1. Boston Consulting Group
Perspectives on Strategy
Student: Amrita Gandikota
Subject: Business Process Planning
Lecturer: Hartmut Geimar
Date: 4th Nov 2014
2. Contents
• History
• Company Profile
• Strategizing Processes
• Strategic Concepts of BCG
• BCG Classics
• Growth Share Matrix
• Growth Share Matrix of Google
• Conclusion
3. History
BCG is a global 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
• 6200 employees
• 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 Biopharmaceuticals Business & 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 are dedicated 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 of BCG
• 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
• The Rule of Three and Four
• The Experience Curve
• Time-Based Competition
• The Growth Share Matrix
9. The Rule of Three 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
• Market share 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 2.0 in 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 Matrix of 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 requires adjusting 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
because a company with dominant share could more rapidly accumulate valuable experience and thus achieve a self-perpetuating cost advantage over its rivals.
Used by fortune 500 companies
Taught in all b schools
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
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.
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.
