Page 179 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 9: Strategic Analysis and Choice

Five businesses have been shown in the above Figure 9.6. The key strategies that emerge are Notes
briefly explained below.
Business A represents a product/market that has a high potential and deserves expansion
strategies through large investments. Business B has a strong competitive position but has a
product that is entering the shake-out stage and, therefore, needs a cautious expansion strategy.
Business C is probably a ‘dog’ while D represents a business which can be used for cash generation
that could be diverted to A and B. Business E is a potential loser and may be considered for
divestment. In this manner, the product/market evolution matrix portrays a company’s corporate
portfolio with a high level of accuracy and completeness.

Directional Policy Matrix (DPM)

This matrix was developed by Shell Chemicals, UK. It uses two dimensions- viz. “business
sector prospects and the “company’s competitive capabilities”. Business sectors prospects are
divided into attractive, average and unattractive; and company’s competitive capabilities into
strong, average and weak, as shown in the following Figure 9.7. This gives a 9-cell matrix.

Figure 9.7: Directional Policy Matrix

Based on the two dimensions, businesses fall into Nine quadrants. The strategy to be followed
for businesses in each quadrant are explained below.

Divestment

Both competitive capabilities and business prospects of the business units are weak. Loss making
units with uncertain cash flows fall in this quadrant. Since the situation is not likely to improve
in the near future, these businesses should be divested. The resources released could be put to an
alternative use.
Phased Withdrawal

Here the SBU is in an average to weak competitive position in the low growth unattractive
business, with very little chance of generating enough cash flows. Gradual withdrawal from
such SBUs is the strategy to be followed. The cash released can be invested in more profitable
ventures.

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