Both Hofer’s Product Market Evaluation Matrix and the McKinsey 7S Framework are strategic management tools used to assess and analyze different aspects of an organization. Let’s take a closer look at each of them:
Hofer’s Product Market Evaluation Matrix:
Definition: Developed by John D. Hofer, this matrix is used to evaluate a company’s strategic business units (SBUs) based on their market growth rate and relative market share. It helps in determining the appropriate strategic direction for each SBU.
Components:
- Market Growth Rate: Indicates the rate at which the market for a particular product or service is growing. This is typically measured as a percentage.
- Relative Market Share: Compares the company’s market share in a specific product or service segment to the market share of its largest competitor. It is expressed as a ratio.
Matrix Quadrants:
- Cash Cow: High relative market share, low market growth rate. These are mature products with a dominant market share. They generate a stable cash flow, requiring minimal investment.
- Star: High relative market share, high market growth rate. These are products in a high-growth market where the company has a strong competitive position. They require significant investment to maintain growth.
- Problem Child (Question Mark): Low relative market share, high market growth rate. These are products in a high-growth market where the company has a small market share. They require investment to grow market share.
- Dog: Low relative market share, low market growth rate. These are products in a low-growth market where the company has a small market share. They may generate enough profit to sustain themselves but do not offer significant growth potential.
Purpose: The matrix helps in allocating resources effectively by identifying which SBUs need more investment and which can generate cash for the organization.
McKinsey 7S Framework:
Definition: Developed by McKinsey & Company, this framework is used to analyze the internal elements of an organization that collectively contribute to its success. It consists of seven interconnected elements.
Components:
- Strategy: Defines the company’s approach to achieving its objectives, including its plans for resource allocation and competitive advantage.
- Structure: Refers to the organization’s hierarchy, reporting relationships, and division of labor. It also includes the design of departments, teams, and functions.
- Systems: Encompasses the processes and procedures that enable the organization to carry out its operations effectively. This includes information systems, workflow, and decision-making processes.
- Skills: Refers to the capabilities, competencies, and expertise of the employees within the organization. It includes both technical skills and soft skills.
- Staff: Encompasses the organization’s workforce, including the number, composition, and skills of employees. It also considers factors like recruitment, training, and development.
- Style: Refers to the leadership style and management practices within the organization. It includes the behavior and values exhibited by leadership.
- Shared Values: Represents the core beliefs, principles, and cultural norms that guide behavior and decision-making within the organization. They are considered the foundation of the organization’s identity.
Purpose: The framework emphasizes the interdependencies among these seven elements and the need for alignment to achieve organizational effectiveness and success.
By using these frameworks, organizations can gain valuable insights into their strategic positioning, internal capabilities, and areas for improvement, ultimately enhancing their ability to achieve their objectives and adapt to changing market conditions.