growth and market conditions are
Cow more stable. Keep profits high
Dogs (=low growth, low market share)

Dogs declining market
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Space analysis
- Financial
strength
- Environmental
stability
- Industry
strength
- Competitive
advantage
Space analysis
Factors determining each of key issues in the
SPACE analysis
a. Environmental stability
+ Technological changes (E.g Garment industry)
+ Rate of inflation
+ Demand variability (Demand diversification)
+ Price range of competing products
+ Barriers to entry into market
+ Competitive pressure/rivalry
+ Price elasticity of demand (quantity and price)
+ Pressure from substitute products
Space analysis
Space analysis
Space analysis
SPACE MATRIX
1. Select a set of variables
2. Assign value from +1 (worst) to +6 (best) to each of
variables on FS, IS.
Assign value from -1 (best) to -6 (worst) to each of variables on
ES, CA.
!!! On FS, CA, compare to competitors (Benchmarking) On IS,
ES compare to other industries (benchmarking)
3. Compute an average score for FS, CA, IS, ES by summing the
values given to variables of each dimension; then dividing by
the number of variables
4. Plot the average scores for FS, IS, ES, and CA
5. Add the two scores on the x-axis and two score on the y-axis,
. Plot intersection of the new xy point
6. Draw directional vector
SPACE MATRIX
• Aggressive: FS
+ Market development
+ Market penetration Conservative Aggressive
+ Product development
+ Forward integration
+ Backward integration
CA IS
+ Horizontal integration
• Conservative: Defensive Competitive
+ Market development
+ Market penetration
+ Product development ES
+ Horizontal integration
+ Liquidation
SPACE MATRIX
• Defensive: FS
+ Retrenchment
Conservative Aggressive
+ Related diversification
+ Unrelated diversification
CA IS
+ Liquidation
• Competitive: Defensive Competitive
+ Related diversification
ES
+ Unrelated diversification
+ Joint ventures
McKinsey Matrix
One way to consider the competitive position of

an SBU is by means of directional policy
matrix (General Electric’s Business Screen-
GE/McKinsey Matrix), which is a form of
portfolio analysis. This is map out:
- How attractive the industry is in which they
are operating;
- The competitive strength.
McKinsey Matrix
Directional policy matrices
One way to consider the
competitive position of
SBU is by means a
directional policy matrix n
(General Electric’s Businessof
Screen-GE/McKinsey Matrix),
which is a form of portfolio
analysis. This is map out:
-How attractive the industry is
in which they are operating;
-The competitive strength.
16
• Typical (external) factors that affect Market
Attractiveness
– Market size
– Market growth rate
– Market profitability
– Pricing trends
– Competitive intensity/rivalry
– Overall risk of returns in the industry
– Entry barriers
– Opportunity to differentiate products and services
– Demand variability
– Segmentation
– Distribution structure
– Technology development
– Social, Political, regulatory….
• Typical (internal) factors that affect
Competitive Strength of a SBU
– Strength of assets and competencies
– Relative brand strength (marketing)
– Market share
– Market share growth
– Customer loyalty
– Relative cost position (cost structure compared with
competitors)
– Relative profit margins (compared to competitors)
– Distribution strength and production capacity
– Record of technological or other innovation
– Quality
– Access to financial and other investment resources
– Management strength
The GE matrix has 5 steps
One - Identify your products,
1 brands, experiences, solutions, or
SBU's.
Two - Answer the question,

2 What makes this market so 1
attractive?
Three - Decide on the factors
3 that position the business on 5 2
the GE matrix.
Four - Determine the best ways
4 to measure attractiveness and
business position. 4 3
Five - Finally rank each SBU as either low,
5 medium or high for business strength,
and low, medium and high in relation
to market attractiveness.
20

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Chapter 5:

Question Marks (= high growth, low market share)

Stars (=high growth, high market share)

Cash Cow(=low growth, high market share)

Dogs (=low growth, low market share)

One way to consider the competitive position of

Two - Answer the question,

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