How can you use analytical models to assess business unit performance?

1 Balanced scorecard

The balanced scorecard is a model that evaluates business unit performance based on four perspectives: financial, customer, internal process, and learning and growth. The idea is to balance the short-term and long-term goals, as well as the quantitative and qualitative aspects of performance. To use the balanced scorecard, you need to define the strategic objectives, indicators, targets, and initiatives for each perspective, and then track and review them regularly. The balanced scorecard can help you align your business unit with the overall vision and strategy of your organization, and improve your decision-making and communication.

2 SWOT analysis

The SWOT analysis is a model that examines the internal and external factors that affect business unit performance. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are the internal factors that you can control or influence, such as your resources, capabilities, processes, and culture. Opportunities and threats are the external factors that you cannot control or influence, such as the market, competitors, customers, and regulations. To use the SWOT analysis, you need to list and prioritize the most relevant factors for each category, and then use them to formulate strategies that leverage your strengths, overcome your weaknesses, exploit your opportunities, and mitigate your threats.

3 BCG matrix

The BCG matrix is a model that classifies business units based on their market share and market growth. BCG stands for Boston Consulting Group, the consulting firm that developed the model. The model divides business units into four categories: stars, cash cows, question marks, and dogs. Stars are business units with high market share and high market growth, which generate high revenues but also require high investments. Cash cows are business units with high market share and low market growth, which generate high revenues and low costs. Question marks are business units with low market share and high market growth, which have potential but also require high investments. Dogs are business units with low market share and low market growth, which have low revenues and low costs. To use the BCG matrix, you need to plot your business units on a grid based on their market share and market growth, and then use the categories to determine the best allocation of resources and investments.

4 GE-McKinsey matrix

The GE-McKinsey matrix is a model that extends the BCG matrix by adding more dimensions to evaluate business unit performance. GE stands for General Electric, the company that commissioned the model, and McKinsey, the consulting firm that developed it. The model uses two axes: industry attractiveness and business unit strength. Industry attractiveness is a measure of the external factors that affect the profitability and growth potential of the industry, such as market size, growth rate, competition, regulations, and technology. Business unit strength is a measure of the internal factors that affect the competitive advantage and market position of the business unit, such as market share, brand, quality, innovation, and cost. To use the GE-McKinsey matrix, you need to rate your business units and the industry on a scale of 1 to 9 for each axis, and then plot them on a grid divided into nine cells. The cells indicate the strategic priority of the business units, from high to low.