Page 181 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 9: Strategic Analysis and Choice

Notes
Figure 9.8: Arthur D Little Portfolio Matrix (ADL)

The strategic approach would naturally vary according to the position of the business with
respect to its business strength (competitive strength) and the stage in the product life cycle.
Thus, the strategy should be to invest in a business which is in embryonic or growth stage
provided it has favorable or strong business strength. The “BUILD” strategy is recommended
for such a business unit. But “HOLD” strategy is suggested for businesses whose products are in
maturity stage even though it has favourable, strong or dominant business strength. For business
with products in the decline stage and having a strong or dominant business strength, “HARVEST’
strategy is suggested. If the business is in maturity stage, but having weak business strength,
“DIVEST” strategy is called for. This is so because any business having weak business strength
will have poor return on investment, and hence divestment strategy will be the preferred
strategy.

Profit Impact of Market Strategy (PIMS)

PIMS was invented by General Electric in the 1960s to examine which strategic factors most
influence cash flows and the investment needs and success. PIMS model is based on analysis of
data presented by companies to derive general laws.
Actually, the model uses statistical relationships derived from the past experience of companies.
Typically, the Strategic Planning Institute develops an industry characteristic, using multi-
dimensional cross sectional regression studies of the profitability of more than 2000 companies.
The industry characteristic is compared with performance in the concerned company so as to
find the clue to appropriate strategic approaches. The model is characterized by scientific
objectivity but it involves analysis of relationship that is based on heterogeneity of business and
time periods.
PIMS, of course, has certain inherent drawbacks. It assumes that short-term profitability is the
primary goal of the firm. The analysis is based on the historical data and the model does not take
note of further changes in the company’s external environment.
The model cannot take account of internal-dependencies and potential synergy within
organisations. Each firm is examined in isolation.

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