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- 1. Boston Consulting Group Perspectiveson Strategy Student: Amrita Gandikota Subject: Business Process Planning Lecturer: Hartmut Geimar Date: 4th Nov 2014
- 2. Contents • History • CompanyProfile • Strategizing Processes • Strategic Concepts of BCG • BCG Classics • Growth Share Matrix • Growth Share Matrix of Google • Conclusion
- 3. History BCG is aglobal management consulting firm and the world's leading advisor on business strategy. • Subsidiary of The Boston Company • Founder Bruce D. Henderson Trivia: Began with just 2 consultants with the first month billing of 500$ “Give me a lever and a place to stand and I’ll move the world” – Favorite quotation of Bruce Henderson of Archimedes. 1963 Established Boston Consulting Group 1968 Introduced Growth Share Matrix 1975 First Employee Stock Ownership Program 1981 Introduced Advanced Matrix 2013 Celebrates 50th Celebration 2011 Launched BCG perspectives
- 4. Company Profile • 6200employees • 87 offices in 45 countries • Headquarters Boston, Massachusetts • 3.95 $ billion revenues • Industry - Management Consulting • 2013 - Rich Lesser President and CEO • 2014 - Ranked 3rd by Fortune – 100 best companies to work for
- 5. Company Profile Industries: Automotive BiopharmaceuticalsBusiness & the Social Sector Community Consumer Product Culture Development Education Energy & Environment Financial Institutions Hardware & Software Insurance Media & Entertainment Metals & Mining Private Equity Telecommunications Transportation, Travel & Tourism Capabilities: Corporate Development Corporate Finance Globalization Growth Innovation Marketing & Sales Post -merger Integration Risk Management Strategy Sustainability Technology Transformation Turnaround Clients: Google, IBM, Aetna, Pfizer, American Airlines, Ford Motor Company, Tata Group, Harvard School of Public Health, Japan Pharmaceutical Manufacturers Association, Russian Ministry of Energy, Government of Canada, United States Agency for International Development, and European Union Share Programme
- 6. Strategizing process We arededicated to basic and applied research in order to address the following fundamental questions: • What are New and Emerging Phenomena in Business? • What are the Unanswered Questions in Strategy? • What is the Modern Basis of Competitive Advantage? • What are Promising Approaches to Strategy from Various Academic Disciplines? • What is the future of strategy?
- 7. Strategic Concepts ofBCG • Adaptive Advantage Find unpredictability of the environment Seek limits of deductive analysis and classical strategies • Strategy Styles Classical, Adaptive, Shaping and Visionary • Ingenious Enterprise – Achieving highest competitive advantage • Ambidexterity – Strategies of efficiency and innovation • Transformation – Renewing strategies post saturation
- 8. BCG Classics • TheRule of Three and Four • The Experience Curve • Time-Based Competition • The Growth Share Matrix
- 9. The Rule ofThree and Four • Developed by Bruce Henderson • Evolution of industry structure and leadership • A stable competitive industry will never have more than three significant competitors. • The industry will find equilibrium when the market shares of the three companies reach a ratio of 4:2:1 - Bruce D. Henderson, 1976
- 10. The Experience Curve •Developed by Bruce Henderson • A company’s production costs would fall by 20-30% in real terms for each doubling of “experience” or accumulated production volume. High Market share Leadership & Competitive Edge Valuable Experience Cost Advantage
- 11. Time Based Competition •Developed by George Stalk & Tom Hout • Speed as a key to competitive advantage • Reap advantage by cutting product- development cycles and factory- process time • Manage time on par with costs, quality, and inventory • Reduced variety-related costs • Despite smaller size and volumes, produce fewer goods but with greater diversity and quality than competitors at lower cost.
- 12. Key Terms • Marketshare is the percentage of the total market that is being serviced by a company. • Relative Market Share indexes a firm’s or a brand’s market share against that of its leading competitor to access its success and position in the market RMS = Business Unit Sales this year/ Leading Rival Sales this year • Market Growth shows attractiveness of a market
- 13. Growth Share Matrix •Key for strategy making • Portfolio planning model of companies’ business units • Invest upon company competitiveness and market attractiveness • Drivers - Relative market share, Growth Rate • High growth rates leads to easy leadership A company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows.… Margins and cash generated are a function of market share.” —Bruce Henderson, “The Product Portfolio,” 1970 Market leadership High Relative Share Superior Returns
- 14. Application • Low-growth, high-share •Exploited for cash to reinvest in high- growth Cash Cows • High Share • High Future PotentialStars • High-growth, low-share • Invested in or discarded, depending on their chances of becoming stars. Question Marks • Low-share, low-growth • essentially worthless , to be liquidated, divested, or repositioned if current positioning could never generate cash. Dogs
- 15. Criticisms • Fewer conglomerates •Rapidly changing business environment • Market share no more the only predictor of sustained performance • High market share does not always lead to profits • New drivers of competitive advantage • The matrix considered to be too simplistic
- 16. Outcomes of Change •Needs a fast paced application with a focus on strategic experimentation to allow adaptation in unpredictability • New measure of competitiveness on the horizontal axis. • Renew advantage through disciplined economical experimentation by investing in question marks and nurturing ones of star potential. • Be swift in cashing out stars, retiring cows and maximize information value of pets.
- 17. BCG Matrix 2.0in Practice Practical Imperatives for successful business in modern environment 1. Accelerate 2. Balance Exploration and Exploitation – Increase number of question marks – Test quickly and economically – Exploit cash cows efficiently – Keep dogs on a short leash 3. Select Rigorously 4. Measure and manage portfolio economics of experimentation – Manage the rate of experimentation – Drive new product and business success – Maintain a portfolio balance
- 18. Growth Share Matrixof Google Experimental Approach to Portfolio Management Stars Youtube Android Gmail Question Marks Google Glass Driverless Car Google Play Cash Cows Search Engine AdSense Ad Words Dogs Web 2.0 Sketch up Orkut
- 19. Conclusion Increasing change requiresadjusting in the application of the matrix. However… “The need for a portfolio of businesses becomes obvious. Every company needs products in which to invest cash. Every company needs products that generate cash. And every product should eventually be a cash generator; otherwise its worthless. Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities.” – Bruce Henderson, 1975
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Editor's Notes
- #4 http://www.bcg.com/about_bcg/vision/our_heritage/history/default.aspx
- #7 http://www.bcg.com/about_bcg/institutes/strategy_institute/default.aspx
- #8 http://www.bcg.com/about_bcg/institutes/strategy_institute/default.aspx ‘one line of explanation for each
- #10 https://www.bcgperspectives.com/content/articles/business_unit_strategy_the_rule_of_three_and_four_bcg_classics_revisited/
- #11 because a company with dominant share could more rapidly accumulate valuable experience and thus achieve a self-perpetuating cost advantage over its rivals.
- #14 Used by fortune 500 companies Taught in all b schools
- #15 Conglomerates and diversified industrial companies with a logic to redeploy cash from cash cows to business units with higher growth potential. right balance between the exploitation of mature businesses and the exploration of new businesses to secure future growth. Ask them a question: if you have 2 lines…one is going fine and the other not so well …what would you do? You would be tempted to re-invest in the same ignoring the stars
- #16 Drivers of competitive advantage High change in shifting or sharing resources between products and business units When did porter come up with comp adv BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. Market is not clearly defined in this model. High market share does not always leads to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. This four-celled approach is considered as to be too simplistic.
- #19 Gmail and Glass, for instance, were launched among a select group of enthusiasts. Such early testing not only keeps costs per question mark down but also helps the company reduce the risk of new-product launches. After launch, Google leverages deep analytics to continuously monitor portfolio health and move products around the matrix. As a result, it is able to launch and divest approximately 10 to 15 projects every year.
- #20 https://www.bcgperspectives.com/content/articles/corporate_strategy_portfolio_management_strategic_planning_growth_share_matrix_bcg_classics_revisited/