CHAPTER-4

STRATEGIC CHOICES

• Businesses use various plans to enter, stay important, and expand in the market.
Many different strategies, suggested by different authors, are used. For example,
Glueck and Jauch talked about four main strategies:
staying the same,
growing,
cutting back,
or mixing these.

• Others call these Grand Strategies or Directional Strategies. Porter suggested

competitive strategies like being the cheapest, being unique, or focusing on a
niche, which businesses can use for different parts of their operations. There are
also functional strategies for managing specific areas like marketing, finance, HR,
logistics, and production.
• Large companies with many products plan at different levels: corporate, business
unit, and functional.
Corporate strategies give overall direction
Business strategies are for each product
Functional strategies help carry out plans.

• Big companies use complex systems to make and check these plans to keep
growing in business. This chapter will talk about corporate strategies.
• The corporate strategies a firm can adopt may be classified into four broad categories:
1. Stability strategy
2. Expansion strategy
3. Retrenchment strategy
4. Combination strategy
 Stability Strategy

One key goal of a business stability strategy is to maintain a steady course. This can
be chosen to protect current strengths, follow established goals, stay on the same
business path, keep operations efficient, reinforce a strong position, and get the
best returns on investments.
 A company opts for a stability strategy when:

• It keeps serving the same or similar markets with the same or similar products
and services.

• Companies often use a stability strategy when their products are mature or they
have a solid market share to maintain. It's about staying active and adapting to
changes in the business world, even for small businesses looking to strengthen
their position before growing.
 Characteristics of Stability Strategy

• A company using a stability strategy sticks to the same business, products, and
market approach, maintaining the same level of effort as before.
• The goal is to improve efficiency bit by bit by using resources better. The
company believes it can make enough money through these small improvements.
• Stability strategy doesn't change what the company does.
• It's a safe choice that keeps things as they are.
• It doesn't need much new investment.
• It's less risky.
• With this strategy, the company can focus on its resources and current business,
which helps it become really good at what it does.
• Companies aiming for steady, not rapid, growth go for this strategy.
 Case Study: Maruti Suzuki – Stability Strategy in Indian Auto Industry
• Core Focus on Passenger Cars: Sticks to its strength in affordable, fuel-efficient cars (Alto,
Swift, WagonR).
• Incremental Innovation: Improves existing models rather than frequent radical changes.
• Strong Distribution Network: Maintains the largest dealer and service network across
India.
• Cost Efficiency: Uses local sourcing and economies of scale to keep cars affordable.
 Major Reasons for Stability Strategy

• A product is at the mature stage of its life cycle.

• Employees prefer things to stay the same because it's less risky and there are
fewer changes.

• It's chosen when the business environment is stable.

• Expanding might seem risky or threatening.

• After growing quickly, a company might want to stabilize and strengthen its
position.
 Growth/ Expansion Strategy
The Growth/Expansion strategy involves expanding the business and investing
more in it. It's seen as dynamic, full of energy, promising, and successful. It often
means changing goals, making big investments, exploring new products,
technology, and markets, and taking innovative actions. This strategy can lead the
company into new and risky territory, with both opportunities and challenges.
 Characteristics of Growth/Expansion Strategy

•Expansion strategy changes how the company does business.

• It's the opposite of stability strategy. While stability has limited rewards and low
risks, expansion offers high rewards but comes with higher risks.

• Expansion strategy leads to business growth. Companies with big growth goals
can only achieve them through expansion.

• It involves investing in new areas and businesses, renewing the company.

• Expansion strategy is flexible. Companies can adjust their plans for products,
markets, and functions to find what works best for them.
Case Study: Reliance Jio – Expansion Strategy in Indian Telecom
Expansion Strategy Elements:
• Market Disruption: Entered with free data and calls, forcing competitors to cut prices.
• Rapid Infrastructure Development: Built a pan-India 4G network before launching services.
• Diversification: Expanded beyond telecom into Jio Fiber (broadband), JioMart (e-commerce),
and JioCinema (OTT).
• Strategic Investments: Attracted global investors like Facebook and Google to fund expansion.
 Major Reasons for Growth/Expansion Strategy
• It might be necessary when the environment requires more activity.

• Strategists may prefer the potential for growth that comes with expansion, and
CEOs may like leading companies seen as focused on growth.

• Expansion can give more control in the market compared to competitors.

• Benefits like lower costs from experience and larger operations can come with
expansion.

• Expansion involves ramping up, diversifying, buying, and merging businesses.

 Types of Growth/ Expansion Strategy
The growth strategies can be classified into two main types:
• Internal growth strategies

• External growth strategies

Internal growth strategies

Internal growth strategies can be further divided into:
• Expansion through Intensification

• Expansion through Diversification

 Expansion or growth through Intensification
Expansion or growth through intensification means the organization tries to grow internally by
boosting its operations, either by penetrating existing markets, developing new markets, or
creating new products. It aims to make the most of its own abilities and resources. The firm can
intensify its operations by using these strategies:

(i) Market Penetration: This common strategy focuses on growing existing products in existing
markets by putting more effort and resources into them.

(ii) Market Development: This involves selling existing products to new customer groups or in
new market areas by using different distribution channels or changing advertising methods.

(iii) Product Development: Here, the firm modifies existing products significantly or creates new
ones related to its current offerings, which can be sold to existing customers through existing
channels.
 Expansion or Growth through Diversification
• When a company grows by moving into different products or fields, it's called growth by
diversification.

• This is also a way to grow from within the company. Innovative companies are always seeking
new opportunities and challenges to expand into different areas and push their limits with the
spirit of entrepreneurship using their own resources.

• They believe diversification offers better chances for growth and profit than just intensifying
what they already do.
Case Study: ITC – Diversification Strategy in FMCG, Hotels & More
• Related Diversification: Expanded from tobacco into packaging and
paperboards, supporting its existing operations.
• Unrelated Diversification: Entered FMCG (Aashirvaad, Sunfeast), Hotels (ITC
Hotels), Agri-business, and IT (ITC Infotech).
• Brand Leverage: Used ITC’s strong market presence to grow its FMCG brands.
• Sustainability Focus: Integrated green initiatives and eco-friendly packaging into
all businesses.
• Diversification means entering new products, services, or markets that require different skills,
technology, and knowledge.

• When an established company introduces a new product that's not related to its current line
and targets a different group of customers, it's called conglomerate diversification.

• For some companies, diversification helps them use their existing resources better. They might
have extra manufacturing capacity, money to invest, strong marketing channels, a good
reputation in the market, skilled managers, research and development capabilities, or access to
raw materials.

• Another reason for diversification is the synergistic advantage it offers. By adding related or
new products, companies can boost sales and profits of existing products because of
connections in technology or markets.
Diversification can be classified into two main types based on their relationship to
existing businesses:

(i) Concentric diversification: This involves expanding into related businesses to

benefit from synergies. Companies aim to leverage existing strengths and resources
to succeed in new areas.

(ii) Conglomerate diversification: Here, companies venture into unrelated

businesses to explore new opportunities beyond their current expertise. They are
willing to take on new challenges outside their comfort zone.
• Concentric Diversification occurs when the new business is related to the existing
ones.

• The new venture is linked to current operations through processes, technology,

or marketing. The new product is derived from existing facilities and products.
This means there are synergies with current operations.

• The new product connects to the firm's existing process, technology, or product
chain. For instance, a clothing manufacturer expanding into shoe production.
 Concentric diversification is generally understood in two directions, vertical and
horizontal integration

Vertically Integrated Diversification happens when a company expands into related

businesses within the same process sequence. It can move forward or backward in the
production chain to create new ventures. This type of diversification keeps the company
connected in the same chain. There are two types:

1. Forward Integration: Moving forward in the production chain, entering businesses

that use the company's existing products. This could involve merging with distribution
channels. For instance, a coffee bean manufacturer merging with a coffee cafe.

2. Backward Integration: Moving backward in the production chain, entering

businesses that provide inputs. This helps in controlling production or reducing costs.
For example, a supermarket chain buying farms to get fresh produce.
• Horizontal Integrated Diversification:

Horizontal diversification occurs when a company expands by acquiring

businesses that operate at the same stage of the production-marketing
chain. They can also acquire firms producing complementary products, by-
products, or competitors' products. For example, a textile mill might acquire
other textile mills.
 Conglomerate Diversification
In conglomerate diversification, there are no connections between the new and existing
businesses in terms of product, market, or technology. The new products are completely
unrelated to the existing ones. There's no connection in terms of process, technology, or
function between the new and existing products. Conglomerate diversification doesn't have
any common thread with the firm's current position.

Case Study: Adani Group – Conglomerate Diversification Strategy in India

• Infrastructure & Energy: Expanded into ports (Adani Ports), power (Adani Power), and renewable energy (Adani Green
Energy).
• Telecom & Digital: Entered the telecom sector with Adani Data Networks and digital services.
• Aviation & Defense: Acquired Mumbai Airport and ventured into aerospace and defense manufacturing.
• Cement & Media: Entered cement (Adani Cement – ACC, Ambuja) and media (NDTV acquisition).
 Innovation

Expansion through Innovation: This refers to growing by introducing new and innovative
products, services, or processes. It's about pushing boundaries and finding novel ways to meet
customer needs.

• Innovation drives the improvement of existing products or processes, leading to increased

market share, revenues, profitability, and, most importantly, customer satisfaction. While some
may argue that innovation leads to unnecessary expenses, it's crucial for long-term business
growth because: (SIP)

• Solving Complex Problems: Businesses innovate to tackle societal issues, creating sustainable
solutions that meet customer needs. For instance, using renewable energy like solar or wind
power addresses environmental worries. Though it might be expensive at first, these
innovations support long-term economic and environmental sustainability.
• Increasing Productivity: Innovation simplifies and speeds up tasks, making work more
efficient. Companies invest in innovation to streamline processes, like using software such
as MS Excel to automate finance tasks. This digital advancement improves team productivity
and overall organizational efficiency. Plus, it opens doors for more process and product
improvements, benefiting the organization and its stakeholders.

• Providing Competitive Advantage: For businesses, staying ahead of the competition is vital,
and innovation is key to this success. The faster a business innovates, the further it
surpasses its rivals. Innovative products need less marketing because they satisfy consumers
better, giving a competitive advantage. Innovation doesn't just keep current customers; it
also draws in new ones effortlessly.
 External Growth Strategies

• When the organization instead of growing internally thinks of diversifying by

making alliances with external organisations, it is called external growth
diversification. It can be classified in two ways:

Expansion through Mergers and Acquisitions

• Acquiring or merging with an existing company is a quick way to expand. It's

appealing because it bypasses the time, risks, and skills needed to find and
develop internal growth opportunities. Organizations carefully consider
merger and acquisition offers to ensure they're mutually beneficial, creating
a successful and long-lasting partnership.
• Merger and acquisition mean combining two or more companies. While there's
a subtle difference between the two terms, the impact of the combination
varies. Some companies choose to grow through mergers.

• A merger happens when two or more companies join forces to expand their
business. It's a friendly deal where both companies share profits in the new
entity.
• When one organization takes control of another and runs all its business, it's
called an acquisition. In an acquisition, a financially strong company overtakes a
weaker one.

• Acquisitions often occur during economic recessions or declining profits. In this

process, the stronger company dominates the weaker one, and the combined
operations run under the name of the stronger entity.

• Acquisitions are usually unfriendly, more like a forced association where the
powerful organization takes over the operations of the weaker company, which is
compelled to sell its entity.
 Types of Mergers
A. Horizontal Merger
A horizontal merger happens when companies in the same industry combine. It's like when a
company merges with a direct competitor. The main goal is to improve efficiency in production
by eliminating duplicate facilities and functions, expanding product lines, reducing working
capital and investment in assets, and eliminating competition. For instance, when Lipton India
and Brook Bond merged to form Brook Bond Lipton India Ltd.

B) Vertical Merger

A vertical merger happens when two companies in the same industry but at different stages of
production or sales combine.
•Backward integration: A company takes over its suppliers.
•Forward integration: A company takes over its buyers or sales channels.
This helps control costs, improve efficiency, and gain a competitive edge.
C) Co-generic Merger
In a co-generic merger, two or more merging companies are connected in some way related to
their production processes, business markets, or basic technologies. This type of merger often
involves expanding product lines or acquiring necessary components for daily operations. It
provides businesses with opportunities to diversify using shared resources and strategic needs.
For instance, a company making refrigerators could diversify by merging with another company
that sells kitchen appliances.

D) Conglomerate Merger

Conglomerate mergers bring together organizations that have no connection to each other. They
don't share customer groups, functions, or technologies. There are no significant similarities in
production, marketing, research and development, or technology between the organizations.
However, in reality, there may be some overlap in one or more of these areas.
 Expansion through Strategic Alliance
• A strategic alliance is when two or more businesses team up to reach strategic goals that they
couldn't achieve alone. They stay independent but work together, sharing benefits and control
over the partnership until it ends. Strategic alliances are common in the global market,
especially between businesses from different regions.
Case Study: Tata Group & Starbucks – Conglomerate Strategic Alliance
•Leveraging Tata’s Strengths: Tata provided local market expertise, real estate, and supply chain
support (Tata Coffee supplied beans).
•Starbucks’ Brand & Expertise: Starbucks brought its global brand reputation, coffee expertise,
and premium café experience.
•Joint Venture Structure: Operates as Tata Starbucks Pvt. Ltd., a 50:50 joint venture.
•Sustainable Sourcing: Focused on ethical coffee sourcing through Tata’s plantations.
 Advantages of Strategic Alliance (ESOP)
• Economic: Reduce costs and risks by sharing them. Increase production to lower costs
per unit. Combine strengths for better products (e.g., a top computer brand using a
leading monitor brand).

• Strategic: Competitors can collaborate instead of competing. Helps integrate supply

chains, share resources, and develop new products. Provides access to new technologies
and joint R&D.

• Organizational: Learn skills from partners, expand supply chains, and improve
distribution. Creates synergy and boosts credibility.

• Political: Helps enter foreign markets by partnering with local firms. Aligning with
influential businesses increases market position.
 Disadvantages of Strategic Alliance

• Strategic alliances do have some downsides and risks.

• One major drawback is the need to share. This includes sharing resources, profits, and
knowledge and skills, which organizations may be reluctant to do. Sharing knowledge and skills
can be particularly tricky if they involve trade secrets.

• While agreements can be made to protect trade secrets, their effectiveness depends on the
willingness of parties to abide by them or the courts' willingness to enforce them.

• Additionally, strategic alliances may create potential competition if an ally becomes a

competitor in the future, especially if the alliance ends.
 STRATEGIC EXITS
• Strategic exits occur when an organization significantly reduces its activities. This involves
identifying problem areas, diagnosing their causes, and taking steps to solve them.

• These steps lead to various retrenchment strategies.

• If the organization aims to reverse the decline, it adopts a turnaround strategy. If it shuts down
loss-making units, divisions, or SBUs, reduces its product line, or streamlines functions, it
adopts a divestment strategy.

• If none of these actions succeed, the organization may choose to completely abandon the
activities, resulting in a liquidation strategy. We will discuss each of these strategies below.
 Turnaround Strategy

• Retrenchment can be carried out either internally or externally. Internal

retrenchment focuses on improving internal efficiency, known as a turnaround
strategy. Certain conditions or indicators signal the need for a turnaround if the
company is to survive. These danger signals include:
- Persistent negative cash flow from business operations
- Uncompetitive products or services
- Declining market share
- Deterioration in physical facilities
- Over-staffing, high employee turnover, and low morale
- Mismanagement
 Case Study: Tata Motors – Turnaround Strategy
Background: Tata Motors faced a severe downturn in the early 2010s due to declining domestic
sales, poor performance of its Nano car, and losses from its Jaguar Land Rover (JLR) acquisition.
• Cost-Cutting & Efficiency: Reduced operational costs, streamlined production, and optimized
the supply chain.
• Product Revamp: Launched successful models like Tata Tiago, Nexon, and Harrier, focusing on
design and safety.
• Electric Vehicle Shift: Invested in EVs, leading to the success of Tata Nexon EV.
• JLR Revival: Focused on premium SUV demand, launching new models and cutting
unnecessary expenses.
 Action Plan for Turnaround
• For turnaround strategies to succeed, it's crucial to address short and long-term financing
needs alongside strategic issues. A practical action plan for turnaround typically involves the
following stages:

1. Assessment of current problems: Identify and understand the root causes and extent of
damage caused by current issues. Focus resources on essential areas to efficiently correct and
repair immediate problems.

2. Analyze the situation and develop a strategic plan: Assess the business's chances of survival
and identify appropriate strategies. Look for viable core businesses, secure bridge financing, and
assess available organizational resources. Analyze competitive strengths and weaknesses to
develop a strategic plan with specific goals and detailed actions.

3. Implementing an emergency action plan: Develop an action plan to address critical issues
and enable the organization to survive. This plan includes human resource, financial, marketing,
and operational actions to restructure debts, improve working capital, reduce costs, optimize
product lines, and accelerate high potential products. Establish a positive operating cash flow
quickly and raise sufficient funds to implement turnaround strategies.
4. Restructuring the business: Focus on the financial state of the organization's core business,
as it is crucial for overall success. Prepare cash forecasts, analyze assets and debts, review
profits, and assess key financial functions to position the organization for rapid improvement.

• During the turnaround process, the organization may need to adjust its "product mix" by
repositioning itself in the market. Core products that have been neglected may require
immediate attention to maintain competitiveness. This could involve closing certain facilities
or withdrawing from specific markets to streamline operations or target products toward a
different niche.

• Boosting morale is another crucial aspect of enhancing the organization's competitive

effectiveness. Implementing reward and compensation systems that incentivize dedication
and creativity among employees can encourage them to focus on generating profits and
maximizing return on investment.
5. Stage Five –Returning to normal: In the final stage of the turnaround strategy process,
the organization aims to return to normal operations and demonstrate profitability, return on
investments, and enhanced economic value-added. This stage focuses on strategic efforts such as
introducing new products, improving customer service, forming alliances with other
organizations, and increasing market share.
 The key elements of a turnaround strategy include: ( I LIC RING )

- Initial credibility-building actions

- Liquidating assets to generate cash
- Identifying quick payoff activities
- Changes in top management
- Rapid cost reductions
- Improving internal coordination
- Neutralizing external pressures
- Generating revenue
 Divestment Strategy

• A divestment strategy involves selling or liquidating a portion of a business, such

as a major division, profit center, or SBU (strategic business unit). Divestment is
typically part of a rehabilitation or restructuring plan and is pursued when a
turnaround attempt has failed or is not feasible
 Case Study: Reliance Industries – Divestment of Oil-to-Chemicals Business
Background: Reliance Industries Ltd. (RIL) decided to divest a stake in its Oil-to-Chemicals
(O2C) business to reduce debt and focus on new growth areas like digital services and
renewable energy.
Divestment Strategy:
• Stake Sale: Planned to sell a 20% stake in O2C to Saudi Aramco for $15 billion (though later
called off).
• Debt Reduction: Used proceeds from asset monetization (including Jio Platforms and retail
business) to become net debt-free.
• Strategic Shift: Focused on renewable energy (solar, hydrogen) and digital services (Jio
expansion).
 Reasons for adopting a divestment strategy include:

- A business acquired by the company proves to be a poor fit and cannot be

effectively integrated.
- Persistent negative cash flows from a particular business create financial
difficulties for the entire company, necessitating divestment.
- Intense competition makes it challenging for the firm to compete effectively,
prompting divestment.
- Inability to invest in necessary technological upgrades required for survival may
lead to divestment.
- A more attractive investment opportunity becomes available, prompting the firm
to divest an unprofitable business segment.
 Characteristics of Divestment Strategy

• This strategy entails divesting certain activities within a firm's business

or selling off entire business units.

• Divestment should be seen as a fundamental aspect of corporate

strategy without any negative stigma attached.
 Major Reasons for Retrenchment/Turnaround Strategy

- Management no longer wishes to continue in certain business segments, either

partially or entirely, due to sustained losses and unviability.

- Management believes that divesting some activities or liquidating unprofitable

ones could make the business viable.

- An acquired business turns out to be incompatible and cannot be effectively

integrated within the company.

- Continuous negative cash flows from a specific business create financial issues for
the entire company, necessitating divestment.
- Intense competition and the firm's inability to cope with it may prompt
divestment.

- Technological upgrades are necessary for the survival of the business, but if
the firm cannot invest in them, divestment becomes a preferable option.

- A more attractive investment opportunity becomes available, leading the

firm to divest unprofitable business segments.
 STRATEGIC OPTIONS
• These models are primarily utilized for competitive analysis and corporate strategic planning in
firms with multiple products and businesses.

• Adopting a portfolio approach in a multi-product, multi-business firm offers the advantage of

channeling resources at the corporate level to businesses with the highest potential.

• For example, a diversified company might opt to shift resources from its financially stable
businesses to those with higher growth potential, ensuring efficient achievement of corporate
objectives.

• To design the business portfolio effectively, management needs to analyze the current portfolio
and determine where to allocate more, less, or no investment. Based on this analysis,
management can develop growth strategies to add new products or businesses to the firm's
portfolio.
 Ansoff’s Product market growth matrix
• Ansoff's Product Market Growth Matrix, proposed by Igor Ansoff, is a valuable
tool for businesses to determine their product and market growth strategy.

• By using this matrix, a business can understand how its growth is influenced by
entering new markets or offering existing products in both new and existing
markets. It's essential for companies to continually look ahead and identify
growth opportunities for the future.

• The product/market expansion grid serves as a portfolio-planning tool to identify

such growth opportunities.
 Market Penetration

Market penetration is when a business focuses on selling its current

products to its existing customers. It involves increasing sales without
changing the products much. This might mean spending more on advertising
or personal selling. In mature markets, beating the competition often needs
aggressive advertising and pricing strategies. Market penetration can also
involve getting existing customers to buy more. For example, Gucci sells its
luxury clothing with new designs in European markets to achieve market
penetration.
 Market Development

Market development is when a business aims to sell its existing products

in new markets. This strategy involves finding and expanding into new
markets for products the company already sells. It can be done by
entering new geographical areas, offering products in different ways,
using new distribution channels, or adjusting prices to attract different
customers or create new market segments. For instance, Gucci, a luxury
clothing brand, sells its luxury clothing in Chinese markets to pursue
market development.
 Product Development
Product development is a growth strategy where a business introduces new
products to its existing markets. This involves offering modified or entirely
new products to current customers. To succeed in this strategy, the business
may need to develop new skills and create products that cater to the
preferences of its existing markets. For example, Gucci, a luxury clothing
brand, expanding its offerings to include casual clothing in European markets,
illustrates product development.
 Diversification

Diversification is a growth strategy where a business introduces new

products into new markets. This involves starting up or acquiring
businesses outside the company's current products and markets. It's
considered risky because it doesn't depend on the company's existing
successful products or established market positions. Usually, the
business ventures into markets where it lacks experience. For instance,
Gucci, a luxury clothing brand, entering the casual clothing market in
Chinese markets, exemplifies diversification.
 ADL matrix

• The ADL matrix, which gets its name from Arthur D. Little, is a tool used to
analyze a company's products or units. It considers two main factors: the
maturity of the industry and the company's competitive position. The industry's
maturity tells us whether it's just starting out or well-established, while the
competitive position indicates how well the company competes against others.
Based on these factors, products or units are sorted into categories like
dominant, strong, favorable, tenable, or weak.

- The ADL matrix helps companies understand their products or units better.
- It looks at how mature the industry is and how well the company competes.
- Products or units are placed into categories like dominant, strong, favorable,
tenable, or weak based on this analysis.
 The competitive position of a firm is assessed based on the following criteria:

- Dominant: This rare position is often due to a monopoly or strong technological

leadership.
- Strong: Firms in this position have significant freedom in choosing strategies and
are less threatened by competitors.
- Favorable: This position occurs in fragmented industries where no single
competitor stands out, allowing market leaders some freedom.
- Tenable: These firms perform adequately but are vulnerable to stronger
competition.
- Weak: Firms in this category typically have unsatisfactory performance and room
for improvement.
 BCG Growth-Share matrix

The BCG growth-share matrix is a tool used to show a company's portfolio of

investments. It's often called the cow and dog matrix and helps with resource
allocation in a diversified company. With this approach, a company categorizes its
various businesses on a two-dimensional matrix. Here's what the matrix
represents:
- The vertical axis shows market growth rate, indicating how attractive a market is.
- The horizontal axis shows relative market share, indicating the company's
strength in the market.
- Stars: These are rapidly growing products or SBUs that require heavy investment
to maintain their growth. They offer the best opportunities for expansion.

- Cash Cows: These are low-growth, high-market-share businesses or products.

They generate cash and require minimal investment to maintain their market
share. Over time, stars can become cash cows as their growth slows down.
- Question Marks: Also known as problem children or wildcats, these are
low-market-share businesses in high-growth markets. They require
significant investment to maintain their share and have low potential to
generate cash. If left unattended, they can become cash traps. However,
their high growth rate offers opportunities for organizations to turn them
into stars and then cash cows as growth slows down.

- Dogs: These are low-growth, low-market-share businesses or products.

They may generate enough cash to sustain themselves but have limited
future prospects. Dogs should be minimized through divestment or
liquidation.
 BCG Matrix: Post Identification Strategies

• After a firm has categorized its products or SBUs, it must decide on the role each
will play in the future. There are four strategies to consider:

1. Build: Focus on increasing market share, even if it means sacrificing short-term

profits to build a strong future with a large market share.
2. Hold: Aim to maintain current market share.
3. Harvest: Prioritize increasing short-term cash flow, regardless of the long-term
impact.
4. Divest: Sell or liquidate the business because resources could be better utilized
elsewhere.
 General Electric Matrix (GE- matrix)

The General Electric (GE) Matrix, also known as the Business Planning
Matrix or GE Nine-Cell Matrix, was developed by GE with assistance
from the consulting firm McKinsey and Company. Inspired by traffic
control lights, it uses two factors for strategic decisions: Business
Strength and Market Attractiveness. Just like traffic lights, it categorizes
businesses as green for go, amber or yellow for caution, and red for
stop, based on these factors.
 Understanding the GE Matrix

• The GE Matrix uses two axes: market attractiveness (vertical) and business strength
(horizontal). Market attractiveness is determined by factors such as market size, growth rate,
profitability, competition, technology, pricing, risk, differentiation opportunities, and demand
variability.

• Business strength is evaluated based on factors such as market share, market share growth
rate, profit margin, distribution efficiency, brand image, competitive pricing and quality,
customer loyalty, production capacity, technological capability, relative cost position, and
management expertise.
• The GE-McKinsey matrix, like the BCG matrix, categorizes products or businesses
into different quadrants based on their strategic positioning. However, it differs in
two key aspects.

• Firstly, it evaluates market attractiveness instead of market growth alone,

considering factors beyond just growth rate.

• Secondly, it assesses competitive strength instead of market share, taking into

account a wider range of competitive factors. In the matrix, products falling in the
green zone are strategically advantageous, those in the amber or yellow zone
require caution, and those in the red zone may necessitate retrenchment,
divestment, or liquidation.