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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 Analysisii. Strategic Choiceiii. 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 companys 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 ("SBUs") 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 1970s, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GEs 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 SBUs 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 units 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 factors 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.