2nd mba Strategic Management

STRATEGIC MANAGEMENT
GEC MODEL

Presented by,

Jincy Joseph
2nd year , MBA

STRATEGY

 Johnson and Scholes (Exploring Corporate Strategy)
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".

STRATEGY AT DIFFERENT LEVELS OF A
BUSINESS
Strategies exist at several levels in any organisation - ranging from the
overall business (or group of businesses) through to individuals
working in it.
 Corporate Strategy - is concerned with the overall purpose and
scope of the business to meet stakeholder expectations. This is a
crucial level since it is heavily influenced by investors in the business
and acts to guide strategic decision-making throughout the business.
Corporate strategy is often stated explicitly in a "mission statement".
 Business Unit Strategy - is concerned more with how a business
competes successfully in a particular market. It concerns strategic
decisions about choice of products, meeting needs of customers,
gaining advantage over competitors, exploiting or creating new
opportunities etc.
 Operational Strategy - is concerned with how each part of the
business is organised to deliver the corporate and business-unit level
strategic direction. Operational strategy therefore focuses on issues of
resources, processes, people etc.

STRATEGIC MANAGEMENT

 In its broadest sense, strategic management is about
taking "strategic decisions"

 In practice, a thorough strategic management
process has three main components :
i. Strategic Analysis
ii. Strategic Choice
iii. Strategy Implementation

 Strategic Analysis
This is all about the analysing the strength of businesses' position
and understanding the important external factors that may
influence that position. The process of Strategic Analysis can be
assisted by a number of tools, including:
PEST Analysis ,SWOT Analysis ,Competitor Analysis… etc

 Strategic Choice
This process involves understanding the nature of stakeholder
expectations (the "ground rules"), identifying strategic options, and
then evaluating and selecting strategic options.

 Strategy Implementation
Often the hardest part. When a strategy has been analysed and
selected, the task is then to translate it into organisational action.

BUSINESS PORTFOLIO
 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.
 The company must:

(1) Analyse its current business portfolio and decide
which businesses should receive more or less
investment, and

(2) Develop growth strategies for adding new products
and businesses to the portfolio, whilst at the same time
deciding when products and businesses should no longer
be retained.

 The two best-known portfolio planning methods are the
Boston Consulting Group Portfolio Matrix and the
McKinsey / General Electric Matrix .

 In both methods, the first step is to identify the various
Strategic Business Units ("SBU's") in a company
portfolio. An SBU is a unit of the company that has a
separate mission and objectives and that can be
planned independently from the other businesses. An
SBU can be a company division, a product line or even
individual brands - it all depends on how the company
is organised.

THE MCKINSEY / GENERAL ELECTRIC
MATRIX
 GE Matrix is a tools that helps managers develop
organizational strategy that is based primarily on market
attractiveness and business strengths.

 In consulting engagements with General Electric in the
1970's, McKinsey & Company developed a nine-cell
portfolio matrix as a tool for screening GE's large
portfolio of strategic business units (SBU). This business
screen became known as the GE/McKinsey Matrix and
is shown below:

 The GE / McKinsey matrix is similar to the BCG growth-share
matrix in that it maps strategic business units on a grid of the
industry and the SBU's position in the industry. The GE matrix
however, attempts to improve upon the BCG matrix in the
following two ways:

 The GE matrix generalizes the axes as "Industry
Attractiveness" and "Business Unit Strength" whereas the
BCG matrix uses the market growth rate as a proxy for industry
attractiveness and relative market share as a proxy for the
strength of the business unit.

 The GE matrix has nine cells vs. four cells in the BCG matrix.

 Industry attractiveness and business unit strength are
calculated by first identifying criteria for each, determining the
value of each parameter in the criteria, and multiplying that
value by a weighting factor. The result is a quantitative
measure of industry attractiveness and the business unit's
relative performance in that industry.

Industry Attractiveness
 The vertical axis of the GE / McKinsey matrix is industry attractiveness, which
is determined by factors such as the following:
 Market growth rate
 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macroenvironmental factors (PEST)

 Each factor is assigned a weighting that is appropriate for the industry. The
industry attractiveness then is calculated as follows:

Industry attractiveness =
factor value1 x factor weighting1 +
factor value2 x factor weighting2 +
.
.
.
+
factor valueN x factor weightingN

Business Unit Strength

 The horizontal axis of the GE / McKinsey matrix is the strength of the
business unit. Some factors that can be used to determine business
unit strength include:
 Market share
 Growth in market share
 Brand equity
 Distribution channel access
 Production capacity
 Profit margins relative to competitors

 The business unit strength index can be calculated by multiplying the
estimated value of each factor by the factor's weighting, as done for
industry attractiveness.

STRENGTHS AND WEAKNESSES

 The GE/McKinsey Matrix, as an extension of the BCG framework, shares the
aforementioned advantages of the BCG model. Though the GE/McKinsey
Matrix is more sophisticated than the BCG matrix and can provide higher value
information for the executive management, it has several flaws and limitations:
 No proven relationship between market attractiveness and business position.
 The relationships between different units are not taken into account.
 The core-competencies that lead to value creation are not taken into
consideration.
 The approach requires extensive data gathering.
 Scoring is personal and subjective (risk of bias)
 There is no hard and fast rule on how to weight elements.
 The GE/McKinsey Matrix offers a broad strategy and does not indicate how
best to implement it.

 For the above limitations and issues, the GE/McKinsey Matrix can serve more
as a quick strategic visual framework rather than as a resource allocation tool.

CONCLUSION

 Both the BCG and GE/McKinsey Matrix have
proven over the years to be useful tools in order to
assess the strength of a company’s portfolio of
products relative to the attractiveness of the market
they inhabit.
 They can be used both internally as a strategy tool
and externally as a competitive intelligence
technique, with their strength lying in their ease of
use and interpretation.
 Despite these strengths, users must be aware of
their limitations and would be wise to use them
primarily as an overview or as a complement to
other analytical techniques.

REFERENCES
 http://wiki.telfer.uottawa.ca/ci-
wiki/index.php/BCG_Matrix_%26_GE/McKinsey_Matrix

 http://www.enotes.com/strategic-planning-tools-
reference/strategic-planning-tools

 http://tutor2u.net/business/strategy/ge_matrix.htm

 http://managementinnovations.blogspot.in/2008/12/strat
egy-formulation-tools.html

 http://www.quickmba.com/strategy/matrix/ge-mckinsey/

2nd mba Strategic Management

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