Henderson of the Boston consulting group in the early 1970’s It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates. According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.
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Boston consulting group (BCG) matrix is developed by Bruce Henderson of the Boston consulting group in the early 1970’s
It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates.
According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.
Relative Market Share & Market Growth Rate
To understand the Boston Matrix you need to understand how market share and market growth interrelate.
MARKET SHARE
Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.
RELATIVE MARKET SHARE RMS= Business unit sales this year Leading rival sales this year
The higher your market share, the higher proportion of the market you control.
MARKET GROWTH RATEMarket growth is used as a measure of
a market’s attractiveness.
MGR = Individual sales - Individual sales
this year last year Individual sales last year
Markets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.
THE BCG GROWTH-SHARE MATRIX
It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories:
Stars Question marks Cash cows Dogs It is based on the combination of market growth
and market share relative to the next best competitor.
Build capacity expansion Increase investment Increase advertisement and
promotion Increase market reach
CONT…
TWO WHEELERS (QUESTION MARK ?) Exceptional case (Money hogger)
Product is in early stage Try to build it and turn in to STAR Invest intensively
CONT…
• UTILITY VEHICLES (CASH COW)
HOLD STRATEGY (INVEST TO PROTECT)
Increase advertisement and promotion Increase market reach Increase Investment
BCG OF TELECOM PLAYERS
BHARTI AIRTEL
Bharti Airtel is the market leader in the telecom sector with a market share of 31%. The market challenger in this industry is Vodafone. So we plot the BCG matrix of Airtel with respect to Vodafone. Taking the market share of Vodafone (i.e. 23%) , the relative market share of Airtel comes as 1.35X. The BCG matrix of Airtel wrt to Vodafone will look as under:
In the above matrix, Bharti Airtel falls in the quadrant of “STAR” with respect to the market challenger. The circle size represents the absolute market share (i.e. 31%) of Airtel in the telecom sector.
Analysis of BCG matrix:
VODAFONE Vodafone is the market challenger in the
telecom sector with a market share of 23%. The market leader in this industry is Vodafone and so we plot the BCG matrix of Vodafone with respect to Airtel. Taking the market share of Airtel (i.e. 31%) , the relative market share of Vodafone comes as 0.74X. The BCG matrix of Vodafone wrt Airtel will look as under:
In the above matrix, Vodafone falls in the quadrant of “QUESTION MARK” with respect to the market LEADER. The circle size represents the absolute market share (i.e. 23%) of Vodafone in the telecom sector.
GE(General Electric) MATRIX
Developed by McKinsey & Company in 1970’s.
GE is a model to perform business portfolio analysis on the SBU’s.
GE is rated in terms of ‘Market Attractiveness & Business Strength’
It is an Enlarged & Sophisticated version of BCG.
Annual market growth
rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities
MARKET ATTRACTIVENESS
Current market share Brand image Production capacity Corporate image Profit margins relative
to competitors R & D performance Promotional
effectiveness
BUSINESS STRENGTH
GE Nine Cell Matrix Grow – Business units that fall under grow attract high
investment. Firms may go for product differentiation or Cost leadership. Huge cash is generated in this phase. Market leaders exist in this phase.
Hold – Business units that fall under hold phase attract moderate investment. Market segmentation, Market penetration, imitation strategies are adopted in this phase. Followers exist in this phase.
Harvest - Business units that fall under this phase are unattractive. Low priority is given in these business units. Strategies like divestment, Diversification, mergers are adopted in this phase.
ADVANTAGES
Decision of invest on different SBUs. Knowledge for innovation Decide which product to be discontinued . Better than Boston Consulting Group Matrix.
WHY BETTER ? Broad Field of Study that point the reason for
such Status of SBU . Specialized than BCG 3 X 3 is more detailed
than 2 X 2.
EXAMPLE OF GE NINE CELL MATRIX
Founded in 1981.
Products are Maruti 800, Omni, Alto,SX4,Swift Desire, Swift, A-star, Gypsy, Wagon R ,Ritz others.
VISION – “The Leader in the Indian Automobile Industry, Creating Customer Delight and Shareholder’s Wealth a Pride of India”
Core Values : Our Core Values drive us in every endeavor- Customer Obsession, Fast, Flexible & first mover, Innovation & creativity Networking & Partnership Openness & Learning