37 Strategy and Matrixes

Dr.Shafali Nagpal

39.1  Learning Objective

39.2  Introduction

39.3  Meaning and Definitions

39.4  Nature of Strategy

39.5  Process of Strategy

39.6  BCG Matrix

39.7  Ansoff Matrix

39.8 Summary

Learning Objectives

After completing this module, you will be able to:

1. Understand the concept of Strategy and its nature
2. Learn strategic process
3. Types of common strategic matrix, BCG and Ansoff Matrix.

Introduction

The top management of an organization is concerned with the selection of a course of action from among different alternatives to meet the organizational objectives. The process by which objectives are formulated and achieved is known as strategic management and strategy acts as the means to achieve the objective. Strategy is the grand design or an overall ‘plan’ which an organization chooses in order to move or react towards the set of objectives by using its resources. Strategies most often devote a general program of action and an implied deployed of emphasis and resources to attain comprehensive objectives. An organization is considered efficient and operationally effective if it is characterized by coordination between objectives and strategies. There has to be integration of the parts into a complete structure. Strategy helps the organization to meet its uncertain situations with due diligence. Without a strategy, the organization is like a ship without a rudder. It is like a tramp, which has no particular destination to go to. Without an appropriate strategy effectively implemented, the future is always dark and hence, more are the chances of business failure.

Meaning

The word ‘strategy’ has entered in the field of management from the military services where it refers to apply the forces against an enemy to win a war. The word “strategy” came from the two

Greek words i.e. Stratus (Army) and Agein (to lead). The Greeks felt that the strategy making is one of the responsibilities of the Army General. This concept today adopted even in the business. Even around the same time, the Chinese General Sun Dzu who wrote about strategy also suggested that the strategy making is one of the responsibilities so the leader. One of the earliest definitions of Strategy is traced to the ancient Greek writer Xenophon who said “Strategy knows the business you proposed to carry out.” This definition implies that the knowledge of the business as strategy.

Definitions of Strategy

Kennth Andrews defined strategy as “the pattern of major objectives, purposes or goals and essential policies or plans for achieving the goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.” This definition of strategy emphasizes on purpose and the means by which purpose will be achieved. It also emphasizes on the values and the cultures that the company stand for. Kenichi Ohmae defines strategy as “the way in which a corporation endeavors to different it positively from its competitors, using its relative strengths to better satisfy customer needs.” Ohmae’s definition highlights the competitive aspect of strategy and the strengths required to satisfy customer needs. This definition thus aims at customer satisfaction as the driver of the strategy.

According to Glueck, “Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process”

Nature of Strategy

Based on the above definitions, we can understand the nature of strategy. A few aspects regarding nature of strategy are as follows:

Source: http://forexingbusiness.blogspot.in/2010/08/nature-of-strategic-management.html

• Strategy is a major course of action through which an organization relates itself to its environment particularly the external factors to facilitate all actions involved in meeting the objectives of the organization.
• Strategy is the blend of internal and external factors. To meet the opportunities and threats provided by the external factors, internal factors are matched with them.
• Strategy is the combination of actions aimed to meet a particular condition, to solve certain problems or to achieve a desirable end. The actions are different for different situations.
• Due to its dependence on environmental variables, strategy may involve a contradictory action. An organization may take contradictory actions either simultaneously or with a gap of time. For example, a firm is engaged in closing down of some of its business and at the same time expanding some.
• Strategy is future oriented. Strategic actions are required for new situations which have not arisen before in the past.
• Strategy requires some systems and norms for its efficient adoption in any organization.

Process of Strategy

There are mainly two processes which are generally used in the strategy management.

1. Prescriptive Strategic Process

“A prescriptive strategy is one whose objective is defined in progress and whose main elements have been developed before the strategy commences.” Such an approach usually starts with an analysis of the outside environment and the resources of the company. The objectives of the organization are then developed from this. There then follows the generation of strategic options to achieve the objectives, from which one (or more) may be chosen. The chosen option is then implemented.

Advantages of Prescriptive Strategic Process

• Clear objectives provide focus on the Business.
• Objectives can be translated into Targets against which performance can be measured and monitored.
• Resources can be allocated to specific objectives and efficiency can be judged. The approach is logical and rational.
• It structures complex information, defines and focuses business objectives, establishes controls, and sets targets that performance can be measured.

Criticisms of Prescriptive Strategic Process

• There is commonly major Difference between designed and realized strategy.
• Rigid Planning in a dynamic and turbulent business environment can be uncreative. Rigid loyalty to plans may mean missed business opportunities.
• It is possible and better to go without the short-term benefit in order to obtain the long-term good.
• The chief executive has the information and authority to choose between options.
• It is overly prescriptive because the business environment can be very disordered and complex.

2. Emergent Strategic Process

An emergent or learning strategy does not have the similar set objective. The whole process is more experimental with various possible outcomes depending on how matters extend. “An emergent strategy is one whose final objective is undecided and whose elements are developed during the course of its life, as the strategy proceeds.” Thus the early stages of emergent strategy may be similar to prescriptive strategy – analysis of the environment and resources. But then the process becomes more round, knowledge and experimental.

Advantages of Emergent Strategic Process

• Emergent strategy increases flexibility in a chaotic environment, allowing the business to respond to pressure and develop opportunities.
• Changing Stakeholder connections can mean that strategy is often, of necessity, emergent.
• Consistent with actual practice in organisations. Motivation issue of customer is consider.
• Experimentation is allow to take place of strategy.
• Opportunity for inclusion of culture and politics of organisation.

Criticisms of Emergent Strategic Process

• There is a danger of “strategic drift” as objectives is not clear.
• It is more difficult to assess performance as targets are less well defined.
• Impracticable to expect board members to allow business to function without objectives.
• Group resources need to be allocated between demands of competing operating companies.
• Abdicates responsibilities for final decisions by involving political groups and individuals.
• Removes aspects of rational thinking from decision making.

Strategy and BCG Matrix

Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth-share matrix – provides a framework for analyzing products according to growth and market share. The BCG matrix has been used since 1968 to help companies gain insights on what products best help them capitalize on market-share growth opportunities.

Creating your matrix

First, you’ll need data on the market share and growth rate of your products or services. When examining market growth, you need to objectively compare yourself to your largest competitor and think in terms of growth over the next three years. If your market is extremely fragmented, however, you can use absolute market share instead, according to the Strategic Thinker blog.

Next, you can either draw a matrix or find a BCG chart program online. (There are several that are free, available for subscription or part of another charting program.) In this four-quadrant chart, market share is shown on the horizontal line (low left, high right) and growth rate along the vertical line (low bottom, high top). The four quadrants are designated “stars” (upper left), “question marks” (upper right), “cash cows” (lower left) and “dogs” (lower right).

Source: DeiMosz/Shutterstock

Place each of your products into the appropriate box based on where they rank in market share and growth. Where you choose to set the dividing line between each quadrant depends in part on how your company compares to the competition. Here is a breakdown of each quadrant:

Stars: The business units or products that have the best market share and generate the most cash are considered stars. Monopolies and first-to-market products are frequently termed stars. However, because of their high growth rate, stars also consume large amounts of cash. This generally results in the same amount of money coming in that is going out. Stars can eventually become cash cows if they sustain their success until a time when the market growth rate declines. Companies are advised to invest in stars.

Cash cows: Cash cows are the leaders in the marketplace and generate more cash than they consume. These are business units or products that have a high market share but low growth prospects. According to concept, cash cows provide the cash required to turn question marks into market leaders, cover the administrative costs of the company, fund research and development, service the corporate debt, and pay dividends to shareholders. Companies are advised to invest in cash cows to maintain the current level of productivity, or to “milk” the gains passively.

Dogs: Also known as pets, dogs are units or products that have both a low market share and a low growth rate. They frequently break even, neither earning nor consuming a great deal of cash. Dogs are generally considered cash traps because businesses have money tied up in them, even though they are bringing back basically nothing in return. These business units are prime candidates for divestiture.

Question marks: These parts of a business have high growth prospects but a low market share. They consume a lot of cash but bring little in return. In the end, question marks, also known as problem children, lose money. However, since these business units are growing rapidly, they do have the potential to turn into stars. Companies are advised to invest in question marks if the product has potential for growth, or to sell if it does not.

Using the matrix to strategize

Now that you know where each business unit or product stands, you can evaluate them objectively. In an article on Marketing 91, author Hitesh Bhasin outlines four potential strategies you can follow based on the results of your BCG matrix analysis:

1. Build – Increase investment in a product to increase its market share. For example, you can push a question mark into a star and, finally, a cash cow.
2. Hold – If you can’t invest more into a product, hold it in the same quadrant and leave it be.
3. Harvest – Reduce your investment and try to take out the maximum cash flow from the product, which increases its overall profitability (best for cash cows).
4. Divest – Release the amount of money already stuck in the business (best for dogs).

The continual search for new organizational forms is driven by basic changes in the nature of competition and the economy. First, advantage today is derived less from the management of physical and financial assets and more from how well companies align such intangible assets as knowledge workers, R&D, and IT to the demands of their customers. Second, the opportunities and challenges that globalization affords are forcing companies to revisit many assumptions about the control and management of both their physical and their intangible assets. Today’s computer company, for example, can manufacture components in China, assemble them in Mexico, ship them to Europe, and service the purchasers from call centers in India. This dispersal creates demands for new structures to align internal and outsourced units around the world.

Limitations

There are some limitations to the use of this popular matrix as well. These limitations mean a decline in the once extensive use of this tool. These include:

Market growth is one of many factors that determine industry attractiveness and relative market share is only one of many factors that determine competitive advantage. This matrix does not take into account any other factors that may have a bearing on both industry attractiveness and competitive advantage.

There is an underlying assumption that the business units are operating in isolation in relation to each other. In reality, a dog may be helping another unit gain a competitive advantage for example.

The definition of a market is taken in the broad sense. This fails to take into account different situations such as a business unit that is dominating a niche but is overall less dominant in the larger industry. The way a market is defined in such an instance may change its definition from a dog to a cash cow.

Benefits of the matrix:

• Easy to perform;
• Helps to understand the strategic positions of business portfolio;
• It’s a good starting point for further more thorough analysis.
• Growth-share analysis has been heavily criticized for its oversimplification and lack of useful application. Following are the main limitations of the analysis:
• Business can only be classified to four quadrants. It can be confusing to classify an SBU that falls right in the middle.
• It does not define what ‘market’ is. Businesses can be classified as cash cows, while they are actually dogs, or vice versa.
• Does not include other external factors that may change the situation completely.
• Market share and industry growth are not the only factors of profitability. Besides, high market share does not necessarily mean high profits.
• It denies that synergies between different units exist. Dogs can be as important as cash cows to businesses if it helps to achieve competitive advantage for the rest of the company.

Ansoff Matrix

As part of a larger strategic planning initiative, an Ansoff matrix is a communication tool which helps you see the possible growth strategies for your organization. The hard work is in selecting one of the four Ansoff growth strategies.

An Ansoff Matrix (sometimes referred to as Ansoff Growth Matrix or Ansoff’s Matrix) has its roots in a paper written in 1957 by Igor Ansoff. In the paper he proposed that product marketing strategy was a joint work of four growth areas: market penetration, market development, product development, and diversification. When displayed visually, these four areas create the Ansoff Growth Matrix.

Market Penetration. The first quadrant in the Ansoff matrix is market penetration. It is often adopted as a strategy when the organization has an existing product with a known market and needs a growth strategy within that market. The best example of such a scenario is the telecom industry. Most telecom products exist in the market and must cater to that market. In such cases competition is intense. This means that in order to grow, the organization may have to go out of its way to increase market share.

Market Development. Market development is the second market growth strategy in the Ansoff matrix. This strategy is used when the firm targets a new market with existing products. There are several examples. These include leading footwear firms like Adidas, Nike and Reebok, which have entered international markets for expansion. These companies continue to expand their brands across new global markets. That’s the perfect example of market development. For a smaller enterprise, this strategy entails expanding from a current market to another market where its product does not currently compete.

Product Development. Product development in the Ansoff matrix refers to firms which have a good market share in an existing market and therefore might need to introduce new products for expansion. Product development is needed when the company has a good customer base and knows that the market for its existing product has reached saturation. In this case, the market penetration strategy is no longer practical. A new product development strategy that caters to the existing market is a better approach.

Diversification. The diversification strategy in the Ansoff matrix applies when the product is completely new and is being introduced into a new market. An example of diversification is Samsung. It began as a trading company, later expanding into insurance, securities, and retail. Today, it is mostly known for its electronics division. This group initially started with one product – a black-and-white television set. It entered the telecom market in 1980 developing telephone switchboards, then later into telephones, fax machines, and mobile phones. Samsung now has a market presence in a diversified global set of businesses including semi-conductors, appliances, and cameras, watch making, apparel, music services, cloud computing, and home automation

The test requirements matrix is a table, where the requirement descriptions are placed in rows in the table, & descriptions of the efforts of the tests are put in the header of the column of the table. The test matrix of the requirements is a project management device for monitoring & managing the efforts of the evidence, based on require, throughout the project life cycle. The matrix of test requirements is similar to the array of requirements traceability, which is a representation of user requirements aligned against process functionality. The requirements traceability matrix ensures that all user needs are addressed by the systems integration team & implemented in the systems integration hard work. The test matrix of the requirements is a representation of user requirements aligned against process testing. As in the matrix of the requirements traceability matrix testing requirements ensures that all user requirements are addressed by the process test team & implemented in the process test hard work.

Reference

• Strategic Planning (1979). George Steiner. Free Press.
• The Rise and Fall of Strategic Planning (1994). Henry Mintzberg. Basic Books.
• The Concept of Corporate Strategy, 2nd Edition (1980). Kenneth Andrews. Dow-Jones Irwin.
• “What is Strategy?” Michael Porter. Harvard Business Review (Nov-Dec 1996). Competitive Strategy (1986). Michael Porter. Harvard Business School Press.
• Top Management Strategy (1980). Benjamin Tregoe and John Zimmerman. Simon and Schuster.
• Strategy: Pure and Simple (1993). Michel Robert. McGraw-Hill.
• https://www.professionalacademy.com/blogs-and-advice/marketing-theories—boston-consulting-group-matrix
• https://en.wikipedia.org/wiki/Growth%E2%80%93share_matrix
• https://blog.infodiagram.com/2017/01/bcg-matrix-infographics-presentation.html http://managementstudyguide.com/bcg-matrix.htm
• J.S. Chandan, Management Concepts and Strategies.
• Kotler, P. (1991). Marketing Management. 7th ed. Prentice-Hall
• David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall.