Tuesday, September 04, 2007

Strategic Role

By profession, I am a strategist -experienced in marketing and planning. I can see the whole picture and visualize the end-game. Being strategist sounds like a glorious thing because attention to detail, good organization skills and focus. I should underline that strategic planning and competitive intelligence is the yin and yang of corporate management.

Johnson and Scholes define strategy as follows:

''Strategy is the direction and scope of an organisation over the long-term which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.''

The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

Once the firm has identified its business goals and objectives, and identified its strategic factors, the firm can then perform an analysis on the important factors to generate and evaluate strategic options. There are several types of analysis that perform. We call some of them ''Situation Analysis'', and others as ''Portfolio Analysis'' (which are more directed towards business units and products).

The process of Strategic Analysis can be assisted by a number of tools. The classic tool of portfolio analysis is Boston Consulting Group's 'Directional Policy Matrix (DPM)'. What does it offer us?

~ It looks at the growth rate of an industry versus a firm's relative market share to determine which products are important to a firm.

~ It is a two-dimentional matrix that measures the health of the market and your strength to pursue it.

The BCG's Matrix is divided into four quadrants as seen in this illustrated figure:

Using the matrix, a company classifies all its businesses according to two dimensions:

Market Share (On the horizontal axis): Provides a measure of business units strength in the market.

Market Growth (On the vertical axis): Provides a measure of market attractiveness.

These four types of Business units can be distinguished:

Stars are high-growth businesses or products which are growing rapidly and whose cashflow is at least in balance. They are strong compared with the competition. Often they need heavy investment to sustain their growth.

Cash-Cows are well-established low-growth businesses or products which generate surplus cash with a high market share. They are successful businesses with little need for investment. They need to be managed for continued profit. So they continue to generate a strong cash flows that the company needs for its Stars.

are likely to have low profits and low-growth markets. They should be disposed of, especially if needing further investment.

Question marks are businesses or products with low market share but hey operate in higher growth markets. They may become ''Stars'' if cash is invested to increase relative market share or may become ''Dogs'' if growth should fall. So management have to think hard about ''Question Marks'' -which one should they allow to invest in, to fail or to shrink?

Final: The results indicate the direction for future investment. The recommendation is to invest, grow, harvest or divest. Therefore, strategy is the cornerstone for the success.

Ref: Davies, A., 'Strategic planning techniques', 1995.

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