Characteristics of environment

• It is complex – It consists of many interrelated factors
• It is dynamic – Due to its shape and character
• It is multifaceted – The environment developed is perceived differently by different people
• It has a far reaching compact – The growth and profitability of the organization critically depends upon its environment.

Components of environment

ENVIRONMENTAL SCANNING

Environmental Scanning is the process by which an organization monitors the relevant environment the identify opportunities and threats affecting the business for the purpose of making strategic decisions.

Factors to be considered while conducting an environmental appraisal –

• Events – Important and specific occurring taking place in different environment sectors
• Trends – General tendencies or course of action around which events and trends take place.
• Issues – Current concern that arise or respond to events and trends
• Expectations – Demand which are made by interested group in the light of current issue

Dimensions of Environmental Scanning: 

SPECTACLES – Social, Political, Economic, Cultural, Technological, Aesthetic, Customer, Legal, Environmental and Sectoral

Approach’s to environmental scanning

1. Systematic approach – In this approach information for environmental scanning is collected systematically. Information related to markets and customers, change in legislation and regulations etc. have a direct impact on the business therefore it is continually monitored for relevant facts. This approach is beneficial for strategic management and operational activities.
2. Ad-hock approach -An organization may conduct a special survey related to specific environmental issues from time to time… such studies may be undertaken when an organization has to take up new projects or update existing strategies. Changes and unforeseen developments may be investigated which affect the organization
3. Processed form approach-The organization under this approach uses information in a processed form available from both internal and external environment.eg. Information supplied by government agencies, private institutions, it uses secondary data method.

Sources of information for environment scanning

• Secondary sources of information- newspapers,magazines,journals,documentaries
• Mass media- radio, TV. , internet
• Internal sources- Internal files , documents, reports ,records , database
• External agencies-Customers, market intermediaries, suppliers, retailers etc.
• Spying and surveillance- through ex-employees of competitors, industrial espionage, planting a mole in rival company.

Factors affecting Environmental scanning / Environmental Appraisal

1. Strategist related factors – Since strategist play a central role in formulation of strategies ,there characteristics such as age, education, experience, motivation, cognitive styles ,ability to withstand time pressure and responsibility have an impact to the extent to which they are able to appraise the environment.
2. Organization related factors – Characteristics of the organization which affect the environment are nature of the business, its age, size, complexity, nature of it market, product or service that it provides.
3. Environment related factors – The nature of environment faced by the organization determines how its appraisal could be done. The nature of the environment depends upon its complexity, volatility, hostility and diversity.

Techniques of Environmental Scanning / Environmental Appraisal 

• SWOT Analysis
• ETOP Analysis
• ANSOFF Matrix
• BCG Matrix

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A SWOT analysis is conducted to examine the strengths and weaknesses of the firm and opportunities that can be exploited are also determined. Based on the analysis the firm selects a path among various other alternatives that will successfully achieve the firm`s objectives. 

Strategic choice is therefore, the decision to select from among the grand strategies considered, the strategy which will best meet the enterprise objectives. The decision involves the following four steps – focusing on few alternatives, considering the selection factors, evaluating the alternatives against these criteria and making the actual choice.

Factors affecting strategic choice 

• Environmental constraints
• Internal organizations and management power relationships
• Values and preferences
• Management`s attitude towards risk
• Impact of past strategy
• Time constraints- time pressure, frame horizon ,timing of decision
• Information constraints
• Competitors reaction

Process of Strategic choice

1. Focusing on alternatives –  The aim of this step is to narrow down the choice to a manageable number of feasible strategies. It can be done by visualizing a future state and working backwards from it. Managers generally use GAP analysis for this purpose. By reverting to business definition it helps the managers to think in a structured manner along any one or more dimensions of the business.

• At Corporate level strategic alternatives are -Expansion, Stability, Retrenchment, Combination
• At Business level strategic alternatives are – Cost leadership, Differentiation or Focused business strategy.           

2. Analyzing the strategic alternatives- The alternatives have to be subjected to a thorough analysis which rely on certain factors known as selection factors. These selection factors determine the criteria on the basis of which the evaluation will take place. They are:

Objective factors – These are based on analytical techniques and are hard facts used to facilitate strategic choice.                        

Subjective factors – These are based on one`s personal judgment, collective or descriptive factors.

3. Evaluation of strategies – Each factor is evaluated for its capability to help the organization to achieve its objectives. This step involves bringing together analysis carried out on the basis of subjective and objective factors. Successive iterative steps of analyzing different alternatives lie at the heart of such evaluation.

4. Making a strategic choice– A strategic choice must lead to a clear assessment of alternative which is the most suitable alternative under the existing conditions. A blueprint has to be made that will describe the strategies and conditions under which it operates. Contingency strategies must be also devised.

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A Vision serves the purpose of stating what an organization wishes to achieve in the long run.

According to Kotler “It is a description of something (an org, corporate culture, business, technology, and act) in the future.

According to miller and dress “Vision is category of intentions that are broad, all inclusive and forward thinking.”

There are two components of vision-

Core ideology – It rests on core values and core purpose.it defines the enduring character of an organization that remains unchanged.

Envisioned future – It is a long term audacious goal and a vivid description of achievement i.e. what an org will be in the future

Advantages of a good vision –

1. A good vision is inspiring and exhilarating
2. It helps in creation of common identity and shared sense of purpose
3. Vision is competitive, original and unique
4. It fosters risk taking and experimentation
5. It fosters long term thinking
6. It represents integrity

Vision is used to convey what they stand for and what principles guide them to make strategic dictions.

MISSION

According to David F. Harvey “A mission provides the basis of awareness of a sense of purpose, the competitive environment, degree to which the firm’s mission fits its capabilities and the opportunity which the government offers.

According to Hynger “It is the purpose or reason for organizations existence”

A mission states the role an organization plays in the society.

Nature of a Mission –

1. It gives social reasoning i.e. specifies the role an org plays in the society
2. It is philosophical and visionary i.e. it relates to top management values and has a long term perspective.
3. It legitimizes social existence
4. It is stylistic objectives i.e. it reflects corporate philosophy, identity, character and image of an organization

Characteristics of a Mission –

• It should be feasible
• It should be precise
• It should be clear
• It should be motivating
• It should be distinctive
• It should have a societal linkage.
• It should indicate major components of strategy
• It should indicate how objectives are to be accomplished
• It must be dynamic

Example of a good mission statement

Eg. India Today “the complete new magazine”

Ranbaxy Industries “to become a research based international pharmaceuticals company”

Formulation and communication of mission statements –

It is formulated from the following sources:

• National priorities projected in plan documents and industrial policy statements
• Corporate philosophy as developed over the years
• Major strategists have a vision to develop mission statements
• The services of a consultant may be hired
• It is communicated through annual reports, posters, employee manuals, company information kits, word of mouth publicity, seminars and workshops, newsletters and advertisements.

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ELEMENTS IN STRATEGIC MANAGEMENT PROCESS

A. Establishing the hierarchy of strategic intent –

• Creating and communicating a vision
• Designing a mission statement
• Defining the business
• Adopting the business model
• Setting objectives

B. Formulation of strategies –

• Performing environmental appraisal
• Doing organizational appraisal
• Formulating corporate level strategies
• Formulating business level strategies
• Undertaking strategic analysis
• Exercising strategic choice
• Preparing a strategic plan

C. Implementation of strategies –

• Activating strategies
• Designing the structure, systems and processes.
• Managing behavioral implementation
• Managing functional implementation
• Operationalizing strategies

D. Performing strategic evaluation and control –

• Performing strategic evaluation
• Exercising strategic control
• Reformulating strategies

MODEL OF STRATEGIC MANAGEMENT PROCESS

A. STRATEGIC INTENT –

It involves establishment of hierarchy of strategic intent. This includes formulation of the following-

Vision-what an organization wishes to achieve in the long run

Mission-it states the role an organization plays in the society

Business definition-it explains the business in terms of customer group, customer function and alternative technologies

Business model-it clarifies how the business will make revenue

Objective–what is to be achieved? It serves as a yardstick for measuring performance.

B. STRATEGY FORMULATION –

It involves organizational appraisal and environmental appraisal to identify strengths, weakness, opportunity and threat of the organization. SWOT analysis is conducted to capitalize on strengths and opportunities, minimize weakness and neutralize threats.

Formulation of strategy takes place at four levels. At corporate level it deals with decisions regarding management of portfolio of business . At business level it aims at developing competitive advantage in individual business units. Then decisions at functional level and operational level are taken.

Strategic alternatives and choice – Alternative plans are required to select the best strategy out of many possible options, the most appropriate strategy in the light of SWOT is selected which leads to a strategic plan.

C. STRATEGIC IMPLEMENTATION –

A strategic plan is put to action by six sub-processes. They are-

• Project implementation– It deals with setting up of an organization
• Procedural implementation– It deals with different aspects of regulatory framework within which the organization operates
• Resource allocation– It procurement and commitment of resources for implementation
• Structural implementation– It refers to design of appropriate organization structure and systems, and reorganizing to meet the needs of strategy
• Functional implementation– It includes policies to be formulated in different functional areas
• Operational implementation– It involves plans regarding productivity, process, people and pace
• Behavioral implementation– It refers to leadership styles for implementation of strategy and issues like corporate culture, politics, use of power, personal values, ethics, CSR.

D. STRATEGIC EVALUATION AND CONTROL –

It involves measurement of organizational performance. A feedback system is setup and key performance indicators are determined. Feedback from strategic evaluation helps in exercising control over the strategy and reformulate strategies as and when necessary.

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A Goal denotes what an organization hopes to accomplish in a future period of time and therefore are qualitative in nature.

Objectives are the ends that state specifically how the goals shall be achieved therefore they are quantitative in nature.

Objectives refer to the end results which are to be accomplished by an organization through their plan or strategy over a specific period of time.

There are four factors identified by Glueck which must be considered while objective setting. They are:

• Forces of the environment
• Realities of an enterprise`s resources and internal power relations
• Values of the top executives
• Awareness of past objectives by the management

Need to establish Objectives/ Need for Objective Setting

• It provides a yardstick to measure performance
• It serves as a motivating force – People work to achieve Objectives
• It helps to pursue organization`s vision and mission
• It defines the relationship between the firm`s internal and external environment.
• It provides basis for decision making-All decisions are aimed towards accomplishment of objectives
• It provides standards for performance appraisal

Characteristics of Objectives

• It must be understandable
• It should be concrete and specific
• It should be related to a time frame
• It should be measurable and controllable
• Different objectives must correlate with each other
• It must be set within constraints

Issues in objective setting

Multiplicity – It deals with different number and different types of objectives w.r.t. organizational level (higher/lower), ends (survival/growth), functions (marketing/finance) and nature (organizational/personal).

Periodicity – Objectives can be long-term or short-term.

Verifiability – Each objective is tested on the basis of its verifiability.

Reality – Objectives can be official and operative. Official objectives are those which an organization professes to attain while operative objectives are those which an organization seeks to attain in reality.

Quality – Objectives can be good or bad on the basis of its capability to provide specific direction and tangible basis for measuring performance.

Specifically – Objectives may be stated at different levels of specificity. Example at macro level as goals and as target at the micro level.

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Strategy comes from a Greek word “strategos” which means generalship i.e. art of the general.

A strategy could be-

• A plan or course of action or a set of decisions making a pattern or creating a common thread.
• A pattern or a common thread derived from the policies goals and objectives of an organization.
• The activities that move an organization from its current state to desired future state.
• The resources necessary for implementing a plan or following a course of action.

Prof. Henry Mintzberg distinguished between intended and emergent strategies. Intended strategies refer to the plans that managers develop while emergent strategies are the actions that take place over a period of time.

It is simply the means to achieve objectives. A strategy has the following components –

• It includes clear set of long term goals.
• it defines the scope of the firm(type of products)
• It is a statement of competitive advantage.
• It represents a firm`s internal activities which will allow it to achieve competitive advantage in the industry.

Therefore strategy is a large scale future oriented plan used to interact with competitive environment to achieve objectives. It provides a framework for managerial decisions. it reflects company`s awareness of the main elements of competition.

STRATEGIC MANAGEMENT

Strategic management is an art and science of formulating, implementing and evaluating cross functional decisions that enable an organization to achieve its objectives.

Strategic management is a set of managerial decisions and actions that determine the long term performance of a corporation.it includes: environment scanning, strategy formulation, strategy implementation, strategic evaluation and control.

It integrates marketing, production/operations, R&D, MIS, finance etc. to achieve organizational success.

DIMENSIONS OF STRATEGY/STRATEGIC DECISONS

1. Strategic issues require top management decisions.
2. Strategic issues involve the allocation of large amount of company`s resources.
3. Strategic issues are likely to have a significant impact on the long term prosperity of the firm.
4. Strategic issues are future oriented.
5. Strategic issues usually have major multi-functional or multi-business consequences.
6. Strategic issues necessitate consideration of factors in the firm’s external environment.

LEVELS OF STRATEGY

A. CORPORATE LEVEL– Board of Director, CEO, Administration and management.

B. BUSINESS LEVEL – Business and corporate managers, SBU*, SBA*

C. FUNCTIONAL LEVEL – Product managers, geographic and functional level managers

* SBU (Strategic business unit) – It is any part of the organization which is operated separately for strategic management purposes.

* SBA (Strategic business area) – A distinctive segment of the external environment in which the firm operates.

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S = Strength          W = Weakness        O = Opportunity         T = Threat

There are four sequential steps of conducting a SWOT Analysis –

• Setting up objectives for the concerned organization
• Identifying the strengths ,weaknesses ,opportunities and threats of the business
  
• Answering the 4 major questions –

How to maximize the internal strengths of the organization?

How to minimize the internal weaknesses of the organization?

How to capitalize on opportunities present in the external environment of the organization?

How to protect the organization from threats in the external environment?

• Based upon the results of the above analysis a SWOT matrix is prepared which consists of Strengths, Weaknesses, Opportunities and Threats present in the Organization`s internal and external environment and its impact on the business is studied.
  

A firm must direct its strengths towards exploitation of opportunities and blocking threats which minimizing the exposure of weaknesses at the same time.

SWOT Analysis is an important tool for auditing the overall strategic position of a business and its environment. The basic objective of SWOT Analysis is to provide a frame work to reflect a firm’s ability to overcome barriers (threats) and avail opportunities emerging in the environment.

Advantages of SWOT Analysis –

• It is simple to use low cost is involved it is flexible and can be adapted to varying situations
• It leads to clarification of issues
• It helps in development of goal oriented objectives
• It is useful as a starting point for strategic analysis

Disadvantages of SWOT Analysis-

• Realities may be more complex than represented by swat matrix due to simplicity of its use
• It may result in compiling of lists rather than focusing on organizational objectives
• Strengths may sometimes be confused with opportunities
• The Person conducting the analysis may be biased towards a view-point and may misinterpret the situation

EXAMPLE  of SWOT Analysis of Google –

SWOT Analysis of Google

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Project/Slides/Presentation Transcript

Subject: Strategic Management

Topic: Google Strategy & Business development

INTRODUCTION

• Google Inc. is an American multinational Internet and software corporation specialized in Internet search, cloud computing, and advertising technologies.
• The company was founded by Larry Page and Sergey Brin while they were both attending Stanford University.
• Google was first incorporated as a privately held company on September 4, 1998.
• Google Inc. currently owns and operates 6 data centres across the U.S., plus one in Finland and another in Belgium.
• Google supports more than 104 languages or dialects and offers a personalized version of his engine for more than 115 countries.

SLIDE 2 – Google Strategy & Business development

MISSION STATEMENT:

Organize the world’s information and make it universally accessible and useful.”

VISION STATEMENT:

“To develop a perfect search engine.”

SLIDE 3 – Google Strategy & Business development

CORPORATE LEVEL STRATEGIES

Product Development

Acquisition

Joint Venture

PRODUCT DEVELOPMENT: GMAIL

“From this innovation machine came strategically important products like Gmail, product that were the result of entrepreneurship at the lowest levels of the company.” -PC WORLD

SLIDE 6 – Google Strategy & Business development

The market share of email providers before GOOGLE

Yahoo mail – 46%

Hotmail – 32%

Outlook – 12%

Others – 10%

STARTING WITH GMAIL

• Gmail is Google’s free web-based email service, which was a product of Google developed by Paul Buccheit, one of the Google developers, initially serving as email client for Google employees.
• It was announced as a public service in April 1, 2004. As compared to other email service providers, Gmail service offers better spam protection, lots of free mail storage and access via mobile phones, with a provision of inbuilt chat facility.

BENEFITS OF GMAIL

The main benefit that Google received from Gmail was attraction of customers to the core features of Gmail. At that time, giant email service providers like Yahoo, MSN Hotmail and Rediff were already occupying a big market space, but the new features and security that Gmail introduced and provided were the main source of customer base. Some of the new features of Gmail are listed below:

1. Gmail provides a storage capacity of more than 7 GB, which was increased by 1GB on its first anniversary. As per the product management director, George Harik it aimed at giving people more space each time.
2. The Gmail Labs feature allows users to test new or experimental features of Gmail(like bookmarking), which was introduced in June, 2005. This lets the user enable or disable it based on which the feedback is receiver which allows Google engineers on data required for improvement.
3. Google released a plug-in that provides integrated telephone service within Gmail’s Google Chat interface in August 2010, that allows people to make free calls from their Gmail account to U.S. and Canada and other countries based on extra-fees.

SLIDE 9 – Google Strategy & Business development

Comparing features.

SLIDE 10 – Google Strategy & Business development

Comparing usage post launch of Gmail.

CONCLUSION

• Gmail was an immediate success due its storage feature.
• Storage space has been Gmail’s best since its inception. It was introduced with 1 GB of storage in an era when few web-based email providers offered more than 25 megabytes.
• As other email service providers added storage to compete, Gmail added other features such as chat, draft auto save, keyboard shortcuts, and of course continually increasing the available storage space.

PRODUCT DEVELOPMENT: GOOGLE ADWORDS

• Google’s main advertising product .
• Main source of revenue.
• Google’s total advertising revenues were USD$28 billion in 2010.

HOW DOES IT WORK?

• Listings at the very top and on the right side. Google.com charges money for those listings.
• Google also runs these ads on websites that participate in Google’s AdSense program.
• Google also places ads on other sites that they run, like YouTube and Gmail. Google.com makes most of its money from paid advertising.
• AdWords offers pay-per-click (PPC) advertising, cost-per-thousand (CPM) advertising, site-targeted advertising for text, banner, and rich-media ads.
• Includes local, national, and international distribution.

BENEFITS OF GOOGLE ADWORD

• Introduction of Google Adword- main monetization source. • Almost 97% of the total revenue recieved by Google is through Advertising.
• 10% comes from ads running on other sites.
• 5% comes from “other,” which includes Google Apps subscriptions, search appliance sales, etc.
• About 85% of Google’s net revenue comes from ads running on Google sites.

SLIDE 16 – Google Strategy & Business development

Acquisition:

SLIDE 17 – Google Strategy & Business development

How it works?

Free Download

View, edit, track and import digital images

Share online with friends & family

BENEFITS FOR GOOGLE

Apart from the cost saving plan, the main reason for Google to acquire Picasa was that its technologies fitted with the company’s existing capabilities

SLIDE 19 – Google Strategy & Business development

1) Integration with other products.

SLIDE 20 – Google Strategy & Business development

2) Lock in the customers

SLIDE 21 – Google Strategy & Business development

3) Indirect Source of Monetization

Introducing YouTube

YouTube is a consumer media company, founded in the year 2005, made for the purpose of sharing videos on web and watching them worldwide.

Pre Acquisition

• Revenue: low in the beginning. Grew up to $ 2.5million.
• Just a site sharing home made videos worldwide.
• Viewers: few millions per day.

Post Acquisition

• Revenue: 18 months later increase to $ 5million.
• Commercialization of videos and introduction of channels for television viewers.
• Viewers: increased billions per day.

SLIDE 25 – Google Strategy & Business development

THE DEAL

• $1.65 billion in a stock-for-stock transaction paid by Google to YouTube as the cost of acquisition in return of which Google gaining an aggregate of 32,17,560 shares, and restricted stock units, options and a warrant exercisable for or convertible into an aggregate of 442,210 shares.
• The two companies shared a common financial bond, which is The Menlo Park- based Sequoia Capital, an early Google investor that owns a roughly 30 percent stake in YouTube.
• Under the terms of the deal, YouTube shall operate as a separate brand with its headquarters in San Bruno. Google shall keep running Google Video.
• 12.5% of the transaction shall be held in escrow for a year to cover “indemnification obligations.

SYNERGIES

• Merge Google AdSense with Google videos for video commercials, advertising and promotions shall be handed over to YouTube.
• YouTube being in the Top 5 most viewed websites shall significantly bring about a boost Google’s advertising revenues, the key spin being “social networking” aspect.
• Google’s ad platform shall integrate perfectly into YouTube, the culture of “innovative technology” being common to the two .

SLIDE 27 – Google Strategy & Business development

Taking a look on the benefits and possible drawbacks.

Benefits

• It gave Google “the no. 2” search destination after Google.com.
• Also, a massive amounts of display advertising inventory alongside the player
• An inventory to serve overlay text ads from Google’s paid search listings.

Possible Drawbacks.

• Failure to receive regulatory approval for the acquisition.
• Failure to retain the levels of traffic on the YouTube site.
• Failure to compete successfully in this highly competitive and rapidly changing marketplace.
• Failure to retain key employees.
• Other factors affecting the operation of the respective businesses of Google and YouTube.

SLIDE 28 – Google Strategy & Business development

Success or Failure?

Taking a view over the deal, it has brought about a great success to Google.

Increased Value

Increasing no. of viewers.

Market leader

JOINT VENTURE WITH GOOGLE

• Paul Otellini, CEO of Intel, announced the joint venture in September 2011
• Primary purpose is to design the new Android OS for maximum performance on Intel Processors
• This tie up shocked everyone because Intel had been a major failure in the mobile processor market
• This Joint Venture marks Google treating Intel as a first class citizen

TECHNICAL IMPLICATIONS

• Most Smartphones run on ARM processors, including the Apple iPhone
• The Intel x86 architecture is inefficient on mobile phones and drains battery really fast
• Google will design the new Android OS keeping Intel’s chip as the primary chip it wants to run it on
• This will promise optimum performance of Android on Intel chips

WHAT’S IN IT FOR INTEL?

• Intel is struggling to survive with its lower end atom processor chips in the Smartphone market
• They drain out the limited battery available on these Smartphones very fast
• Intel’s previous partnership with Microsoft was failure
• Huge opportunity since Android captures more than 40% of the global Android Market Share
• Crucial for Intel to survive in the Smartphone Market

WHAT’S IN IT FOR GOOGLE?

• The smartphone dominated by ARM chips, leaves very little competition.
• Google helping Intel will increase the competition. This will bring down costs in manufacturing smartphones
• Google recently launched the Chromebook project, which works on a Chrome based Operating System and relies heavily on cloud computing and the internet

JOINT VENTURE CONCLUSION

• Google has to ensure this does not affect it’s market share in the Smartphone market
• A tricky partnership which can literally make or break both the companies

STRENGTHS

• Main provider is Google.
• Serves in 34 languages.
• Phones are very cost affective
• Competitive pricing.

WEAKNESS

• Copyright videos and content.
• Doesn’t provide with full privacy system.
• Multimedia support.

OPPORTUNITIES

• Developing countries.
• Satisfied providers.
• Choosing the right customers for advertisement by Google Adwords.

THREATS

• Violation of rules and regulations on YouTube.
• Increased competition-RIM, Microsoft etc.
• Storage capacity increased by Yahoo ,Hotmail etc.
• Picasa’s main competition Flickr.

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Boston consultancy group growth share Matrix commonly known as BCG Matrix is a famous portfolio analysis technique developed by Boston consultancy group in the 1970`s. It was developed for managing portfolio of different business units. The BCG Matrix  shows a relationship between products that are generating cash and products that are eating cash.

Large companies who want to be organized in Single Business Units(SBU) face a challenge of allocation resources among these units . The BCG Matrix shows various business units on a graph of market growth v/s market share relative to competitors. Resources are allocated to business units according to where they are situated on the graph.

Four Cells of a BCG Matrix

(A) Cash cows – It is a business unit with large market share in a mature and slow growing industry. Cash cow require little investment and generate cash that can be used to invest in other business units. These a generally large and mature business units reaping the benefits of experience and customer loyalty.

(B) Star – It is a business unit that has a large market share in a fast growing industry. It may generate cash but due to rapid growing market it requires investment to maintain its needs. It is a high growth – high market share business unit. These business units are generally in the growth stage of its product life cycle and not self sufficient in terms of its financial needs.

(C) Question mark? – It is also called the problem child. It is a business unit which has a small market share in a high growth market. Such a business unit requires huge investment to grow market share but whether it will be a star or not is unknown.

(D) Dogs – These are business units with a small market share in a mature industry .A dog may not require substantial cash but it ties up capital that could be invested elsewhere. Such a business unit must be liquidated unless it has some special strategic purpose or prospects to gain market share in the future. 

The BCG matrix provides a framework for allocating resources among different business units and allow one to compare many business units at a glance.

Criticism of the BCG Matirx

It is criticised that it does not reflect the true nature of the business. The BCG Matrix considers only two dimensions High and Low for measurement and while a business may enjoy a high, medium or low market share/growth rate.

It assumes that high market share always leads to high profits which is not be true. High Costs are involved in business units with large market share which may lead to normal profits.

There are many parameters to measure profitability other than growth rate and market share. The BCG Matrix ignores all other indicators of profitability. 

The model does not clearly define the markets.

Long term profitability of a business depends upon a variety of factors which may not be related to market share or growth. A business with low market share can also earn high profits without needing large amount of investment.  

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