Tool Analysis Ford

In the first three weeks, we learned how to analyze the external factors of our business (the environment and competition) and the internal factors of our business. We have learned what each of these factors means for us in terms of strategy, and we have learned tools to use to make assessments.

We don’t just gather this information for the fun of it! We use this information to select strategies. We learn about some of these strategies this week and again next week. We are also given some tools to help us select these strategies.

We’ve seen the work of Michael Porter in previous weeks, particularly with Porter’s Five Forces and for the Week 3 Discussion. His work appears again this week in the eBook for this course in the discussion of three generic strategies:

1. Cost Leadership

2. Differentiation

3. Focus on either cost leadership or differentiation

This theory is often called “Porter’s Three Generic Strategies”, but as you can see in Figure 5.1 of the eBook, this theory really covered FOUR strategies (The Saylor Foundation, 2014, p. 139). Nevertheless, you will be expected to know these three (or four!) strategies, and apply them in your Discussions and Projects for this course. Dess and Davis (1984) analyzed these generic strategies in terms of real organizational performance. In other words, they asked “Which of these generic strategies leads to the greatest results?” It is a fairly dense article, so to see the results of their study, you can focus on pages 483 and 484.

Concentrated growth is a strategy within itself. It refers to a strategy of “doubling down” and directing resources to a single product, in a single market, using a single dominant technology. Sometimes this is called market penetration. Concentrated growth is not for everyone, and the Pearch and Harvey (1990) article identify for whom and when this strategy is appropriate (p. 62). Here is some guidance from Dr. Kathy: Pages 63 through 65 of this article have GREAT insights that you may wish to refer back to for Project #4!

Speaking of Project #4...this project may seem far off, especially when you have Project #2 to worry about this week. However, everything in this course builds up to Project #4. You use the findings from the first 3 projects to identify a strategy for your company.

Project #2

You will continue and complete Project #2 this week. If you were wise and followed Dr. Kathy’s guidance from last week’s notes, you will have already completed sections I and II. Ensure that your final report has the matching headings and heading numbers as the Project instructions. It’s also a great idea to review the Rubric. Dr. Kathy follows the Rubric TO THE LETTER, when grading.

References

Dess, G., & Davis, P. (1984). Porter’s (1980) Generic Strategies as determinants of strategic group membership in organizational performance. Academy of Management Journal. 27(3), 467-488.

Pearch, J., & Harvey, J. (1990). Concentrated growth strategies. Academy of Management Executive. 4(1), 61-68.

The Saylor Foundation. (2014). Mastering Strategic Management. Retrieved from  https://learn.umgc.edu/d2l/le/content/525837/viewContent/18557183/View

 

 MORE ON BCG Matrix (use the Tools and Techniques this week to get you started. If you still have trouble see if this explanation helps)

BCG matrix: Relative market share vs market growth rate

How to compute the relative market share for each product category

The purpose of the BCG matrix is to assess the relative market share of each product category against the industry market growth rate of that product category in the portfolio of product categories.

Here are two different examples for 3 product categories for the 1st example company (Company X) and 5 product categories for the 2nd example company (Company Y).

Example 1 Company X - with three product categories

Company X has a product portfolio of three product categories A, B, and C which make up three different percentages (such as 60, 30, 10% respectively) for the total revenues of that focal company.

a. Calculate the relative market share for product category:

Let’s assume 6 companies compete in the whole industry with respect to product category A. The researcher would need to research all the revenues of that product category A for each competitor in the whole industry to determine which company is the largest competitor. Compare the Company X's revenue in product category A with the revenue of the largest competitor for product category A to calculate the relative market share of Company X in product category A.

b. Research the market growth:

How much is the growth rate for product category A for the whole industry ? Need to find that out by research.

c. Determine the relative location in BCG

These two results from (a) and (b) determine the relative location of product category A in BCG matrix of the focal company.

Completing the above steps (a), (b), and (c) is for product category A only.

Please note that one identical set of companies may compete in one product category of the example company, but not in another product category of that company. Hence, different product categories of the company may involve different sets of competitive companies. That is why the total competing companies change for product category B and product category C in my illustrative example.

For product category B, let’s assume 10 companies (instead of 6 companies) are competing in the industry for the second product category. Repeat the same process of (a), (b) and (c).

Maybe for product category C, let’s assume 15 companies (instead of 6 or 10 companies) are competing in the industry for the third product category. Repeat the same process.

After completing the process 3 times, the relative positions of 3 product categories have been determined in the BCB matrix for focal company X.

In summary, for 3 product categories, the computational process of steps (a), (b) and (c) would need to be repeated 3 times.

Example 2 Company Y - with 5 product categories

For the 2nd example, Company Y, let’s assume there are 5 product categories A, B, C, D, E and F, and the respective product categories in revenues of the focal company are 40, 25, 20, 15 and 5% respectively in the total revenues, the researcher need to repeat the same process of steps (a), (b), and (c) 5 times so that 5 relative positions of 5 product categories are determined for placement in BCG matrix for company Y.

In summary of the two illustrative examples, for each product category, compute the focal company’s relative market share, and research industry growth. Repeat the same process for all the remaining product categories.

WARNING: BCG matrix is an Intra-company product portfolio analysis!

BCG matrix is used to evaluate the product categories within the product portfolio of a single company, (that is, intra-company evaluation of its product portfolio of “product categories”) because “intra-company” means “within the same company that has one of more business units.”

BCG matrix is not to be used for evaluating the product categories of one company/corporation against its competitors (in this latter case, “inter-company evaluation”) because “inter-company” means “among different companies/corporations that are not under the same parent corporation”.

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Week Four Reading Outline: These Reading Outlines appear each week in Dr. Kathy's Notes. They are for your personal study use. You do not post the answers to these questions in learning activities. Completing this reading outline is optional and not for credit. While they are not for credit, completing these each week should help you organize your course materials and organize your notes according to topics as we cover them in class. This will be very useful to you in all weeks of this course, especially in the Weeks that a Project or Discussion are due.