Strategic Management #3 Portfolio Analysis – Flashcards
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BCG matrix
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Market Growth (ie GDP or industry growth) Relative Market Share (own MS/largest competitor share) Dogs, Question Mark, Stars, Cash Cows
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Norm strategies of the BCG matrix
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Invest (in Sales, Marketing, Advertising,...), enter Hold position Harvest Disinvest, exit
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Advantages of BCG matrix
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Simple/Easy to understand Provides a good base for all future acquisitions Adaptable to all larger companies that seek volume and experience curve effect Includes experience curve effect
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Disadvantages of BCG matrix
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high market share is not the only success factor: niche markets are disregarded as dogs although strategically smart investment. market growth should not be only factor on the attractiveness of a market disregards synergy effects of SBU. neglects competitors with fast growing market share. sometimes dogs can earn more profit than cash cows. norm strategies have low value SBU unclear definition
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McKinsey Matrix
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Market Attractiveness x Relative Competitive Position in SBA Area of employing Resources (invest) Area of Freeing Resources (disinvest, skim) Select Area
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McKinsey Matrix: Market Attractiveness
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Market growth profitability risks entry costs innovation potential degree of competition all these factors are weighted by importance and their future attractiveness to a total #
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McKinsey Matrix: Relative Competitive Position in SBA
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Strategy (growth, market differentiation, vertical integration) x Capability (orga structure, innovation rate, product quality) x Strategic Investment in competitive position (market research, new staff, assets, R&D) x Profitability (short or longterm) Weighted by their importance for competitive position equal the relative competitive position in SBA
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Growth estimation of SBA
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historical demand growth rate future growth rate factors (+uncertainties) future demand growth rate (optimistic and pessimistic take on this)
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Growth estimation of SBA - Example
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German organic Food market: - historically a high market growth - positive future rate factors: bio consciousness, legal requirements for animal protection - negative future rate factors: higher production costs - major uncertainties: labeling issues, WTP, BIO scandals
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Profitability estimation of SBA
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Maximum profitability (top competitor in %) Future profitability: influencing factors
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Ashridge Portfolio Display - Dimensions
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potential value destruction from misfit between needs, SBU and corporate Management Style (High to low) potential value adding by parent company (low to high)
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Ashridge Portfolio Display - Areas
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Heartland (businesses with a high potential for adding value) Edge of Heartland (lower potential or some negative risks) Ballast (fit high, but limited value adding potential) Value trap (potential for adding value is seldomized because of bad management) Alien territory (not potential for value creation/adding)
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Ashridge Portfolio Display - Example
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Heartland: Restaurant Chain A, B,... Edge of Heartland: Coffee Shop Ballast: Pub, Bar Value trap: Hotel, tennis club Alien territory: spa, liquor chain
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Competitive positioning process
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- analyze the environment and identify attractive future SBAs - analyse own company and its extrapolated competitive positioning - set objectives based on preferred competitive position - using on resources and with future success factors of the SBA playing in, implement!
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Types of Resources
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Tangible (financial, physical) Intangible (Technology, reputation and culture) Human (Skills, motivation and capacity for communication and collab)
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Profit earning potential of a resource or capabilities
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- Scarcity, Relevance - Replicability, Durability - Property Rights, Embeddedness
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Organizational Capabilities
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The Combination of Resources
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Positioning Matrix for SBA analysis
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Future Market Attractiveness (external) Extrapolated future competitive position (internal) both done pessimistic and optimistic. the variance equals the variability
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Positioning Matrix for SBA analysis - High Variability
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Gradual Commitment
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Positioning Matrix for SBA analysis - Low Variability
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Immediate Decision
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Reasons for high variability
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- New turbulent dynamic markets - Management overly careful, overstate pessimistic scenario - Lack of information
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Strategy Plan for SBA: Description of preferred strategy
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Portfolio Decision (Hold, invest,..) Objectives ("Open two more stores in Frankfurt") Description (assortment strategy)
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Strategy Plan for SBA: key market drivers & company success factors
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Market Development: "organic food expected to grow in Hessen" Impact for own company: Additional market potential Strategic objective: Expansion strategy for Hessen Priority: +++
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Strategy Plan for SBA: Action plan for strategic objective "Expansion strategy for Hessen"
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- set goals "2 stores in next 2 years" - calculate profit/loss impact - describe actions (location search, store planning, opening) and have responsible people as well as clear schedule
