Strategy Formulation Tools: MICHAEL PORTER Model for Industry Analysis Thursday, Jun 10 2010 

PORTERS MODEL FOR INDUSTRY ANALYSIS:

Perhaps the best known tool for formulating strategy is the model developed by Michael E. Porter, an internationally acclaimed strategic management expert.

Essentially, Porter’s model outlines the primary forces that determine competitiveness within an industry and illustrates how those forces are related.

The model suggests that in order to develop effective organizational strategies, managers must understand and react to those forces within an industry that determine an organization’s level of competitiveness within that industry.

According to these model, competitiveness within an industry is determined by the following factors:

  1. New Entrants or New Companies within the Industry
  2. Substitute Products or Services – for goods or services that the companies within the industry produce/provide.
  3. Supplier’s Ability to control issues like costs of material/ inputs that industry companies use to manufacture their products or provide their services.
  4. Competition level among the firms in the industry.

According to the model, buyers, product substitutes, supplier and potential new companies within an Industry all contribute to the level or rivalry among industry firms.

Advertisements

Strategy Formulation: BCG Growth-Share Matrix Model Thursday, Jun 10 2010 

BCG Growth-Share Matrix:

The Boston Consulting Group, a leading consulting firm, developed and popularized a portfoilo analysis tools that helps managers develop organizational strategy based on market share of businesses and the growth of markets in which businesses exist.

The 1st step in using this model is identifying the organization’s strategic business units (SBUs). A Strategic business Unit is a significant organization segment that is analysed to develop organizational strategy aimed at generating future business or revenue.

Exactly what constitutes as SBU varies from company to company. In bigger organizations, and SBU could be a company division, a single product or a complete Product Line.

In smaller organizations, it might be the entire company.

Eventhough they vary drastically in form each SBU has the following characteristics:

  1. It is a single business or collection of related businesses.
  2. It has its own competitors.
  3. It has a manager who is accountable for its operation.
  4. It is an area that can be independently planned for within the organization.

After identifying the SBUs, the next step is to categorize each SBU within one of the 4 Matrix Quadrants:

  1. STARS – Star SBUs have a high share of a high growth market and typically need large amounts of cash to support their rapid and significant growth. Stars also generate large amounts of cash for the organization and are usually segments in which management can make additional investments and earn attractive returns.
  2. CASH COWS: SBUs that are Cash Cows have a large share of a market that is growing only slightly. Naturally, these SBUs provide the organization with large amounts of Cash, but since their market is not growing significantly, the cash is generally used to meet the financial demands of the organization in other areas, such as the expansion of a STAR SBU.
  3. QUESTION MARKS: These category of SBUs have a small share of a high growth market. These are “question marks” because it is uncertain whether management should invest more cash in them to gain a larger share of the market or deemphasize or eliminate them. Management will choose the 1st option when it believes it can turn the question mark into a star, and the 2nd option when it thinks that future investments would be fruitless.
  4. DOGS : SBUs that are dogs have a relatively small share of a low-growth market. They may barely support themselves; in some cases, they actually drain off cash resources generated by other SBUs. These are the SBUs which are likely to be shortlisted for deemphasize or elimination.

PITFALLS of the BCG Growth Matrix Model:

The matrix does not consider factors like:

  • Various types of Risk associated with product development
  • Threats that inflation and other economic conditions can create in the future.
  • Social,Political and Ecological Pressures.

A LEARNING ORGANIZATION Sunday, Jun 6 2010 

A LEARNING ORGANIZATION is an organization that does well in creating, acquiring and transferring knowledge, and in modifying behaviour to reflect the new knowledge.

Learning organizations emphasize systematic problem solving,experimenting with new ideas, learning form experience and past history, learning from the experience of others, and transferring knowledge rapidly throughout the organization.

According to Peter Senge, the 5 features of a learning organization are:

  1.  SYSTEMS THINKING: Every organization member understands her own job and how the job fits together to provide final products to the customer.                                                        
  2. SHARED VISION: All organization members have a common view of the purpose of the organization and a sincere commitment to accomplish the purpose.                                                       
  3. CHALLENGING OF MENTAL MODELS: Organization members routinely challenge the way business is done and the thought processes people use to solve the organizational Problems.                 
  4. TEAM LEARNING: Organization members work together, develop solutions to new problems together, and apply the solutions together. Working as teams rather than individuals will help organizations gather collective force to achieve organizational goals.                                                                                         
  5. PERSONAL MASTERY: All organization members are committed to gaining a deep and rich understanding of their work.