- This is a very important strategic management tool. Management evaluates the position of the company in comparison to its competitors in the same industry. Also, the management calculates the influence of external agencies on the profitability of the company. These agencies are the government, the company's suppliers and distributors. The customers' perception on the company's products is also studied. This way, the company analyzes the tastes and preferences of its customers. Management also analyzes if its product type is such that it can be substituted. If the product can be substituted and the company increases prices, the customers would prefer to buy the substitute. Butter and margarine are substitutable products.
- All companies that have strategic business units (SBUs) use this technique. The management divides its business into four equal quadrants: cash cows, stars, question marks and dogs. The management then categorizes the company's SBUs into these four quadrants.
Cash cows are those business units that are established in the market. These businesses need lesser levels of investment and generate greater profits than the other SBUs. Cash cows are the core business and the primary source of income for the company. Stars are the new and upcoming SBUs. In the present day, these generate a lot of cash for the company but also need massive capital for sustenance. If developed well, stars mature into cash cows. Question marks are business units that need to be honed and developed into generating cash. These are relatively new products and the company needs to focus a lot of attention on these. In the present, they generate little cash and need a lot of investment. Dogs are the business units that have now lost their lustre. They neither need investment nor do they provide income. Once, the company has divided its units, it is able to devise appropriate strategies for each of the quadrants. - SWOT is the abbreviation for strengths, weaknesses, opportunities and threats. The management uses SWOT to gauge the influence of internal and external factors on the company's success or failure. The management first understands all the favorable factors of the company's operations. It may be a differentiating factor in the product or the company's superlative technologies. Then, the management evaluates all the factors that are holding it back. It could be a demotivated workforce. There may be new openings in the market and once the company's apprised of them, it is able to take measures to act on them. The threats the company faces from changes in governmental and competitor's policies are also studied.
- PEST is the abbreviation for political, economic, social and technological factors. All these factors are external to the company. Management tries to assess the influence of each of these factors on the company. It comprehends what would be the scenario if governmental regulations and policies changed. It also assesses the effects of changes in prices and the competitor's strategies. The customer's perceptions and psyche are studied. The state of the present technology is evaluated. This way, the management knows what all steps it must take to remain profitable.
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