UNIT 4: Choice of Business Strategies
BCG Model
The BCG Matrix, also known as the growth-share matrix, is a strategic tool developed by the Boston Consulting Group to analyse a company's product portfolio. It categorizes products into four quadrants based on their market share and market growth rate, helping businesses make informed decisions about investment, divestment, or development.
Key Concepts
- Market Growth Rate: This refers to the rate at which the overall market for a product is expanding.
- Relative Market Share: This indicates how a company's market share compares to its competitors.
The Four Quadrants
- Question Marks: Low market share, high market growth rate. These products are in promising markets but haven't yet established a strong market position.
- Cash Cows: High market share, low market growth rate. These products are in mature markets and generate substantial revenue but require less investment.
- Stars: High market share, high market growth rate. These products are market leaders in fast-growing industries.
- Dogs: Low market share, low market growth rate. These products are in declining markets and may not be profitable.
Uses of the BCG Matrix
- Resource Allocation: Helps businesses allocate resources efficiently by prioritizing investments in promising products.
- Strategic Planning: Provides a framework for long-term strategic planning.
- Portfolio Management: Allows businesses to analyse their product portfolio.
Stop-Light Strategy Model
The "stop light strategy model," also known as the GE-McKinsey Matrix or Business Planning Matrix, is a strategic planning tool used by organizations to evaluate the performance and potential of their business units.
Industry Attractiveness:
This axis assesses factors like market size, growth rate, competitive intensity, profitability, and other industry trends.
Business Strength:
This axis evaluates the company's competitive position within each industry, considering factors like market share, brand strength, cost structure, and innovation capabilities.
| STRONG / HIGH | AVERAGE / MEDIUM | WEAK / LOW | |
|---|---|---|---|
| HIGH | High-High (Invest) | High-Medium (Select) | High-Low (Selective) |
| MEDIUM | Medium-High (Build) | Medium-Medium (Hold) | Medium-Low (Divest) |
| LOW | Low-High (Grow) | Low-Medium (Evaluate) | Low-Low (Harvest/Divest) |
Directional Policy Matrix (DPM) Model
The Directional Policy Matrix (DPM), also known as the GE/McKinsey Matrix, is a strategic tool used by companies to analyse their portfolio of products or areas of operation.
Key Concepts
- Market Attractiveness: This dimension assesses the potential of different markets or segments.
- Business Strength: This dimension evaluates the company's competitive position within specific markets.
How it works
- Identify Strategic Business Units (SBUs)
- Assess Market Attractiveness
- Evaluate Business Strength
- Plot SBUs on the Matrix
- Prioritize and Allocate Resources
Benefits
- Strategic Guidance
- Resource Allocation
- Portfolio Analysis
- Segmentation Strategy
Product/Market Evolution Matrix
The Product/Market Evolution Matrix (also known as the Ansoff Matrix or Growth Vector Matrix) is a strategic planning tool that helps businesses identify growth strategies.
| Existing Products | New Products | |
|---|---|---|
| Existing Markets | Market Penetration • Focus: Increase sales of existing products • Risk: Low | Product Development • Focus: Introduce new products • Risk: Medium |
| New Markets | Market Development • Focus: Sell existing products in new markets • Risk: Medium | Diversification • Focus: Enter new markets with new products • Risk: High |
Usefulness
- Identifies growth opportunities
- Helps assess risk vs. return trade-offs
- Assists in strategic planning and resource allocation
Profit Impact of Market Strategy (PIMS) Model
The PIMS Model is based on a large-scale study by the Strategic Planning Institute (SPI) that links business strategy variables to financial performance.
Core Idea:
Certain strategic variables—like market share, investment intensity, product quality, and competitive position—have a consistent, measurable impact on long-term profitability across industries.
Key Variables and Their Impact
- Market Share – Higher market share usually leads to higher profitability due to economies of scale.
- Investment Intensity – Higher capital investment relative to sales may reduce ROI in the short term.
- Product/Service Quality – Superior quality increases customer loyalty and price tolerance.
- Vertical Integration – Can increase control and margins but may also raise fixed costs.
- Cost Position – Low-cost producers often enjoy higher margins.
- Innovation – R&D and new product introductions affect competitive positioning and growth.
- Customer Orientation – A strong customer focus leads to retention and word-of-mouth growth.
Application of PIMS Model
- Helps managers forecast performance based on strategic choices.
- Guides resource allocation and strategic trade-offs.
- Encourages data-driven decision-making using benchmarks from real-world businesses.
