Strategy Management process

Definition

Strategic management in a business refers to the planning, management, utilization of resources to define and achieve objectives
efficiently. It also includes a review of internal processes and external factors impacting the business. Formulating and
implementing strategies allow a company to proceed with its action plan.

Understanding Strategic Management

The strategic management model deals with the planning, analyzing, and assessing different factors and inputs critical for
production. It also entails the evaluation, allocation, and exploitation of available resources to achieve specified business
objectives. The corporate culture, internal structure, and skills of human resources influence the strategy development process of
an organization.
By identifying and managing strategies, a company can make decisions about its future direction and performance. Also, with
strategic organizational management, top officials can learn from past failures and devise an action plan. It further necessitates
evaluating potential threats and opportunities and analyzing possibilities for operational improvement.

Let us understand this with a simple example:

Diana runs an apparel store that employs ten people, including herself. She assigned two people to work on social media
promotions of her store, two people for physical advertisements in the local area, two software developers to design and develop
her e-commerce website, and two representatives to attend customers at the store. Diana herself took the responsibility of
supervising all the tasks and coordinating with the teams.

As the business flourished, she decided to open more branches. Diana listed down her business expansion goals, finalized the
budget, and formulated strategies. She also hired the best people and put them to work to achieve objectives.
Diana noticed that her products receive more attention online. So, she decided to focus more on online promotions and her e-
commerce website. Therefore, she collaborated with the best logistics partners to ensure her products get delivered to customers
on time.

The planning and assessment of different inputs and factors helped Diana make informed decisions, thereby assisting her in
developing effective strategies

Process Of Strategic Management

#1 – Identifying Direction

The first step requires the organization to have a clear vision and direction. Before developing plans, a business should determine
its short- and long-term objectives. The company will not have any clarity on processes and procedures unless it sets its goals
beforehand.

#2 – Analyzing Resources

An organization must first arrange its resources to carry out specific tasks to reap the strategic management benefits. For example,
someone who excels at marketing may struggle to manage the organization’s public relations. Hence, the management should
assess its resources and select the best one for respective processes.

#3 – Framing Strategies

After selecting the best resource for every process, the organization frames its action plan for accomplishing the goal. This strategic
planning consists of elements needed to achieve the set objectives effectively. The analysis, assessment, and supervision of
processes at every stage help the business resolve issues, whether internal or external.

#4 – Implementing Strategies

Following the strategy development based on the organization’s objectives, the next stage is to execute them. Every business must
train its human resources, from entry-level employees to managers, to ensure they fully understand the process. It will bring core
competencies into action within the organization for the best possible output.

#5 – Evaluating Effectiveness

The review of strategies is the final step in the process. Looking into each aspect of the business during the strategy formulation
and implementation helps the management identify the efforts of every individual. The organization can recognize these efforts
through performance appraisal schemes, which are essential aspects of the business.
Examples

Let us understand the concept better with the below-mentioned strategic management examples:

Example #1

Dave intends to extend his constrained furniture business by introducing a new product category, i.e., all home decor goods.
However, he is unsure how his brand would perform as it took years for him to establish his furniture business due to a delay in
identifying negative factors. Thus, to avoid any risk this time, Dave conducts SWOT (Strengths, Weaknesses, Opportunities, and
Threats) analysis as part of the strategic management.
He identifies the strong and weak points of business. He also analyzes potential opportunities and threats based on the current
market trend. Accordingly, Dave strategizes and plans the processes, starting from manufacturing to advertising, ensuring that he
allocates the right resources at the right places.

Example #2

The old strategy calendar is a strategic management approach that signifies the process execution in isolation without guidance,
coordination, or collaboration. As a result of the disconnect between enterprise strategy and strategic groups and units, many
businesses failed to achieve their goals.

Due to performance concerns, the economic slump, rising expenses, and invading imports, Chrysler Group experienced massive
losses in 2000. It was when the automotive manufacturer decided to combine all strategy-related activities into a single functional
unit. As a part of this, it set up the Office of Strategy Management. It aided in the management of company strategies. Furthermore,
it helped in the development of new products by business units.
The collaboration of employees and management resulted in core competencies required to achieve business goals. In 2004, the
automobile brand successfully launched a series of new sedans and made a profit of $1.2 billion despite struggling domestic
market.
Importance of Strategic Management
Besides preparing organizations for market competition, strategic management helps them identify opportunities that arise from
time to time. In addition, businesses get a clue of threats that might hurt them in the long run. Through step-by-step formulation and
implementation of strategies, companies can overcome hurdles coming their way and grow efficiently.
Let us have a look at some more points that make strategic planning a crucial aspect of any business:

 The past strategies act as a reference for future decisions that the organization makes.
 It results in improved organizational performance.
 The formulation of plans considers the current market trends and gives organizations a competitive advantage in the
changing market.
 The step-wise strategic processes make goals achievable.
 It helps identify and select efficient individuals and recognize their efforts, thereby allowing them to grow with the
organizational growth.
 The synchronization of processes, workforce and strategies make sure strategies align with organizational goals.

Managing Business Products and Services for Strategic Advantage in B2B Markets

A B2B Product can be any of the following:-

 1. A product or service or combination of both. It can be a product, e.g. cement, paint, nuts and bolts, a road bridge; a
service, e.g. financial advice, factory insurance, office cleaning, bad debt collection; or a combination of both.
 2. An idea or concept. It can be an idea or concept, e.g. genetically engineered food, embryo cloning, plasma TV screens,
management advice, public health messages.
 3. A process. It can be a process, e.g. running a marketing information system, wages payment systems,
telecommunications systems.
 4. A person or place. It can be a person or place, e.g. a politician, company owner (Bill Gates), Manchester United, New
York, Sellafield nuclear complex, royal palaces.
 5. Written, sung, played or performed. It can be a book, song, tune, or play.
 6. A smell, a taste, a shape. Perfume, a unique recipe (KFC?), Nescafé’s diamond shaped Bottle
 7. The whole organisation and/or its products. The product can be seen as the whole organisation, e.g. Microsoft, BT, NTL,
and/or the products marketed such as computer software, mobile phones, entertainment.
Major product/service categories

1. Capital goods - Capital goods are major strategic items purchased both at the initial business start-up and at other important times as
the business grows and expands. They include the major long-term investment items that are the foundation of the business and
the equipment that underpins the manufacturing and service processes.

2. Materials and parts - Materials and parts are all those goods that a company will purchase for use in producing the end product. This
category can be identified by the stage in the value adding process and consists of raw materials, manufactured materials,
accessory goods and component parts.

3. Supplies and running services –

 Energy and waste management services

 Transport, distribution and storage services
 Administrative services
 Management services
 Maintenance services
 Accessory goods (light equipment, forklift trucks, diggers, bulldozers, filing cabinets, office equipment, computer equipment)
 Marketing of services and facilitating goods

4. Other B2B product classifications

 Commodity goods
 Convenience goods
 Search-out goods
 Integrated solutions

B2B Marketing of Capital Goods

 Leasing and Renting:-Capital goods are often leased or rented rather than purchased outright. This means that they never
own outright the capital goods but pay rent over a set period of time.
  Licensing:-Goods and services are often contracted out to others for use under a negotiated licence.
 Government capital expenditure:-These types of goods would be used in such areas as road, bridge, dam and tunnel
construction, hospital, housing and office building. They would include defence equipment, for the army, navy and air force.
Products purchased and sold for government consumption would cover such things as planes, boats, tanks, weapons,
clothing and communication equipment.

Marketing of B2B materials and parts

 Raw materials are marketed at the first stage in the supply process and can be identified by commodity materials processed
only to a level for easy distribution, e.g. iron ore into iron rods, coffee beans picked and harvested into sacks, trees cut,
trimmed and delivered, chemicals refined, etc.
 Manufactured materials are raw materials that are further processed for ease of use, e.g. iron into steel sheets cut to size,
coffee beans into packaged ground coffee, wood cut into usable size and into paper and pulp, cotton and chemicals into
textiles, rubber into moulded forms, chemicals mixed into usable form, and so on.
 Component parts are materials assembled into some type of finished product to be used in the making of the final product,
e.g. steel into nuts and bolts, ground coffee into cocoa, wood into house roof supports.

Criteria for the importance of B2B products and services

 Whether of small or large importance to the well-being of the organisation.

 Small amounts or worth many millions of pounds.
 A one-off purchase or a contract over many years.
 A standard or customised offering.
 Always a trade-off between price and added value
 Marketed direct or through a wholesaler, distributor or agent.
 Trade advertising, followed by direct response and personal selling used for standardised products.
 Personal selling, followed by direct response and exhibitions for customised products.
 Government and public sector products
Strategic differences between goods and services

 Products are often categorised as either ‘tangible’ products or ‘intangible’ services

 Most tangible products have some form of service attached.

 Level of service might just concern the initial transaction and be limited to delivery times or, at the other extreme, it might
involve some type of continuous product top-up system
 services are different in character from tangible products These differences must be identified so that the correct marketing
approach can be taken
 The growth of outsourcing by more and more B2B organisations has also put the need for levels of service quality high on
the agenda. It seems that there is no service activity across the whole supply chain that cannot now be undertaken by an
outsourcing organisation

Crucial Factors in marketing and selling B2B services

 Personal Selling
 Direct marketing

Adding value to the products

 The product or service is as a ‘bundle of needs’ put together by the producer in the hope that it will be able to satisfy this
need in B2B.
 To maintain competitive advantage the seller must continually look toward offering ever more sophisticated benefits
sometimes on a long-term contractual basis.
 Marketing and selling in products and services in B2B market can be seen as a process of continually adding value in
response to the ever-changing demands of the targeted organisations.
The value added process

 The core product/Service:- the B2B core product or service as the product offered in a basic form with the minimum level of
benefits.
 Primary added value:- Primary as the benefits that are added to the product or service before purchase whilst supplementary
added value we want to define as the benefits that are added to the product or service after purchase
 Supplementary added value

Primary B2B added value benefits would include the following;

 Creativity, innovation and design

 New product/service development
 Choice of product, customised, standardised or integrated product
 Features and benefits
 Help, advice and skill level
 Guaranteed quality
 Price, payment terms, leasing and value for money
 Location and point of purchase
 Promotions, communications and corporate reputation
 Branding
 Packaging

Supplementary added value (value added after purchase) benefits would include the following:

 Strategic relationship commitment

 Customer relationship policies
 Help, advice, and skill level
  Access to information
 Management and consultancy services
 Service contracts, quality and performance levels
 Guarantees and warranties
 Delivery and installations
 Returns policies
 Access to add-on products and services
 Security

Unique Selling Proposition (USP)

 The idea of a Unique Selling Proposition (USP) was first introduced by Rosser Reves in the USA.
 Reves argued that all organisations, if they wanted to be successful, should offer the customer some form of unique benefit
not offered by the competition.
 It should be based on an organisational core strength, it should be sustainable over a strategic period, and it should give a
positive competitive advantage.
 A USP can be based on any of the primary and supplementary added value.
 A USP is particularly important when introducing a new product to the market, especially if there is heavy competition.

If the new product or service has nothing to differentiate itself from existing products there is no reason why the customer should
switch

New Product Development in B2B marketing

 New Product Development in B2B marketing

 Maintain market position and reputation as an innovating organisation
 Defend market share
 Be in the forefront in the development of new markets gaining market share before others
 Take advantage of new technology
 Optimise resources, including production and supply chain management so as to gain competitive advantages
  To offer greater customer value and satisfaction
 To attract the best possible staff and expertise

Branding:-Corporate and product branding strategies

1. Corporate branding - The corporate brand is all the brand factors which are associated with the name of the company.

 The products and services sold by an organisation, the markets in which it operates, the way it treats its customers, how it
runs its business and how it respects the environment will all build into creating a “corporate brand image”.
 The development of a corporate brand can be both planned
 and unplanned:
 planned through the use of public relations and promotional activity;
 unplanned in that everything a high profile company does will have some sort of effect on its corporate image.

2. Corporate family branding - Some organisations will house a group of companies either organically developed but more than likely
acquired by purchase or merger.

 The holding company may choose to keep these companies under separate corporate family brand names rather than bring
them under the one umbrella corporate name.
 In this way values associated with the different brands by different market segments will be maintained.
 Aerospace Systems, Airspace Safety Analysis Corporation, Continental Graphics, Jeppesen Sanderson, Preston Group and
SBS International are all subsidiaries of the giant Boeing Corporation, offering products and services to many different
segments.

3. Product and service branding - Branding under separate product or product group names is much more popular in B2C than in B2B
markets, really because of the plethora/fullness of segmentation methods and the emotional appeal of the brand.
  Kotex, Huggies, Pull-ups, Kleenex, Andrex and Fiesta are all FMCG brand names belonging to Kimberly-Clark, appealing to
different individual consumers.
 Individual product names are less used in B2B because the buyer tends not to be seduced by the emotion surrounding a
particular brand.
 A toilet roll bought for industrial purposes will not need the same symbolic attachments as a toilet roll bought by mum for the
family, nor will cars bought for company use compare with cars bought for own use.
 However, where a B2B organisation sells many hundreds of different products, the different brand names can be patented to
protect the manufacturer and used by the buyer to identify the benefits offered by each separate product.

4. Own or private label products. - Brand owned not by a manufacturer or producer but by a retailer or supplier who gets its goods
made by a contract manufacturer under its own label is called private label brand.

 Some manufacturers choose to produce goods and services that are branded under the name, of another company, e.g.
Northern Foods producing under the Tesco name, or under a product brand name such as Nova for Sainsbury.
 Although more often than not the products are FMCG, the practice of making own label products for others falls firmly into
the B2B industry.

Advantages associated with branding in B2B markets

From the B2B buyer perspective

 Reduces the risk – the ‘nobody ever got the sack for buying an IBM computer 'syndrome.
 Saves time when searching out new products.
 Known functional performance matching benefit needs.
 Known value, quality, consistency, service.
 Safety and peace of mind.

From the B2B seller perspective

 Builds a reputation that can be used when launching new products, especially around the world.
  Helps segment the market.
 Strong brand values can protect a product from intensifying price competition.
 Can serve as a bulwark against substitute products.
 Holds price levels and prevents the product being seen as a commodity product.
 Employees want to work for strong branded corporations.
 Engenders loyalty and pride if linked to adequate recognition and reward system.
 Can be used when moving into other product/market areas.
 Extra income can be earned from extra benefits.

Packaging:- Packaging in B2B

 Packaging in B2B has many more dimensions and spawns a multi-billion pound industry.
 The supply chain in B2B packaging can be long and diverse and involve the design, engineering, computer, chemical,
biological, paper, metals, adhesives and sealants, glass, crates, printing and labelling, plastics and capital equipment
industries, randomly to name a few.
 Packaging additives (preserve ) and finished products in the B2B sector can be manufactured for other businesses for their
own use or they can end up being sold by retailers to the end consumer.
 Organisations involved might be driven by the buyer’s need for delivery protection, consistency and speed, health and
safety, security, recyclability and waste disposal.
 The imperative might be for the packaging to load efficiently into lorries and containers, to fit efficiently onto delivery pallets
or to sit comfortably and attractively on the retail shelf.
 The overriding issue might be one of ease of use causing designers, engineers and computer experts to work together on
new ways to open, use and dispose of cans, bags, bottles, boxes, cartons and crates. It might be the constant need for
creativity, design, printing, colour combinations and exciting promotions to hold the interest of the consumer in an ever-
changing, ever more demanding market environment.
 Packaging companies might be working with wood, sealants, steel, paper, aluminium, glass, rubber, polystyrene or chemical
products.
 One B2B organisation might be involved with raw materials, another with component parts, and another with the capital
equipment.
  B2B packaging employs many millions of people from around the world with extremely high and very low levels of skills.
 A highly paid computer expert might be designing and engineering packaging in Silicon Valley in the west and a very low
paid labourer might be putting together paper products in the east.

Packaging challenge

 Faced with the new labelling requirements demanding more space to convey drug information, companies are challenged to
develop packaging that will still grab consumer’s attention in this ever-competitive marketplace.
 They understand the need to employ graphic elements that will give their products more shelf impact to stand apart from the
competition.
 One such design features a foldout panel that is normally fastened to the carton exterior to promote brand identity and
preserve billboard space, but can be easily opened by consumers to reveal compliance information.
 A second design incorporates a pull-tab panel that extends to reveal additional drug information or even promotional content
such as coupons or brand cross-marketing. (Diamond Packaging)

Growth-Share Matrix
What Is a BCG Growth-Share Matrix?
The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses graphical representations of a company’s
products and services in an effort to help the company decide what it should keep, sell, or invest more in.

The matrix plots a company’s offerings in a four-square matrix, with the y-axis representing the rate of market growth and the x-
axis representing market share. It was introduced by the Boston Consulting Group in 1970.

KEY TAKEAWAYS

 The BCG growth-share matrix is a tool used internally by management to assess the current state of value of a firm's units
or product lines.
 BCG stands for the Boston Consulting Group, a well-respected management consulting firm.
 The growth-share matrix aids the company in deciding which products or units to either keep, sell, or invest more in.
 The BCG growth-share matrix contains four distinct categories: "dogs," "cash cows," "stars," and “question marks.”
 The matrix helps companies decide how to prioritize their various business activities.
Understanding a BCG Growth-Share Matrix
The BCG growth-share matrix breaks down products into four categories, known heuristically as "dogs," "cash cows," "stars," and
“question marks.” Each category quadrant has its own set of unique characteristics.2

Dogs (or Pets)

If a company’s product has a low market share and is at a low rate of growth, it is considered a “dog” and should be sold,
liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don't generate much cash for the company since
they have low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds
for long periods of time. For this reason, they are prime candidates for divestiture.2

Cash Cows
Products that are in low-growth areas but for which the company has a relatively large market share are considered “cash cows,”
and the company should thus milk the cash cow for as long as it can. Cash cows, seen in the lower left quadrant, are typically
leading products in markets that are mature .2

Generally, these products generate returns that are higher than the market's growth rate and sustain itself from a cash flow
perspective. These products should be taken advantage of for as long as possible. The value of cash cows can be easily
calculated since their cash flow patterns are highly predictable. In effect, low-growth, high-share cash cows should be milked for
cash to reinvest in high-growth, high-share “stars” with high future potential.2

 
The matrix is not a predictive tool; it takes into account neither new, disruptive products entering the market nor rapid shifts in
consumer demand.

Stars
Products that are in high growth markets and that make up a sizable portion of that market are considered “stars” and should be
invested in more. In the upper left quadrant are stars, which generate high income but also consume large amounts of company
cash. If a star can remain a market leader, it eventually becomes a cash cow when the market's overall growth rate declines.2
Question Marks
Questionable opportunities are those in high growth rate markets but in which the company does not maintain a large market
share. Question marks are in the upper right portion of the grid. They typically grow fast but consume large amounts of company
resources. Products in this quadrant should be analyzed frequently and closely to see if they are worth maintaining. 2

Other Factors to Consider

The matrix is a decision-making tool, and it does not necessarily take into account all the factors that a business ultimately must
face. For example, increasing market share may be more expensive than the additional revenue gained from new sales. Because
product development may take years, businesses must plan for contingencies carefully.

What Are the 4 Quadrants of the BCG Matrix?

The BCG Growth-Share Matrix uses a 2x2 grid with growth on one axis and market share on the other. Each of the four quadrants
represents a specific combination of relative market share, and growth:2

1. Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest elsewhere.
2. High Growth, High Share. Companies should significantly invest in these “stars” as they have high future potential.
3. High Growth, Low Share. Companies should invest in or discard these “question marks,” depending on their chances of
becoming stars.
4. Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.”

How Does the BCG Matrix Work?

The BCG Growth-Share Matrix considers a company's growth prospects and available market share via a 2x2 grid. By assigning
each business to one of these four categories, executives can then decide where to focus their resources and capital to generate
the most value, as well as where to cut their losses.2

Is the BCG Matrix Used in the Real World?

According to BCG, at the height of its success, the growth share matrix was used by about half of all Fortune 500 companies;
today, it is still central in business school teachings on business strategy.2

The Bottom Line

The BCG Growth-Share Matrix is a business management tool that allows companies to identify the aspects of their business that
should be prioritized and which might be jettisoned. By constructing a 2x2 table along the dimensions of growth and market share,
a company's businesses can be categorized into one of four classifications: "stars," "pets," "cash cows," and "question marks."

GE McKinsey Matrix: A Multifactorial Portfolio Analysis in Corporate Strategy

The GE-McKinsey Matrix (a.k.a. GE Matrix, General Electric Matrix, Nine-box matrix) is just like the  BCG Matrix a portfolio analysis
tool used in corporate strategy to analyse strategic business units or product lines based on two variables: industry attractiveness
and the competitive strength of a business unit. By combining these two variables into a matrix, a corporation can plot their
business units accordingly and determine where to invest, where to hold their position, and where to harvest or divest. However,
different from the BCG Matrix, the GE-McKinsey Matrix uses multiple factors that are combined to determine the measure of the
two variables industry attractiveness and competitive strength. This is an important distinction, since the BCG Matrix has been
criticized a lot on its use of only one single (and perhaps outdated) variable for each axis.
The name of the framework stems from the year 1970 in which General Electric (GE) hired the strategy consulting firm
McKinsey&Company to consult GE in managing their large and complex portfolio of strategic business units. Therefore, it is
McKinsey (not GE) that created the framework as a means to help GE cope with its strategic decisions on a corporate level. 

Industry Attractiveness

On the vertical axis of the GE Mckinsey Matrix, we find the variable Industry Attractiveness which can be divided into High, Medium
and Low. Industry attractiveness is demonstrated by how beneficial it is for a company to enter and compete within a certain
industry based on the profit potential of that specific industry. The higher the profit potential of an industry is, the more attractive it
becomes. An industry’s profitability in turn is affected by the current level of competition and potential future changes in the
competitive landscape. When evaluating industry attractiveness, you should look at how an industry will change in the long run
rather than in the near future, because the investments needed for a business usually require long lasting commitment. Industry
attractiveness consists of many factors that collectively determine the level of competition and thus its profit potential. The most
common factors to look at are:

 Industry size
  Long-run growth rate
 Industry structure (use Porter’s Five Forces or Structure-Conduct-Performance model)
 Industry life cycle (use Product Life Cycle)
 Macro environment (use PESTEL Analysis)
 Market segmentation

Competitive Strength

On the horizontal axis we find the Competitive Strength of a business unit which can also be divided into High, Medium and Low.
This variable measures how strong or competent a particular company is against its rivals: it is an indicator of its ability to compete
within a certain industry. A company’s strengths are its characteristics that give it an advantage over others (competitions/rivals).
These strengths are often referred to as unique selling points (USP’s), firm-specific advantages (FSA’s) or more widely known as
sustainable competitive advantages. Apart from a company’s competitive position right now, it is also very important to look at how
sustainable its position is in the long run. So where Industry Attractiveness is about the level of competition in the entire industry,
Competitive Strength is about the (future) ability to compete of one single company within that specific industry. Competitive
strength also consists of multiple factors that together make up a company’s total score. The most common factors to look at are: 

 Profitability
 Market share
 Business growth
 Brand equity
 Level of differentiation (use the Value Disciplines or Porter’s Generic Strategies)
 Firm resources (use the VRIO Framework)
 Efficiency and effectiveness of internal linkages (use the Value Chain Analysis)
 Customer loyalty (use the Net Promoter Score)

Strategic implications

Based on the 3 degrees (High, Medium and Low) of both Industry Attractiveness and Competitive Strength, the matrix can be
crafted consisting of 9 different boxes with 9 different scenarios and corresponding strategic actions. The strategic actions to
choose from are: Invest/Grow strategy, Selectivity/Earnings strategy (sometimes referred to as Hold strategy), and the
Harvest/Divest strategy. 
Invest/Grow strategy

The best section for a company or business unit to be in is the Invest/Grow section. A company can reach this scenario if it is
operating in a moderate to highly attractive industry while having a moderate to highly competitive position within that industry. In
such a situation there is a massive potential for growth. However, in order to be able to grow, a company needs resources such as
assets and capital. These investments are necessary to increase capacity, to reach new customers through more advertisements
or to improve products through Research & Development. Companies can also choose to grow externally via Mergers &
Acquisitions apart from growing organically. Again, a company will need investments in order to realize such an endavour. The
most notable challenge for companies in these sections are resource constraints that block them from growing bigger and
becoming/maintaining market leadership.

Selectivity/Earnings strategy

Companies or business units in the Selectivity/Earnings sections are a bit more tricky. They are either companies with a low to
moderate competitive position in an attractive industry or companies with an extremely high competition position in a less attractive
industry. Deciding on whether to invest or not to invest largely depends on the outlook that is expected of either the improvement in
competitive position or the potential to shift to more interesting industries. These decisions have to be made very carefully, since
you want to use most of the investments available to the companies in the Invest/Grow section. The “left-over” investments should
be used for the companies in the Selectivity/Earnings section with the highest potential for improvements, while being monitored
closely to measure its progress on the way.

Harvest/Divest strategy

Finally we are left with companies or business units that either have a low competitive position, are active in an unattractive industry
or a combination of the two. These companies have no promising outlooks anymore and should not be invested in. Corporate
strategists have two main options to consider: 1. They divest the business units by selling it to an interested buyer for a reasonable
price. This also known as a carve-out. Selling the business unit to another player in the industry that has a better competitive
position is not a strange idea at all. The buyer might have better competences to make it a success or they can create value by
combining activities (synergies). The cash that results from selling the business unit can consequently be used in Invest/Grow
business units elsewhere in the portfolio. 2. Or corporate strategists can choose a harvest strategy. This basically means that the
business unit gets just enough investments (or non at all) to keep the business running, while reaping the few fruits that may be left.
This is a very short-term perspective action that allows corporate strategists to subtract as much remaining cash as possible, but is
likely to result in the liquidation of the business unit eventually.

GE McKinsey Matrix In Sum

The GE McKinsey Matrix is a good alternative for the BCG Matrix and has the advantage that the two variables used consist of
multiple factors combined. It may be quite a task however to quantify factors such as brand equity and industry structure,F and
combine them all into a single number that can be plotted on the nine-box matrix. For corporate strategist in portfolio management,
the model functions as a great starting point to base investment decisions on.

BALANCE SCORE CARD

A balanced scorecard is a strategic management performance metric that helps companies identify and improve their internal
operations to help their external outcomes. It measures past performance data and provides organizations with feedback on how to
make better decisions in the future.

What Is a Balanced Scorecard (BSC)?

The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various
internal business functions and their resulting external outcomes. Used to measure and provide feedback to organizations,
balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe. Data
collection is crucial to providing quantitative results as managers and executives gather and interpret the information. Company
personnel can use this information to make better decisions for the future of their organizations.

Understanding Balanced Scorecards (BSCs)

Accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton first introduced the balanced
scorecard. The Harvard Business Review first published it in the 1992 article "The Balanced Scorecard—Measures That Drive
Performance." Both Kaplan and Norton worked on a year-long project involving 12 top-performing companies. Their study took
previous performance measures and adapted them to include nonfinancial information.1

Companies can easily identify factors hindering business performance and outline strategic changes tracked by future scorecards.

BSCs were originally meant for for-profit companies but were later adapted for nonprofit organizations and government
agencies.2 It is meant to measure the intellectual capital of a company, such as training, skills, knowledge, and any other
proprietary information that gives it a competitive advantage in the market. The balanced scorecard model reinforces good
behavior in an organization by isolating four separate areas that need to be analyzed. These four areas, also called legs, involve

 Learning and growth

 Business processes
 Customers
 Finance1

The BSC is used to gather important information, such as objectives, measurements, initiatives, and goals, that result from these
four primary functions of a business. Companies can easily identify factors that hinder business performance and outline strategic
changes tracked by future scorecards.1

The scorecard can provide information about the firm as a whole when viewing company objectives. An organization may use the
balanced scorecard model to implement strategy mapping to see where value is added within an organization. A company may
also use a BSC to develop strategic initiatives and strategic objectives.1 This can be done by assigning tasks and projects to
different areas of the company in order to boost financial and operational efficiencies, thus improving the company's  bottom line.

Characteristics of the Balanced Scorecard Model (BSC)

Information is collected and analyzed from four aspects of a business:

1. Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles
how well information is captured and how effectively employees use that information to convert it to a competitive
advantage within the industry.
2. Business processes are evaluated by investigating how well products are manufactured. Operational management is
analyzed to track any gaps, delays, bottlenecks, shortages, or waste.
3. Customer perspectives are collected to gauge customer satisfaction with the quality, price, and availability of products or
services. Customers provide feedback about their satisfaction with current products.
4. Financial data, such as sales, expenditures, and income are used to understand financial performance. These financial
metrics may include dollar amounts, financial ratios, budget variances, or income targets.1

Benefits of a Balanced Scorecard (BSC)

There are many benefits to using a balanced scorecard. For instance, the BSC allows businesses to pool together information and
data into a single report rather than having to deal with multiple tools. This allows management to save time, money, and
resources when they need to execute reviews to improve procedures and operations.1

Scorecards provide management with valuable insight into their firm's service and quality in addition to its financial track record.
By measuring all of these metrics, executives are able to train employees and other stakeholders and provide them with guidance
and support. This allows them to communicate their goals and priorities in order to meet their future goals.

Another key benefit of BSCs is how it helps companies reduce their reliance on inefficiencies in their processes. This is referred to
as suboptimization. This often results in reduced productivity or output, which can lead to higher costs, lower revenue, and a
breakdown in company brand names and their reputations.1

Examples of a Balanced Scorecard (BSC)

Corporations can use their own, internal versions of BSCs, For example, banks often contact customers and conduct surveys to
gauge how well they do in their customer service. These surveys include rating recent banking visits, with questions ranging from
wait times, interactions with bank staff, and overall satisfaction. They may also ask customers to make suggestions for
improvement. Bank managers can use this information to help retrain staff if there are problems with service or to identify any
issues customers have with products, procedures, and services.

In other cases, companies may use external firms to develop reports for them. For instance, the J.D. Power survey is one of the
most common examples of a balanced scorecard.1 This firm provides data, insights, and advisory services to help companies
identify problems in their operations and make improvements for the future. J.D. Power does this through surveys in
various industries, including the financial services and automotive industries. Results are compiled and reported back to the hiring
firm.

These four legs encompass the vision and strategy of an organization and require active management to analyze the data
collected.

The Bottom Line

Companies have a number of options available to help identify and resolve issues with their internal processes so they can
improve their financial success. Balanced scorecards allow companies to collect and study data from four key areas, including
learning and growth, business processes, customers, and finance. By pooling together information in just one report. companies
can save time, money, and resources to better train staff, communicate with stakeholders, and improve their financial position in
the market.

KEY TAKEAWAYS

 A balanced scorecard is a performance metric used to identify, improve, and control a business's various functions and
resulting outcomes.
 The concept of BSCs was first introduced in 1992 by David Norton and Robert Kaplan, who took previous metric
performance measures and adapted them to include nonfinancial information.
 BSCs were originally developed for for-profit companies but were later adapted for use by nonprofits and government
agencies.
 The balanced scorecard involves measuring four main aspects of a business: Learning and growth, business processes,
customers, and finance.
 BSCs allow companies to pool information in a single report, to provide information into service and quality in addition to
financial performance, and to help improve efficiencies.