Hofer-Schendel ascertain that four steps have to be undertaken to determine a basic strategic position and this in turn determines the investment strategy of the business.
The four steps are:
1. The short term financial condition and health of the company must be determined to assess whether it is a feasible entity or likely to go bankrupt
2. The relative competitive position of the business must be ascertained because even if the business is not about to become bankrupt, liquidation of the business may be one of the strategic choices.
3. It is then necessary to determine the position of evolution of the market that the business competes in. This will help decide whether the preferred strategy is share increasing, growth or profit.
4. A plot is then made of the business’s basic strategic position.
Many tools are available for an analysis of this nature – this analysis must determine whether the company is in a possible bankruptcy situation and can serve as strong indicators of whether there is a need to adopt either turnaround or liquidation strategies.
Different trends should be examined including:
Liquidity trends
Profitability trends
Turnover trends
Ratio analyses should be calculated
Short and long term cash flows should be examined
Corporate and business financial models can also be of assistance
The purpose of doing this is to develop a better measure of the long-term growth potential and profit potential of the organisations businesses. This method is more comprehensive than a simple assessment of the market share as used in the BCG matrix.
Research shows that market share is an indicator of profit potential but other factors also influence this measurement such as relative product quality, adequacy of distribution, facilities location, as well as proprietary and key account advantages.
Horizontal Axis
Another reason for using relative competitive position and not market share is that the success factors of the organisation’s businesses vary from business to business and the organisation must have a clear idea which of these factors has a dominant position in which of the businesses, to be able to put forward a strategic plan that will be successful.
The relative competitive position is made up of two sets of variables, the technological and economic characteristics of the industry involved.
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Market share |
Capacity and productivity |
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SBU growth rate |
Experience curve effects |
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Breadth of product line |
Raw materials cost |
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Sales distribution effectiveness |
Value added |
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Proprietary and key account advantages |
Relative product quality |
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Price competitiveness |
R&D advantages/position |
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Advertising and promotional effectiveness |
Cash throw off |
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Calibre of personnel |
General image |
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Facilities location and newness |
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Different opportunities and threats face a business as the product/market segments in which it competes, evolve over time. Many different authors have described the different market /product stages in the life cycle. The stages of the life cycle vary from author to author. In the original competitive position / market evolution matrix developed by Charles W. Hofer and Dan Schendel, they described seven stages of the life cycle, each with certain characteristics by which the position of the market can be identified.
Market Evolution 
Major changes in basic competitive position occur in the stages of development, shakeout and decline because in these stages the basic nature of competition changes. It is more difficult to make changes to competitive position in the other stages of growth, maturation and saturation as the bases for competition are usually well established.
Market shifts during these stages of the market evolution do happen however and can be caused by:
1. a major blunder by the industry leader
2. a major investment program by a well positioned follower
3. through the acquisition and effective integration of another firm within the industry
4. through a sustained effort to produce small, consistent incremental advantages over a long period of time.
Vertical Axis
The y-axis of the model is an assessment of the firm/product/service’s stage of market evolution. Note that on this matrix axis that Shakeout is positioned below Development and before Growth whereas in the traditional evolution, Growth occurs before Shakeout.