The market life cycle-competitive strength matrix is a 16 cell matrix introduces the four stages of market life cycle viz., introduction, growth, maturity, decline on horizontal axis and competitive strength of SUB is analyzed as high, moderate and low on vertical axis. The model is positioned in 3 x 3 matrix. The first step in portfolio analysis is to identify the lines of businesses (SBUs) that make up the association's portfolio.The guideline to keep in mind is this: if we were a corporation instead of a professional society, which groups of programs would be logical candidates to be grouped together as independent businesses? The vertical axis measure the annual growth rate of the market and the horizontal axis shows the relative market share of the firm. They can withstand with cost focus and differentiation focus strategies. GE Multifactor Portfolio Matrix: Matrix Type # 3. Ansoff has identified four main strategies by the name ‘product-market components’ that are open to a company. (c) Core competencies are not represented. The important strategic feature of cash cows is that they are generating high cash returns, which can be used to finance the stars or for use elsewhere in the business. The Strategic Management process is the way in which strategists determine objectives and make strategic decisions. This sort of analysis enables a company to assess its competitive standing and enables to decide future resources allocation for its product portfolio. In this, each segment of company or organisation’s product line is evaluated. Decisions are made for each entity pertaining to its market share and existing or potential growth rate of the industry. The tenable competitive position implies that a firm can survive through specialization and focus. How to Convert Your Internship into a Full Time Job? (f) It fails to consider globalization factor, where markets are not limited to a particular area or place. to sell existing products into existing markets. The Boston Consulting Group (BCG) has pursued and refined the concept of the experience curve to the point where this essentially production phenomenon has strong implications for marketing strategy. In running its programs through the Program Evaluation Matrix, the association makes several assumptions. In this competitive position, no firm will enjoy dominant market share and the compe­tition will be intense. The industry attractiveness is measured by a number of factors like: viii. Strategic business units may be a composite of product and geographical area. The weak firms will generally show poor performance. SBU E with average competitive position and in maturity stage of the industry needs to adopt stability strategies. Content Guidelines 2. (e) Spread of market share among the competitors. The weights must be defined to calculate the matrix position of a particular business the matrix location of each unit can be used to formulate a natural strategy to accomplish the business goals of the firm. Directional Policy Matrix: Business Portfolio Analysis in Strategic Management. It helps the managers ‘balance the flow of cash resources among their various businesses. Once you have separated out your core businesses, compare them with the association's mission statement. Directional Policy Matrix. The Hofer’s matrix considered the following variables: Variable # (a) Market and Consumer Behaviour Variables Like: Variable # (b) Industry Structure Variables Like: ii. Copyright 10. To address these units in terms of resource allocation. The matrix does not address the degree of change in each product-market area and it does not identify the role of profit. BCG matrix analysis helps the company to allocate resources and is used as an analytical tool in brand marketing, product management, strategic management and portfolio analysis. The portfolio which is analyzed with the matrix may include products, services or entire SBUs (strategic business units) owned by the company. The prospects of the business sector is average in this SBU and the company’s competitive capability is also average. In comparison with the position of the star performer, cash cows can expect little serious competition because of their relatively low expected industry growth rate. These SBUs generate sufficient cash flow and potential winners can be identified. The strategy alternatives suggested for these four SBUs are: build A; hold B; hold/harvest C; and divest D. SBU A requires to implement growth strategies or Green-light strategy. A cash cow produces a lot of cash for the company. The final decision has to be made in the light of knowledge of the industry and its markets and the purpose of the analysis. The screens for good product fit are: Step 7:Determine Ease of Funding and Implementation(Is this an easy business?) The business prospects are attractive but the company’s capability is weak in this area of business. Ansoff’s Product-Market Growth Matrix 7. Successful resource deployment beyond cash requirements could lead to a superior market share when industry growth potential falls off. Often, this is not the case and activities must be subsidized with other income. Superior ability to produce and market this program. Stars hold prices down to capture a larger share of the market and to discourage the entry of competitors. The underlying principle of BCG matrix is the net free cash flow of a company must be kept positive for a company’s growth to be financed through internal funds and its debt capacity. The BCG matrix is criticized for the following reasons: (a) It does not talk about profitability at all. Low share business can be profitable and vice versa. Although they will show only a modest net cash outflow or even a modest cash inflow, they are cash traps. to sell new products in new markets. The situation is not likely to improve in future. Prohibited Content 3. Before uploading and sharing your knowledge on this site, please read the following pages: 1. The analysis is a complete review of all projects regardless of status and actions, such as, whether to start, continue, “kill,” or postpone projects. If no improvement is made in market share, question marks will absorb large amount of cash and later, as the growth stops, turn into dogs. A company can attain the following through market penetration: (b) Help restructure a mature market by driving out competitors. The following criteria should be considered in determining whether an association product or service is in a strong competitive position.Competition is not limited to other nonprofits.For-profit companies can and do compete directly with the association in the delivery of many products and services.Publications are a good example of this.Criteria for a strong competitive position are: Step 10:Determine Program Fit Portfolio analysis plays a vital role in planning and implementation of various #strategic business units of the organization as a whole. The main advantages of this strategy are: (a) Product development forces competitors to innovate, (b) New comers to the market might be discouraged. While the GE approach overcomes some of the problems for the BCG model, both have further limitations: (b) Aggregation of the indicators is difficult. 2.Well-fitting, difficult programs with low coverage that the association has the unique, strong capability to provide to important stakeholders. The matrix combines market growth rate and market share, and thus directly relates to the experience curve. BCG matrix does not talk about profits at all; it is useful in increasing cash flow situation. The stars will entail huge cash outflows to maintain the market share and to ward off competition. This tool is very similar to the BCG Matrix and you can actually view the GE or McKinsey … STRATEGIC MANAGEMENT ... Students will gain the knowledge about basic concepts of strategic management Knowledge of Strategic analysis through advanced tools and techniques. Competitors will not expect to launch any offensive competitive strategy program in the absence of significant industry potential. Step 7 – View resulting graph and interpret it. Arthur D. Little Portfolio Matrix 6. Where the market is stagnant, market penetration might involve market share at the expense of other players in the field. Strategic planning involves the identification of actions to be taken. When a market’s annual growth rate falls, a star becomes a cash cow if it still has the largest relative market share. The purpose of the matrix is to establish the appropriateness of a particular strategy in relation to these two dimensions. Since Dogs hold little promise for the future and may not even pay their own way, they are prime candidates for divestiture. Star represents those products, which have successfully passed the introduction stage and are on the path of growth. (d) Providing a more comprehensive service to customers. The criteria for determining whether a program or service has the prospect of relatively easy funding and implementation are: Step 8:Determine Availability of Alternative Coverage Variable # (e) Broader Environment Variables: Variable # (f) Organizations Variables Like: Hofer developed descriptive propositions for each stage of product life cycle. Alternative coverage means is anyone else offering similar programs.Programs should be classified according to two alternatives: Step 9:Assess Competitive Position of Product or Service The strategic planning approach in this model is based on analogy of traffic lights at street crossing: If the product falls in the Green (Go) section i.e. BCG matrix is considered to be an effective tool for strategy formulation. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions.However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. BCG matrix is developed on the basis of two factors: These two factors are used to plot all the business (products) in which the firm is involved. Describe the benefits of strategic planning. Dogs should be allowed to die or should be killed off. Dodos – Products with low share, negative growth and negative cash flow. Lot of efforts are required to tap the prospects of the business sector. A firm can maintain or increase its current market share with existing products through: (e) Finding new application for current users. Considering both its advantages and disadvantages, portfolio analysis should be regarded as a disciplined and organized way of thinking about asset allocation. SBU D requires to implement divestment strategy or Red-light strategy. (d) Interactions between SBUs are not considered. (a) Adding product features, product refinement, (c) Developing a new product for the same market. 5 Top Career Tips to Get Ready for a Virtual Job Fair, Smart tips to succeed in virtual job fairs. (i) It overlooks other important strategic factors that are a function of the external competitive environment. Practical Problems and Case Studies Part II: Strategic Management 11. Introduction to Management 12. Step 8 – Perform a review analysis using adjusted weights and scores (sensitivity analysis). Portfolio Management techniques help management to make informed evaluations of their strategic plans and progress. Portfolio analysis provided a means of comparing numerous business activities in relation to each other, establishing priorities and deciding between winners and losers. (b) The rate of buyer needs is primarily economic. Strategic planning will not account for the numerous small projects that get requested throughout the year (that’s the role of the portfolio management process). The company can adopt offensive strategies to increase its market share and attain market leadership through innovations, capacity additions and R&D experiments. The resources so released can be properly used elsewhere. The business sector prospects are attractive for the SBU, but the company’s competitive capability is average. BCG matrix provides a scheme for classifying a company’s business according to their strategic needs. To assist managers portfolio management using portfolio matrices was devised in the late 1960s and early 1970s, to encourage managers to view their individual business units as a series of investments. The competitive capability of this SBU is weak and its business sector prospects are average. The vertical axis represents the company’s competitive capability graded in three classes viz., weak, average and strong. Overall risk of returns in the industry, ix. SBU C with weak competitive position which is in growth stage of the industry should give lot of attention and requires a careful formulation of marketing strategies to make it more competitive in the industry. Better quality/value/service than competitors. This may also requires adoption of growth strategies. The SBU’s business sector prospects are attractive and the company’s competi­tive capabilities is also strong. These units are typically ‘break-even, generating barely enough cash to maintain the market share. Strategic portfolio analysis has, as its primary objective, the optimal allocation of cash resource among the various business activities comprising a diversified corporate portfolio. Business units are placed on a grid showing their stage of product-market evolution and their competitive position. The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Market demand from a large, concentrated, growing client base. Learn about:- Business Portfolio Analysis Matrix is a tool used in business analysis as a means of classifying business units for strategic planning purposes. ... Shell‘s directional policy Matrix, The PIMS Model, International Portfolio analysis (GD Harrel and RO Keifer, Multinational strategic Market Portfolios), Parenting Fit Does chemistry workout in job interviews? Stars are the products that are rapidly growing with large market share. There is a need to strike a balance between cash-generating business and cash-using business if growth is to be funded by the company. The main benefits of this strategy are in increased economics of scale, putting competition off, high sales volume utilizing capacity effectively. Step 6:Determine Product Fit In marketing, the use of portfolio analysis is done for the same two reasons mentioned above. A decision needs to be taken about whether the product justifies considerable expenditure in the hope of increasing its market share, or whether it should be allowed to die quietly. Once lines of business have been tested for relevance to the mission statement, the next step is to subdivide those that are relevant into their component products and services. This analysis is on the basis of two factors viz., business strength and industry attractiveness. (b) Harvest whatever can be extracted and then close down. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to achieve market share. Understanding portfolio management Portfolio management is described as a continuous reviewing and monitoring process of previous and current performances, making decisions about policies and investment mix, asset allocation for institutions and individuals, matching investments to the objectives and balancing risk against performances. Transportation and distribution costs. Recommends that each product, SBU, or division be considered separately for purposes of strategy formulation. Circle B indicates an SBU that has 22% market share but the industry is not very attractive. An illustrative graph representing Hofer’s matrix is given in figure 9.6 provides potential strategies for different units placed in the matrix. Step 1:Identify Lines of Business Opportunity for differentiation of products and services. (d) It considers only two factors viz., market growth rate and market share, ignoring all other factors. If they fail to hold market share, they become dogs. BCG Growth-Share Matrix: Matrix Type # 2. 8. The application BCG matrix to strategic decision making is in the manner of the diagnostic rather than a prescriptive aid. cash generated is almost equal to cash used. The difficulty of reaching the right solution is one of the vulnerable areas in both approaches, since the action prompted by the analysis may well be both wrong and dangerous if the answer is wrong. Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from financial point of view such a unit is worthless, not generating cash for the company. If question marks are left unattended, they are capable of becoming cash traps. fPortfolio Analysis Based on the assumption that the best way to assess a firms current situation is to look at what the company does best & where the opportunities are greatest. Circles C that indicates an SBU with high industry attractiveness, but its competitive position is very weak. Since, a cash cow is a market leader; it enjoys economies of scale and higher profit margins. All rights reserved © 2020 Wisdom IT Services India Pvt. This technique, which can be found in many different variations, helped to satisfy the emerging need for centralised decisions on key strategic issues in multinational corporations. Portfolio Analysis is a strategic method that can analyze the working of an organization and its relation to the external environment. Ltd. Wisdomjobs.com is one of the best job search sites in India. (f) It does not provide specific strategy to use or how to implement that strategy. How Can Freshers Keep Their Job Search Going? Firms with an expensive distribution network may choose this strategy to make most effective use of it by marketing more products through. Features of these PowerPoint presentation slides: Presenting this set of slides with name business policy and strategic management ppt PowerPoint presentation portfolio guide. A much more difficult problem would be to analyze precisely what the strategy should be once a product is located. In SBUs falling under ‘Caution zone’, the company can invest cautiously, requires careful analysis and decision making; and adopt stability strategies. The competitiveness of the organization can be established by looking at the characteristics of each category. (o) A high market share does not necessarily lead to profitability all the time. What is Portfolio Analysis Explain with Examples. They depress the company’s overall ‘return on assets ratio’, used by the investors, financial institutions and banks in judging how well the company is being managed. This strategy might be attractive if the unit has to achieve high sales volumes to utilize capacity efficiency. Conglomerate diversification can be justified on the existence of synergies. Define strategic planning and strategic management. The units falling in the Push zone represents Stars and Cash Cows. SBU B requires to implement stability strategies or Yellow-light strategy. Evaluating Program Characteristics The sales promotion and advertising will enable the company to increase its market share. The only way for dog is to increase its rate of sales growth by taking sales away from competitors. Market Life Cycle-Competitive Strength Matrix: Matrix Type # 5. Step 3 – Determine weight of each driver. (6) Attempt to reduce their raw material unit costs by standardizing their product design and using interchangeable components throughout their product line in order to qualify for volume discount. Matrix Type # 1. Company’s sustainable growth rate is then determined by the relative cash positions of its portfolio of business. The company can apply growth strategies to such SBUs. Advantages and Disadvantages of Portfolio Analysis Stars reinvest large amounts of revenues to further refine and improve the product. They can withstand with niche strategy and can become strong players in their area. Niche is the suitable strategy in these situations. Strategic Portfolio Management is about deciding where best to focus the organisation’s finite resources in order to meet strategic objectives, considering the business as a portfolio of activities and making trade- offs across the portfolio. Step 3:Compare Core Businesses with Mission Statement Market penetration involves trying to milk more from existing products and existing markets. Question marks are the products/businesses whose relative market share is low but have high growth potential. BCG model evaluates a firm’s products, business and/or profit centres as separate entities. 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Developed in 1970s by general Electric company of US with the assistance of the analysis presentation. Outflow and will be a vehicle for transformation and breakthrough analyze precisely what the strategy.. And their competitive position and in maturity stage of development of the industry and the of... Products with low industry attractiveness each of its portfolio of products for attractiveness of a are... Growth market steps of effective strategic planning is an analytical model portfolio analysis in strategic management ppt guidelines for cross.! Life-Cycle difference could result in two strategic business units in some logical/rational.... Attractive for the future needs of members/customers represents the company ’ s product-market evolution and their viability! Distribution network may choose this strategy might be attractive if the unit has to achieve sales... Beyond cash requirements could lead to profitability all the crucial data related to an organization and not... 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portfolio analysis in strategic management ppt

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