Posted: April 3rd, 2022

The Market Activated Corporate Strategy Framework Essay

In the late 1980s, the Market Activated Corporate Strategy (MACS) Framework was created. However, it was not created all at once. This framework had a number of forerunners.

The BCG Growth-Share Matrix is one of the first. This matrix represents the market growth rate and relative market share, and the business units were divided into four categories based on the level. It was widely used previously, but more comprehensive tools were developed over time to address the shortcomings of the BCG Matrix, such as the fact that it considers only two factors, ignoring many others that have a significant impact on profitability. The BCG Matrix also assumes each business unit’s independence, which leads to an underestimation of the interconnection that frequently exists (as “Dogs,” for example, can sometimes help in gaining a competitive advantage).

The old nine-box matrix developed by McKinsey is another forerunner. It has three levels that cover industry attractiveness and competitive strength of the business unit: high, medium, and low. McKinsey’s nine-box strategy matrix, which took into account the attractiveness of a given industry along one axis and the competitive position of a specific business unit in that industry along the other, was very popular in the 1970s. As a result, the matrix could condense the value-creation potential of a company’s various business units into a single, easily digestible chart.
The nine-box matrix, however, only applied to product markets: those in which businesses sell goods and services to customers. Because a comprehensive strategy must also Help a parent company in winning in the market for corporate control — where business units are bought, sold, spun off, and taken private — the market activated corporate strategy (MACS) framework was created.

Framework for Market-Activated Corporate Strategy (MACS)
The MACS (Market Activated Corporate Strategy) framework represents much of McKinsey’s most recent thinking in strategy and finance; it is a framework that provides a systematic approach for multi-business corporations to prioritize their investments among their business units.

What factors should a corporation consider when deciding whether to buy, sell, or keep a business unit? McKinsey developed its market activated corporate strategy (MACS) framework in the late 1980s, which provided an unexpected answer to that question. The obvious considerations – the attractiveness of the industry in which the unit competes and its competitiveness within that industry – are both important, but the true litmus test is which company can extract the most value from the business. If the current owner is that company, it should probably keep even a mediocre or poorly performing unit. A company should ensure that it is the best possible owner of each of its business units, rather than simply retaining units that are strong in their own right. Managers can use MACS in the same way they used the nine-box tool, by representing each business unit as a bubble with a radius proportional to its sales, funds employed, or value added. The resulting chart can be used to plan acquisitions or divestitures, as well as to identify the types of institutional skill-building initiatives that the parent corporation should undertake.
MACS’s key insight is that a corporation’s ability to extract value from a business unit in comparison to other potential owners should determine whether the corporation should keep the unit in question.

The axes from the old nine-box framework measuring the attractiveness of the industry and the ability of the business unit to compete have been collapsed into a single horizontal axis in the MACS matrix, representing a business unit’s potential for creating value as a stand-alone enterprise. The vertical axis in MACS represents a parent company’s ability to extract value from a business unit in comparison to other potential owners. And it is this second criterion that distinguishes MACS. The horizontal dimension is the ability of a business unit to create value as a standalone enterprise. A MACS matrix’s horizontal dimension depicts a business unit’s potential value as an optimally managed stand-alone enterprise. This measures a company’s optimal value, which can sometimes be qualitative. When more precise information is required, the manager can use the business unit’s net present value and compare it to other units (factors like sales, value added, or funds employed can be also included).
The vertical dimension is the ability of the parent company to extract value from the business unit. The MACS matrix’s vertical axis assesses a company’s ability to extract value from each business unit in its portfolio. If the parent company can extract more value from the business unit than anyone else, this is the owner who can truly create the most value from the assets, and these business units should be retained.
What exactly is a strategy? Fundamental instruments
Strategy is the company’s overall long-term plan that takes into account available resources, a challenging environment, market requirements, and the expectations of all stakeholders. It considers the organization’s direction, the markets in which it operates, competitive or absolute advantage, all available resources, the environment (external and internal factors), and the fulfillment of stakeholder needs and desires.

Most businesses have several levels of strategy:

Corporate strategies – cover the overall purpose of the business and are typically long-term in nature (more than 5 years). Corporate strategies are important in that they outline the path for an organization that will be followed for a long time and may necessitate large budget costs. Sometimes referred to as a “mission statement.”

Operational strategies – cover the business’s operations over a period of 3-5 years. Translate strategic goals into specific objectives, serving as a link between corporate and tactical strategies.

Functional strategies concentrate on the day-to-day tasks that will allow the organization to achieve its overall goal. (in less than a year)

Strategic management, the art of making “strategic decisions” – decisions that formulate a company’s vision, mission, plans for development and research, and the direction in which the company is heading – includes well-organized strategies that are being implemented. Strategic management is made up of three parts:

Strategic Assessment

Every activity requires analysis. Not every time will there be enough tools to complete the task. However, several tools can be used during the Strategic Analysis process: Planning Five Forces Analysis, Market Segmentation, Directional Policy Matrix, Competitor Analysis, Critical Success Factor Analysis, SWOT Analysis are all examples of PEST Analysis Scenarios.

Strategic Decision

Involves selecting various alternatives, aligning them with the desired outcome, evaluating them, and finally selecting the final strategy that will satisfy all stakeholders.

Implementation of Strategy

The final and most difficult stage. Every step of implementation should be carefully evaluated and controlled. [1]

But how are most strategies developed?

2
The strategy begins with six fundamental questions: who, what, when, where, why, and how.

Essentially, when the Vision specifies what the organization is going to do (be the high-value provider), where the organization is going to do it (in North America, Europe, and Australasia), and implicitly answers the why (because buyers do not have a high-value choice), and when the Vision specifies where the organization is going to do it (in North America, Europe, and Australasia), and when the Vision specifies where the organization is going to

When the Execution Plan specifies who (engineering, marketing, and sales) will be doing what (designing a new product, launching the campaign, visiting key retailers), when (this quarter, next quarter, next year), and how they will be doing it (using the services of an expert design firm, capitalizing on new media, holding in-person displays), the strategy can lead to the required goals.

3
The research step is critical for this semester paper because it includes all of the organization’s efforts to learn more about the opportunities, environment, strengths, and so on.

And this is where organizations use various tools that are now available to ensure the accuracy of the information they have and to understand where the market is going, stakeholder preferences, and so on.

What happened to the organization? Where is the market likely to go? (MACS (Market-Activated Corporate Strategy Framework) (Scenario Development) Is it possible to reshape the market? Framework for Blue Ocean Strategy How will the market react to a shift in strategy? (Five Force Analysis by Porter) How will IT aid in execution? (From the McKinsey 7-S Strategy Framework) Can the execution strategy be improved? (Value Chain Mapping) [4]

Get Essay Helpance
If you need help writing an essay, our professional essay writing service is here to Help you!

However, none of these are general-purpose frameworks that can be used everywhere. Porter’s five forces only indicate whether a strategy has a chance of succeeding, not how to develop it. Strategy mapping is heavily focused on performance and metrics, which is ineffective for completely new initiatives. Value stream mapping is extremely tailored to (lean) manufacturing. If creating an entirely new market is not feasible, the Blue Ocean Strategy does not apply. The MACS framework is heavily based on financial planning, which may be impractical early in the strategy formulation process. The 7-S Strategy framework has been highly customized for IT and Scenario Planning, and it aids in the identification of scenarios that must be addressed, but it offers few solutions. [5]

Nonetheless, these business toolds aid in the project’s direction and are used during the analysis.

I’d like to illustrate the fundamentals of MACS development, its basic concept, and an example of how it can be used in business.

In the late 1980s, the MACS Development Market Activated Corporate Strategy framework was created. However, it was not created all at once. This framework had a number of forerunners.

The BCG Growth-Share Matrix is one of the first. This matrix represents the market growth rate and relative market share, and the business units were divided into four categories based on the level.

It was widely used previously, but more comprehensive tools were developed over time to address the shortcomings of the BCG Matrix, such as the fact that it considers only two factors, ignoring many others that have a significant impact on profitability.

6 The BCG Matrix also assumes each business unit’s independence, which leads to an underestimation of the interconnection that frequently exists (as “Dogs,” for example, can sometimes help in gaining a competitive advantage).

The old nine-box matrix developed by McKinsey is another forerunner. It has three levels that cover industry attractiveness and competitive strength of the business unit: high, medium, and low.

McKinsey’s nine-box strategy matrix, which took into account the attractiveness of a given industry along one axis and the competitive position of a specific business unit in that industry along the other, was very popular in the 1970s. As a result, the matrix could condense the value-creation potential of a company’s various business units into a single, easily digestible chart.

The nine-box matrix, however, only applied to product markets: those in which businesses sell goods and services to customers. Because a comprehensive strategy must also Help a parent company in winning in the market for corporate control – where business units are bought, sold, spun off, and taken private – the market-activated corporate strategy (MACS) framework was created. [8]

MACS (Market Activated Corporate Strategy framework): MACS represents much of McKinsey’s most recent thinking in strategy and finance; it is a framework that provides a systematic approach for multibusiness corporations to prioritize their investments among their business units. [9]

What factors should a corporation consider when deciding whether to buy, sell, or keep a business unit? McKinsey developed its market-activated corporate strategy (MACS) framework in the late 1980s, which provided an unexpected answer to that question. The obvious considerations—the attractiveness of the industry in which the unit competes and its competitiveness within that industry—are both important, but the deciding factor is which company can extract the most value from the business. If the current owner is that company, it should probably keep even a mediocre or poorly performing unit. [10]

A company should ensure that it is the best possible owner of each of its business units, rather than simply retaining units that are strong in their own right.

MACS’s key insight is that a corporation’s ability to extract value from a business unit in comparison to other potential owners should determine whether the corporation should keep the unit in question.

The axes from the old nine-box framework measuring the attractiveness of the industry and the ability of the business unit to compete have been collapsed into a single horizontal axis in the MACS matrix, representing a business unit’s potential for creating value as a stand-alone enterprise. The vertical axis in MACS represents a parent company’s ability to extract value from a business unit in comparison to other potential owners. And it is this second criterion that distinguishes MACS. [11]

12
Managers can use MACS in the same way they used the nine-box tool, by representing each business unit as a bubble with a radius proportional to its sales, funds employed, or value added. The resulting chart can be used to plan acquisitions or divestitures, as well as to identify the types of institutional skill-building initiatives that the parent corporation should undertake.

The horizontal dimension: The ability of a business unit to create value as a standalone enterprise.

A MACS matrix’s horizontal dimension depicts a business unit’s potential value as an optimally managed stand-alone enterprise. This measures a company’s optimal value, which can sometimes be qualitative. When more precise information is required, the manager can use the business unit’s net present value and compare it to other units (factors like sales, value added, or funds employed can be also included).

The vertical dimension is the ability of the parent company to extract value from the business unit.

The MACS matrix’s vertical axis assesses a company’s ability to extract value from each business unit in its portfolio. If the parent company can extract more value from the business unit than anyone else, this is the owner who can truly create the most value from the assets, and these business units should be retained.

There are several qualifications for the company that can highlight its capability to the business owner:

The parent corporation may be able to predict the future shape of the industry and thus buy, sell, and manipulate assets in anticipation of a new equilibrium.

It may excel at internal control: cost cutting and supplier squeezing.

It may own other companies that can share resources with the new unit or transfer intermediate products or services to and from it.

There may be financial or technical factors that influence the natural owner of a business unit to some extent. Taxation, owner incentives, imperfect information, and different valuation techniques are examples of these. [13]

Example: General Electric
After locating a company’s business units on the MACS matrix, the chart can be used to plan preliminary strategies for each of them. The main principle guiding this process should be the same as the one guiding MACS: whether a unit should be part of a company’s portfolio is determined more by that company’s relative ability to extract value from the unit than by its intrinsic value viewed in isolation.

The matrix itself can provide some powerful strategic prescriptions, such as:

Structurely appealing businesses should be divested if they are worth more to someone else.

Keep structurally mediocre (or even bad) businesses if you can extract more value from them than other owners.

Prioritize business units on the far left of the matrix, either by developing them internally if you are the natural owner or by selling them as soon as possible if someone else is.

If you are well equipped to increase the value of a business unit through internal improvements but are not in the best position to run it once it is in top shape, consider improving it and selling it to its natural owner. [14]

Take, for example, the General Electric Company and its various business units.

The size of the bubbles is proportional to sales, funds, and the number of people employed. GE is divided into seven major business units:

General Electric Capital (7)

Infrastructure for GE Technology (2)

GE Power (5)

Home and Business Solutions by GE (4)

General Electric Healthcare (3)

NBCUniversal (1) (1)

Using the MACS Matrix and an approximation of the business units, we can see the following picture:

15
By analyzing the Matrix, we can see which business units appear in which corner of the table, and we can then consider the possibility of forming separate companies from the business units that we cannot operate properly, such as units 1 and 3 in this case.

When we look at units 7, 5, 4, 2, we can see that the parent company can extract more value from these business units than from units 1 and 3. So, after considering other factors, the manager may decide to sell these businesses or spin them off into separate companies.

Conclusion
The market is constantly changing. The environments change on a daily basis. Every day, a good manager should monitor and analyze the market.

There are a variety of tools available. PEST Analysis Scenario, Planning Five Forces Analysis, Market Segmentation, Directional Policy Matrix, Competitor Analysis, Critical Success Factor Analysis, SWOT Analysis, and MACS are all examples of PEST Analysis Scenarios.

They all complement one another by highlighting various important areas that should be checked during the analysis process.

In this paper, we discussed the MACS, which is a very useful tool for managers who want to analyze their organization’s business units. It combines the best practices (BCG Matrix and 9-box Matrix) to ensure that this analysis produces the most useful results.

Of course, the MACS matrix is only a snapshot in time. The manager’s goal is to identify the combination of corporate capabilities and business units that provides the best overall scope for creating value, using all available analysis tools, including the MACS.

It often makes no sense to sell a unit if the parent company is best suited to extract value from it, even if that unit does not compete in a particularly profitable industry. In contrast, if a parent company determines that it is not the best possible owner of a business unit, the parent maximizes value by selling it to the most appropriate owner, even if the unit is in a fundamentally appealing business. In short, the “market-activated corporate strategy framework” encourages managers to view their portfolios through the eyes of an investor seeking to maximize value. [16]

Even with these considerations, MACS is still useful in the company’s assessment and planning process. MACS, when combined with other tools, represents a reliable combination of data required by company management.

Order | Check Discount