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Corporate Strategy

1. Directional Strategy- orientation towards growth, stability or retrenchment 2. Parenting Strategy- coordination of activities, transfer of resources 3. Portfolio Strategy- industries or markets in which firm competes

Directional Strategy
Growth
Concentration vertical growth integration into buyers or sellers horizontal growth- merger, acquisition

Diversification. concentric- strong competitive position but low industry attractiveness (related business) - conglomerate unattractive industry unrelated business

Stability no change
Retrenchment sell out, divest, bankruptcy

Portfolio Strategy
The BCG Growth Matrix for Evaluating Diversified Companies

BCG Matrix
High

Stars
Industry Growth

Question Marks

Cash Cows
Low High

Dogs

Low Relative Market Share

BCG Growth Matrix


Questions Marks
-New products with potential for success Stars - market leaders at the peak of the product cycle Cash Cows - declining stage of the life cycle bringing a lot of cash for investing in new question marks Dogs -low market share and low growth hence sell off

Characteristics of Cash Cows

A cash cow business generates cash surpluses over and above what is needed to sustain its present market position Such businesses are valuable because surplus cash can be used to

Pay corporate dividends Finance new acquisitions Invest in promising Dogs Strategic objective: Fortify and defend present market position--keep the business healthy!!!

Characteristics of DOGS

A business is a DOG when its internal cash flows are inadequate to fully fund its need for working capital and new capital investment the parent company has to continually pump in capital to feed the DOG Strategic options Aggressively invest in attractive DOGS Divest DOGS lacking long-term potential

GE Nine-Cell Matrix
Industry Attractiveness
Market Size Growth Rate Profit Margin Intensity of Competition Seasonality Cyclicality Resource Requirements Social Impact Regulation Environment Opportunities & Threats Relative Market Share Reputation/ Image Bargaining Leverage Ability to Match Quality/Service Relative Costs Profit Margins Fit with KSFs
10.0

Strong

6.7

Average

3.3

Weak

1.0

High
6.7

Medium
3.3

Low
1.0

Rating Scale: 1 = Weak ; 10 = Strong

Strategy Implications of Attractiveness/Strength Matrix

Businesses in upper left corner

Accorded top investment priority Strategic prescription is grow and build Businesses in three diagonal cells Given medium investment priority Invest to maintain position Businesses in lower right corner Candidates for harvesting or divestiture May be candidates for an overhaul and reposition strategy

The Attractiveness/Strength Matrix


Allows for intermediate rankings between high and low and between strong and weak Incorporates a wide variety of strategically relevant variables Stresses allocating corporate resources to businesses with greatest potential for

Competitive advantage and Superior performance

Decide Resource Allocation Priorities and Strategic Direction Objective:


Get the biggest bang for the buck 23 6 in allocating corporate resources 45 Procedure: Rank each business from highest to lowest priority for corporate resource support and new investment (steer resources to high opportunity areas and limit support to low opportunity areas) Develop a general strategic direction for each business