1. Week Five
John Threlfall

2. Analysing the Internal Environment2

3. So far we have: Outlined the origins of strategic management
Understood what strategy really is
Established the difference between corporate planning and strategic flexibility
Identified the impact of economic and business cycles
Understood the concept of competitive advantage
Understood and applied Porter’s 5 Forces and generic strategy
Appreciated environmental complexity
Applied PESTEIL, SWOT, Telescopic Observation models
Identified strategic groups

4. Today We are going to review: M.E. Porter’s value chain model
The BCG, GEM, DPM, SDPM models
Gap analysis
McKinsey 7’s model

6. M.E. Porter’s Value Chain

7. Example: BMW Value Chain
A student example 7

8. Example: Audi Value Chain
A student example 8

9. Boston Consulting Group (BCG)
Growth-Share Matrix 9

10. Question marks (low share, high growth)
BCG Model
Question marks (low share, high growth)
QM are products operating in high-growth markets but with low relative market shares
They generally require considerable sums of cash since the firm needs to invest in plant, equipment, manpower and marketing communications to keep up with market developments and acquire customers 10

11. Dogs (low share, low growth)
Dogs are those products that have a weak market share in a low-growth market
Typically they generate either a low profit or a loss
The decision faced by the company is whether to hold on to the dog for strategic reasons (e.g. in the expectation that the market will grow)
Dog products frequently take up more management time than they justify and there is often a case for phasing out the product

12. Cash cows (high share, low growth)
When the rate of market growth begins to fall, stars typically become the company’s cash cows
The term cash cow is derived from the fact that it is these products which generate considerable sums of cash for the organisation but which, because of the lower rate of growth, use relatively little investment
Because of their position in the market, economies of scale are often considerable and profit margins high

13. Stars (high share, high growth)
Stars are those products which have moved to the position of leadership in a high growth market
Their cash needs are often high with the cash being spent in order to maintain market growth and keep competitors at bay
Stars also generate large amounts of cash, on balance there is unlikely to be any positive or negative cash flow until such times as the state of market growth declines
At this stage, provided the share has been maintained, the product should become a cash cow

15. BCG: Potential Product Performance
High
Low
Market share
Cash flow + -
Market growth
Cash
flow
---
2 -
2 +
Negative sequence
Positive sequence 15

16. Applied BCG Matrix

19. A student example: Audi19

20. Potential Strategies linked to BCG
Build (appropriate for Question marks)
In following a building strategy, the primary objective is to increase the product’s market share in order to strengthen its position
Hold (appropriate for Cash Cows)
The primary objective in this case is to maintain the product’s current share 20

21. Harvest (appropriate for Sliming Cash Cows)
By following a harvesting strategy management tries to increase short-term cash flows as far as possible
It is a strategy best suited to products that are cash cows but that are weakening or they exist in markets with a limited future life
Divest (appropriate for Dogs)
The essential objective here is to rid the organisation of products that act as a drain on profits or to realise resources that can be used to greater effect elsewhere in the business

22. General Electric McKinsey Matrix (GEM) Market Attractiveness
Company Capabilities
High
Medium
Low
Select
High
Invest
Select
Medium
Market Attractiveness
Divest
Select
Low 22

23. GE Matrix analyses: market attractiveness & competitive strength
To determine the overall strength of an SBU
External factors of market attractiveness that affect a business include market size, market growth, entry barriers, segmentation, and overall risk
Internal factors of competitive strength include assets, competencies, brand strength, profit margins, innovation, and quality
The GE matrix is also used to determine if an organization should enter a market, or if it should reposition a product line or brand within a market

24. Directional Policy Matrix
Model helps evaluate strategic choices
Measures the attractiveness of a segment and the capability of the organisation to support that segment

25. SDPM only enter those segments where the company has the opportunity to succeed The traditional way of looking at the business units’ strengths and weaknesses as well as comparing business sector prospects was to use historical and forecast rates of return on capital employed
This was done because a sector where prospects were favourable and the company’s position strong tended to show higher profitability
Shell found these records and forecasts were not sufficient for the guidance of management in the corporate planning and allocation of resources

26. The basic method of the directional policy matrix is to identify and place on the horizontal and vertical axes the main criteria by which prospects for a business may be judged to be:
favourable/unfavourable (favourable meaning a high profit and growth potential) and
the main criteria by which a company’s position in a sector may be judged to be strong/ weak

27. Evaluates the attractiveness of a segment:
Size of segment (number of customers, units, sales)
Growth rate of the segment (critical variable)
Profit margins of the segment
Attainable market share given promotional budget, fragmentation of the market and competition
Required market share to break even

28. Directional Policy Matrix (DPM)28

30. HORIZONTAL AXIS
Horizontal labels for the quadrants are the reverse of those on the GE matrix.
The extreme left quadrant is labelled unattractive while the corresponding quadrant on the GE matrix is labelled High. The horizontal axis is labelled ‘Business Sector Prospects’ while the vertical axis is named ‘Company’s Competitive Capabilities/Position’

31. VERTICAL AXIS Note that the y-axis labels are the reverse of those in the GE McKinsey matrix and the lowest quadrant is labelled strong versus the GE matrix low The Shell Directional Policy Matrix can be used to analyse different business sectors in an industry as well as competitors within a sector

32. SDPM. Possible Representation32

33. Shell Directional Policy Matrix (SDPM)33

34. L’Oréal

37. Sir Lindsay Owen-Jones

38. OUR MISSION
For more than a century, L’Oréal has devoted itself solely to one business: beauty. It is a business rich in meaning, as it enables all individuals to express their personalities, gain self-confidence and open up to others. Beauty is a language
L’Oréal has set itself the mission of offering all women and men worldwide the best of cosmetics innovation in terms of quality, efficacy and safety.
Beauty is universal
Since its creation by a researcher, the group has been pushing back the frontiers of knowledge. Its unique Research arm enables it to continually explore new territories and invent the products of the future, while drawing inspiration from beauty rituals the world over. Beauty is a science
Providing access to products that enhance well-being, mobilising its innovative strength to preserve the beauty of the planet and supporting local communities. Beauty is a commitment
By drawing on the diversity of its teams and the richness and complementary nature of its brand portfolio, L’Oréal has made the universalisation of beauty its project for the years to come. L’Oréal, offering beauty for all

40. The Process of Portfolio Planning
Define the unit of analysis
E.g. the industry, the firm, the product etc.
Analyse the current position of each SBU
Relative to rivals, given challenges and opportunities
Examine interrelationships
E.g. aspects of strategic fit
Project the future for each SBU
Through corporate, marketing, other objectives
Project the future portfolio
Targeted products and services according to requirements, given the company’s objectives 40

41. Gap Analysis
Source: Adopted from Maven Management, 2012 41

42. McKinsey 7’s model
McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with assistance from Richard Pascale and Anthony G. Athos
The model has been widely used by academics and practitioners and remains one of the most popular strategic planning tools 

43. McKinsey 7’s model

44. Placing shared values in the middle of the model emphasizes that these values are central to the development of all the other critical elements
The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for
The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements

45. Hard Elements
Strategy
Structure
Systems
Soft Elements
Skills
Style
Staff
Shared values

46. Usage
Improve performance
Examine the effects of change
Align departments and processes during mergers and acquisitions
Decide how best to implement strategy

47. The most common uses of the framework are:
To help implement new strategy
To facilitate organisational change
To identify how each area may change in the future
To facilitate the merger of organizations

48. The 7s model is based on the theory that, for an organization to perform well, the seven elements need to be aligned and mutually reinforcing
The model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment and performance during change

49. Whitbread Founded 1742 – Samuel Whitbread
Diversified in to media, hotels (Marriott), Britvic, TGI, Pizzahut, Threshers, David Lloyd Leisure Centres
Focus on Costa Coffee (2893 in 29 countries), Premier Inns (600 UK, ME, India), new hotel brand Hub to be launched in the autumn
Beefeater Grill, Table Table, Brewers Fayre, Taybarns

50. OUR VISION
We will grow legendary brands by building a strong customer heartbeat and innovating to stay ahead.
Our winning teams make everyday experiences special for customers, so they come back time and again, driving profitable growth.

51. Whitbread’s vision

52. Annual Report, 2014
“Whitbread is well positioned for another good year with strong brands continuing to win market share, reinforced by ambitious organic network expansion
43 new Premier Inn hotels under construction in the UK and expect to open 4,500 new rooms
Costa will open around 300 net new stores”

53. Whitbread’s SBU’s

54. Tutorial Exercise
A range of strategic models must be used in evaluating the case study organisation
You should review both the external environment and the company’s capabilities in developing a competitive strategy
You should identify the most appropriate models that allow you do this, then apply and critique them in developing your company’s strategy
In the tutorial apply BCG, DPM and McKinsey’s 7s models and critique a specific company’s strategy

55. E.g. Apply Whitbread’s brands past and present on a BCG matrix and account for the company’s change of strategy
Do the same for Apple’s products
Apply the McKinsey 7’s Model to a company chosen by your tutor. You may wish to evaluate the organisation as it is at present and where you believe it should be. You could start with GSM