Activity evaluation

Tags: KC ST

Orienting efforts

A first step in deciding on strategy is to decide what the objective is. In other words a strategy to do what. A good start to this is deciding for a given activity (this is also valid for a sector or a market) if you wish to progress in it or regress from it, that is for a given activity what should be the goals of your strategy.

This is very important, because for example if you judge an activity to have big potential maybe you'll decide you want to gain market shares even if you don't make any profit (probably hoping to make profit later). On the other hand, a dying activity might not be worth any investment to even maintain market shares, you might be better of making as much profit as possible and retiring from the activity.

To help making these decisions three classical matrices and methods are presented below. All these are meant to help guiding the reflection and mustn't replace personal in depth analysis.

BCG1

This matrix suggests an activity traverses four phases as follows: dilemma (shall we go or not), star (low profit and gain market share), profit (maintain position and high profit), weight (retire and low profit).

By determining your position relative to this matrix you can decide what your goal should be, and elaborate a strategy accordingly.

BCG2

This matrix suggests classifying activities following two dimensions: the importance of competitive advantage and the differentiation possibilities. This leads to a four cell matrix with different kinds of topologies in each cell for the four combinations:

  • light weight and many possibilities: fragmented market with many small sectors. Low entry barriers
  • heavy weight and many possibilities: sparse market with many large sector. High entry barriers
  • light weight and few possibilities: dead end market with average number of small sectors and average entry barriers.
  • heavy weight and few possibilities: volume market with few large sectors and high entry barriers

McKinsey

The McKinsey matrix is a nine cell square matrix which puts the activity's attractiveness against the company's relevant strengths. At each intersection there is a corresponding generic strategy to adopt regarding the activity.

For a given activity you decide on positioning along the two axis and in the intersecting cell you can read the strategy to adopt