Boston matrix analysis


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Boston matrix analysis

  1. 1. Boston Matrix Analysis
  2. 2. BUSINESS PORTFOLIO ANALYSIS • Is a collection business and products that make-up the company. The best business portfolio is one that fits the company’s strengths and helps exploit the most attractive opportunities. • Is an organizational strategy formulation technique based on the philosophy that the organization should develops strategy much as they handle investments portfolios. • Just as sound financial and unsound ones discarded. • Sound organizational activities should be emphasized and unsound ones deemphasized.
  3. 3. Most popular business portfolios • BCG Growth-Share Matrix • The GE Multifactor Portfolio Matrix by General electric Company and McKinsey • Matsushita Strategy Matrix • Road mapping • Purpose: “Enable strategic planners to select the optimal strategies for the individual products whilst achieving overall firm objectives” (Mcnamee, 1985)
  4. 4. Examples of Portfolios Virgin: trans, planes, cola, music store Proctor & Gamble: Detergent, nappies Unilever: ice cream, tea, spreads Gillette: batteries, shaving products
  5. 5. PRODUCT PORTFOLIO ANALYSIS • Matrix produced by Boston Consulting Group (BCG ) • Box model relationship between a division or product’s current or future revenue potential and the appropriate management stance. • The matrix chart symptoms into a diagnosis so that an effective cure or management behavior can be adopted. • Derivatives have been developed that are more qualitative and more geared to developing interpretation of the choice to be made. – Matrix classified division or products according to their present market share and future growth of the market
  6. 6. Cont. • A successful product which last from emergent to mature market goes clockwise around the matrix • The intention of BCG matrix is to distinguish between the cash generators and cash consumers. • The matrix can be used to recommend an outline strategy to follow. • Conclusion: Milk the cows, divest the dogs, invest the stars and examine the question marks
  7. 7. Portfolio analysis “the strategic units that make-up the company and attempts to evaluate the current effectiveness and vulnerabilities” (McDonald et al, 1992) • How much of our time and money should we spend on our best products to ensure that they continue to be successful? • How much of our time and money should we spend developing new costly products, most of which will never be successful?
  8. 8. BCG Positions Throughout the Product Lifecycle
  9. 9. Example of products portfolio
  10. 10. BCG Matrix
  11. 11. What is a Cash Cow? • Products/divisions in this segment are those the current high income earners for organization. • They expected to provide the major part of current profits and form the major source of funding for future developments. • However, Cash Cows are relatively short-term so they are not expected to provide significant future revenues. • For business areas and products in this segment, the organization should look to adopt measures, including the use of IS, to increase the profit, extend the life time or shift the division or product into the Star segment. These are the well-established products in mature markets.
  12. 12. What is a Star? • Products/business divisions in this segment are the ones that provide significant revenue now and are expected to continue to do so in the future. • In this segment, the organization will wish to seek opportunities to increase profits and extend the life of the product or division. • These are the market leader products in growth markets. • Since these products or divisions require ongoing investments they do not generate as much margin as Cash Cows do. • Again these measures may include the judicious use of IS.
  13. 13. What is a Dead Dog? • Divisions or products in this segment provide little or no contribution to profits today and it is not expected that this situation will change. • This segment should be removed, which may be achieved by divestment of the division or product, or by taking steps to reduce associated costs or to move the division or product into the Cash Cow, or even, if lucky, the Star segment. • These are the products that have lost market share to competitors or are in declining markets.
  14. 14. What is a ? • Divisions or products that organization is currently prepared to ‘carry’ although they make little or no contribution to revenue now, they are expected to do so in the future. • Usually young areas or products and probably still being developed. Investments should be made cautiously since the risks associated with this segment are higher . • Clearly the organization will seek ways to ensure that the divisions/products of this segment quickly mature into highly profitable Stars. These are the products with low market share but in fast growing markets. If successful these products or divisions will become Stars.
  15. 15. Boston Box - Uses • Simplifies complex situations • Target setting tool • Encourages strategies to view their business as collection of diversified flows and investments • Success sequences • Disaster sequences
  16. 16. Sequence of action of portfolio
  17. 17. Example: Ford Motor QUESTION MARKS: New products in development (or ones that have slipped back) in high growth markets seen as likely future cash generators (Stars or Cash cows). Risky areas but need investment hence overall result is zero contribution. (e.g. Off road recreational vehicles, pick-up trucks) STAR: Often a new product achieving a high market share thus generating high revenues, but offset by R&D cost recovery or ongoing investment in promotion, product and market extension, hence net loss. (e.g. Ford KA series, Galaxy and latterly Ford Focus)
  18. 18. CASH COW: Well established products in mature markets generating ongoing profits and future development revenues (e.g. For Fiesta, Mondeo) DOGS: Products that have lost market share to competitors or are in decline generating little profit but requiring cash use. Either require retiring or reinventing requiring investment hence cash flow negative. (e.g. Ford Escort, Scorpio, Probe)
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