Business StrategiesGrowth strategies

About GE MatrixDeveloped by McKinsey & Company in 1970’s. GE is a model to perform business portfolio

analysis on the SBU’s.

GE is rated in terms of ‘Market Attractiveness & Business Strength’

It is an Enlarged & Sophisticated version of BCG.

ClassificationM

arke

t Attr

activ

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s

Strong Medium WeakLo

wM

ediu

mH

igh

Business Strength

5.00 1.002.333.67

5.00

3.67

2.33

Market Attractiveness

Annual market growth rate

Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Business StrengthCurrent market share Brand image Brand equity Production capacity Corporate image Profit margins relative

to competitors R & D performance Managerial personal Promotional

effectiveness

Invest Heavily for Growth

Invest Selectively &

BuildDevelop for

Income

Invest Selectively &

Build

Develop Selectively for Income

Harvest or

DivestDevelop

Selectively & build on

strengthsHarvest DivestM

arke

t Attr

activ

enes

sLo

w

Med

ium

Hig

hBusiness Position

High Medium Low

StrategiesProtect Position

Invest to growEffort on maintaining strength

Invest to BuildChallenge for leadershipBuild selectively on strength

Build Selectively Invest in most attractive

segmentBuild up ability to counter

competitionEmphasize profitability by

raising productivity

StrategiesProtect & Refocus

Manage for current earningDefend strength

Selectivity for earningProtect existing program Investments in profitable

segmentsBuild Selectivity

Specialize around limited strength

Seek ways to overcome weakness

Withdraw if indication of sustainable growth are lacking

Strategies Limited expansion for Harvest

Look for ways to expand without risk

Manage for EarningsProtect position in profitable

segment.Upgrade product lineMinimize Investment

HarvestSell at time that will maximize

cash valueCut fixed costs and avoid

investment meanwhile.

Over View

Business StrengthsM

arke

t Att

ract

iven

ess

Low

High

LowHigh

Attractive

Moderate Attractive

Unattractive

TATA Group IT (information Technology): TCS

Consumer Durable: Automobiles, Titan, etc.

Textiles: Tata Fabrics, West Sides, etc.

GE Matrix for TATA

Business Strengths

Mar

ket A

ttra

ctiv

enes

s

Low

High

LowHigh

ITConsumer Durables

Textiles

BCG v/s GE

BCG GE

Market Growth Market Attractiveness

Market share Market strength

4 cell 9 cell

Multi Products Multi Business Units

Primary tools Secondary tools

Five Competitive Forces

Threat of New

Entrants

Rivalry AmongExisting

Competitors

Bargaining Powerof Customers

Bargaining Powerof Suppliers

Threat ofSubstitutes

Threat of New

Entrants

Threat of Substitute Products

Threat of New

Entrants

Rivalry Among Competing Firms

in Industry

Bargaining Power of Buyers

Bargaining Power of Suppliers

Porter’s Five Forces Model of Competition

Purpose of Five-Forces AnalysisThe five forces are environmental forces

that impact on a company’s ability to compete in a given market.

The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

Threat of New

Entrants

Threat of New

Entrants

Porter’s Five Forces Model of Competition

Barriers to Entry

Expected RetaliationExpected RetaliationGovernment Government PolicyPolicy

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Cost Disadvantages Independent Cost Disadvantages Independent of Scaleof Scale

Threat of New Entrants

Bargaining Power of Suppliers

Threat of New

Entrants

Threat of New

Entrants

Porter’s Five Forces Model of Competition

Suppliers exert power in the industry by:

* Threatening to raiseprices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:Supplier industry is dominated by a Supplier industry is dominated by a few firmsfew firmsSuppliers’ products have few substitutesSuppliers’ products have few substitutes

Buyer is not an important customer to Buyer is not an important customer to suppliersupplierSuppliers’ product is an important Suppliers’ product is an important input to buyers’ productinput to buyers’ product

Suppliers’ products are differentiatedSuppliers’ products are differentiated

Suppliers’ products have high Suppliers’ products have high switching costsswitching costs

Supplier poses credible threat of Supplier poses credible threat of forward integrationforward integration

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of New

Entrants

Threat of New

Entrants

Bargaining Power of Suppliers

Porter’s Five Forces Model of Competition

Buyers compete with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

* Playing firms off ofeach other

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:Buyers are concentrated or purchases Buyers are concentrated or purchases are large relative to seller’s salesare large relative to seller’s sales

Purchase accounts for a significant Purchase accounts for a significant fraction of supplier’s salesfraction of supplier’s sales

Products are undifferentiatedProducts are undifferentiated

Buyers face few switching costsBuyers face few switching costs

Buyers’ industry earns low profitsBuyers’ industry earns low profits

Buyer presents a credible threat of Buyer presents a credible threat of backward integrationbackward integration

Product unimportant to qualityProduct unimportant to quality

Buyer has full informationBuyer has full information

Bargaining Power of Buyers

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Porter’s Five Forces Model of Competition

Products with similar function limit the prices firms can charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improving Products with improving price/performance tradeoffs price/performance tradeoffs relative to present industry relative to present industry productsproducts

Example:Example:

Electronic security systems in Electronic security systems in place of security guardsplace of security guards

Fax machines in place of Fax machines in place of overnight mail deliveryovernight mail delivery

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Rivalry Among Competing Firms

in Industry

Bargaining Power of Buyers

Bargaining Power of Suppliers

Porter’s Five Forces Model of Competition

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic positionUsing price competitionUsing price competitionStaging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductionsIncreasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunityPrice competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but Advertising battles may increase total industry demand, but may be costly to smaller competitorsmay be costly to smaller competitors

Rivalry Among Existing Competitors

CutthroatCutthroat competitioncompetition is more likely to occur when: is more likely to occur when:Numerous or equally balanced competitorsNumerous or equally balanced competitorsSlow growth industrySlow growth industryHigh fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costsHigh storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakesHigh exit barriersHigh exit barriers

Diverse competitorsDiverse competitors

Rivalry Among Existing Competitors

The Five Forces are Unique to Your Industry

Five-Forces Analysis is a framework for analyzing a particular industry.Yet, the five forces affect all the other

businesses in that industry.

Growth InternalExternal

Licensing FranchisingStrategic Alliance Joint ventureMerger & Acquisitions Green field ventures

Concentration growth

If a company’s current product lines have real growth potential.

Growing firms in a growing industry tend to choose these strategies

Vertical Forward integration

Assuming a function previously provided by distributors Backward integration

Assuming a function previously provided by a supplier Horizontal

Extending product variants and scope of operations into other territories

Concentric growth

Related diversificationEntering into related businesses opportunities

for Transferring competitively valuable expertise,

technological know-how and other capabilities from one business to another.

Combining related activities to reduced costAchieving economies of scope Exploiting well known common brand name / contactAchieving synergy 1+ 2 > 3 Examples – Rolls royce – Aircraft , Automobiles engGE – electrical appliances , captive power gensets,

energy generation / diesel locomotives

Conglomerate growth Un-related diversification

Diversifying into an industry unrelated to its current one. Future growth given importance To spread the business risk Ex – TATA : steel / Automobile / IT / Tea / FMCG / Life Style /

Publishing / Power & energy ITC – Cigarettes / FMCG/ Packaging King fisher – Hard Drinks / Airlines Wipro – FMCG/ IT / Electricals Godreg – Machine tools / FMCG

Turn Around Turn around management refers to the

management measures that reverse the negative trends in the performance indicators of the company (ie) turn a sick company back to a healthy one.

Indicators for the need of Turn around Persistence negative cash flowDeclining Market ShareDeterioration in physical facilities

Elements that contribute to a Turn around Changes in Top managementTo initiate credibility actionNeutralizing external pressure Initial control / cost controlRevenue generation thru liquidation of Non-

performing assets Better co-ordination