The Business Book

(Joyce) #1

193


The MABA matrix
provides a means
of identifying which
business units should
be grown, held at their
current level, or sold.
Those at the top left of
the matrix have a high
business and market
attractiveness, and
should be grown. Those
in the center have
medium ratings for both
factors, and may warrant
selective investment.
Those at the bottom
right have low scores for
both factors, and should
be harvested for cash,
and sold or liquidated.

See also: Study the competition 24–27 ■ Protect the core business 170–71 ■ Good and bad strategy 184–85 ■ Porter’s five
forces 212–15 ■ The value chain 216–17 ■ Product portfolio 250–55 ■ Ansoff’s matrix 256–57


WORKING WITH A VISION


company McKinsey & Company
for conglomerate General Electric,
which had 150 business units.
The MABA matrix is a
systematic, consistent method for
a decentralized corporation to decide
how to share its capital among the
various business units by assessing
each unit’s profitability and market
position. Past methods of budget
allocation relied on each business
unit’s forecasts for growth and
profitability, which were subject to
error. Although designed for large
companies, the matrix can also be
used by smaller companies to assess
the strength of a product line or
brands, rather than business units.


Using the matrix
The matrix allows a company to
judge each business unit on two
factors to determine its future
success: the attractiveness of its
industry or market, and the business
unit’s competitive strength within
that industry. Market attractiveness
is rated according to the market
size, growth rate, profitability,
and level of competition. Business
attractiveness is rated according
to the unit or product’s current
and growth level of market share,
its brand strength, and its profit
margins relative to rivals.
By plotting the attractiveness
of an industry on one axis and the
competitive position of a business
unit in that industry along the
other, large corporations can
compare the strengths of diverse
business units. The matrix
condenses the value-creation
potential of multiple business
units into a single, digestible chart.
Each business unit or product
must be evaluated, using data
analysis, and placed within the


matrix according to their market
and business attractiveness. This
sorts units into three categories:
those that should be “grown”
through investment, “held” (invested
in selectively), and “harvested” for
cash and either sold or liquidated.
Sorting units into these three
categories provides a starting point
for strategic analysis, and for

determining where to invest to
yield the highest growth. Over
the years, the criteria for assessing
industry attractiveness and
competitive strength have grown
more sophisticated. But even today,
most large organizations with a
formal approach to modeling their
businesses use the MABA matrix
or one of its derivatives. ■

MARKET ATTRACTIVENESS

BUSINESS ATTRACTIVENESS

High Medium Low

Low

Medium

High

GROW—
invest and
grow

GROW—
invest and
grow

GROW—
invest and
grow

HOLD—
invest
selectively if
cash allows

HOLD—
invest
selectively if
cash allows

HOLD—
invest
selectively if
cash allows

HARVEST
for cash,
then sell

HARVEST
for cash,
then sell

HARVEST
for cash,
then sell

Why Kraft gobbled up Cadbury


When Illinois-based Kraft
Foods bought British chocolate
manufacturer Cadbury for more
than $19 billion in 2010, it was
because it saw Cadbury’s
competitive strength in an
attractive industry. Cadbury
would be positioned at the top
left of the MABA matrix. Kraft
was already the world’s second-
biggest food business with
strong brands of its own, but
it was generating 80 percent of
its sales from the US and it was
eager to capitalize on the

potential for growth elsewhere
in the world. In the first half of
2009 alone, 69 percent of
Cadbury’s sales growth came
from emerging markets. The
British company offered Kraft
greater access to these markets,
including the BRIC economies—
Brazil, Russia, India, and China.
Cadbury also had some of the
world’s leading chocolate,
candy, and chewing gum
brands. Cadbury’s Chocolate,
for example, was already a
leading brand in India.
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