Business Strategy Matrix

The business strategy matrix model views the firm as a collection or portfolio of assets grouped into strategic business units. This technique has been disparaged by some as a cause of inappropriate diversification among business units. It has led firms to acquire or develop unrelated business units that the firmís officers did not fully understand. For example, the managerial expertise needed to run a successful electronics firm may be different from that needed to run a successful baking company. Nonetheless, this model can still provide some insights into capital budgeting strategy. The business strategy matrix model emphasizes market share and market growth rate. Based upon these attributes, business units are deemed to be Stars, Cash Cows, Question Marks, or Dogs. Cash Cows typically are business units with leading market positions in maturing industries; the firm can direct the cash that these units generate to other business units that need it, such as Stars and Question Marks. The Stars (units with good market positions in high growth markets) need funds to expand and develop competitive advantages, as do some Question Marks. Proper strategies to build competitive advantages may turn Question Marks into Stars; if these strategies are unsuccessful, the firm may have to divest Question Marks. Dogs have poor market positions in low-growth industries; unless a turnaround strategy is feasible, these also are divestment or liquidation candidates. If an organization uses the business strategy matrix to assist in planning, management must be sure to manage the firmís market share in a way that maximizes shareholder wealth.