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Unit-2 BCG Matrix & GEMatrix

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21 views

Unit-2 BCG Matrix & GEMatrix

Important Topics

Uploaded by

rohiyaki
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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se nn —— valy SS a gov Golo ol Mahagement g 3 5 Low Average Weak Business Strength / Competitive position Fig. 14.4: General Electric's Business Screen ‘erms of relative market share, profit margin, ability Strong (Business strength is studied in t compete on price and quality, rengths and weakness, technologic arts represent the proportionate size 0! company’s market share) The individual pr Py a letter and plotted as cifcles here. ‘The nine cells are groupe igh industry attractiveness and weak to strong business strength. ) knowledge of customer and market, competitive al capability and composite scoring is doneythe pie f the industry and the dark segments represent ‘oduct line or business units are identified d on the basis of low to Scanned with CamScanner y pusiness Policy and Strategic Management : 8 iness units on . nthe following stops are taken to plot business the GE Business « he | i i i Cre Sa he typical factors, which determine industry attractiveness = een, | fep-1: The Me eral industry attractiveness is assessed and rateg i, "sca | attractive) to 1 (very unattractive). 5 in | ctors, which characterize business strength for ea, 4} 5 5 cI and measured on a five-point scale ranging from rei (Very Weg | each product line, ranging from 5 (very Step-2: The typical fa or business unit are assessed to 5 (very strong). \Siep-3: plot each product line’s curre ~Sfep-4: The future portfolio also should be plotted with the assumptig business strategies remain constant. Calculate the gap between projected a portfolio and review the corporation's mission, objectives, strategies and p nt position on the matrix, that Nd des | Olicies 4 Based on the combinations the following strategies are made. Go ahead - Winner : Expansion Wait and See - Average - Stability Stop - Loser - retrenchment. ) “Expand: This zone is characterized by both business strength and industry attractivens and the business has opportunity to grow through further investment and expansion, | Stability: This zone is marked by opportunity for selective earning since either oe of the two determinants business strength and industry attractiveness is high or aveog. So continuing with present position is preferred. e —Retrenchment: The organization has to stop. Harvesting or divesting strategy suitable, Z GE nine cell matrix has the following disadvantages. 1. It is complicated and cumbersome. ; - - bectiveit 2. The calculation of industry attractiveness and business strength is subject nature. i “¢ in develor Min does not depict the position of new products or business units 7 deve industries, fa awn nwt. MN | Scanned with CamScanner BOSTON CONSULTING GROUP MATBIX . RELATIVE MARKET SHARE nee (olVeerattel nist ba cs Star MARKET GROWTH Scanned with CamScanner BCG Growth-Share Matrix Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units. In the early 1970's ‘the Boston Consulting Group developed a model for managing a portfolio of different business units (or major product lines). The BCG growth-share matrix displays the various business units on @ graph of the market growth rate vs. ‘market share relative to competitors: BCG Growth-Share Matrix Relaove Market Stare (Cash Goverston) Low Ta Resources are allocated to business units according to where they are situated on the grid as follows: + Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. + Star~a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, ¢ star will become cash cow when its industry matures. + Question Mark (or Problem Child) - a business unit that has a small market share in 2 high growth market. These business units require resources to ‘Grow market share, but whether they will succeed and become stars Is unknown, + Dog -a business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share ‘The BCG matrix provides a framework for allocating resources among different business units and allows one to compare many business units at a glance. However, the approach has received some negative criticism for the following reasons + The link between market share and profitability is questionable since increasing market share can be very expensive. = The approach may overemphasi; of declining markets. high growth, since it ignores the potential + The model considers market growth rate to be a given. In practice the firm may be able to grow the market ‘These issues ate addressed by the GE / McKinsey Matrix, which considers market growth rate to be only one of many factors thet make en industry attrective, and which considers relative market share to be only one of many factors describing ‘the competitive strength of the business unrt Scanned with CamScanner GE / McKinsey Matrix In consulting engagements with General Electric In the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix and Is shown below: GE / McKinsey Matrix The GE / McKinsey matrix is similar to the BCG growth-share matrix in that It maps strategie business units on a grid of the industry and the SBU's position in the industry. The GE matrix however, attempts to Improve upon the BCG matrix in the folowing two ways: + The GE matrix generalizes the axes as “Industry Attractiveness” and “Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit. * The GE matrix has nine cells vs. four cells in the BCG matrix. Industry attractiveness and business unit strength are calculated by first Identifying criterta for each, determining the value of each parameter in the criteria, and multiplying that value by a weighting factor. The result Is a quantitative measure of industry attractiveness and the business unit's relative performance in that industry. Industry Attractiveness The vertical axis of the GE / McKinsey matrix is Industry attractiveness, which is determined by factors such as the following: + Market growth rate * Market size = Demand variability + Industry profitability + Industry rivalry * Global opportunities * Macroenvironmental factors (PEST) Scanned with CamScanner Business Unit Strength The horizontal axis of the GE / McKinsey matrix |s the strength of the business unit, Some factors that can be used to determine business unit strength Include: + Market share Growth in market share Brand equity Distribution channel access Production capacity Profit margins relative to competitors The business unit strength index can be calculated by multiplying the estimated value of each factor by the factor's weighting, as done for industry attractiveness, Plotting the Information Each business unit can be portrayed as a circle plotted on the matrix, with the Information conveyed as follows: + Market size is represented by the size of the circle. + Market share is shown by using the circle as a ple chart. + The expected future position of the circle is portrayed by means of an arrow. The following Is an example of such a representation: The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction Indicates that the business unit Is projected to gain strength relative to competitors, and that the business unit {s in an Industry that Is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle. Strategic Implications Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on Its position on the matrix as follows: * Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries, + Hold average businesses in average industries, strong businesses in weak Industries, and weak business In attractive industies. + Harvest weak business units in unattractive industries, average business Units in unattractive industries, and weak business units In average Industries, There are strategy variations within these three groups. For example, within the harvest group the firm would be inclined to quickly divest itself of a weak business In an unattractive industry, whereas it might perform a phased harvest of an average business unit in the same industry. Scanned with CamScanner

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