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MATRIX ( BCG )
This technique is particularly useful for multi-divisional or multi-
product companies. The divisions or products compromise the
organisations “business portfolio”. The composition of the portfolio
can be critical to the growth and success of the company.
The market growth rate is shown on the vertical (y) axis and is
expressed as a %. The range is set somewhat arbitrarily. The
overhead shows a range of 0 to 20% with division between low
and high growth at 10% (the original work by B Headley “Strategy
and the business portfolio”, Long Range Planning, Feb 1977 used
these criteria). Inflation and/or Gross National Product have some
impact on the range and thus the vertical axis can be modified to
represent an index where the dividing line between low and high
growth is at 1.0. Industries expanding faster than inflation or GNP
would show above the line and those growing at less than inflation
or GNP would be classed as low growth and show below the line.
The horizontal (x) axis shows relative market share. The share is
calculated by reference to the largest competitor in the market.
Again the range and division between high and low shares is
arbitrary. The original work used a scale of 0.1, i.e. market
leadership occurs when the relative market share exceeds 1.0.
18%
Cash consumer Large
16% Cash neutral negative
Market Growth Rate
cash flow
14%
12%
Optimum
10% Cash Flow
Cash Cow Dogs
8%
6%
Large Cash consumer
4% positive Modest cash flow
cash flow
2%
0
10x
4x
2x
1.5x
1x
0.5x
0.4x
0.3x
0.2x
0.1x
High
Stars Question Marks
Market Growth Rate
Low
High Low
Relative Market Share
Disaster sequences
Success sequences
x QUESTION MARKS
Market penetration
Market development
Product development
x STARS
Market penetration
Market development
Product development
Joint ventures
x CASH COWS
Product development
Concentric diversification
x DOGS
Liquidation
Group exercise..
Using the data provided construct a BCG and answer the following
questions,
Has the company a balanced portfolio?
From the BCG what do you see as strengths and why?
Propose generic strategies for each division or product.
BCG Exercise
Consider a multi-divisional / product organisation
Using the following data construct a BCG matrix
Division / Product 1 2 3 4 5
GE BUSINESS SCREEN (GEBS)
No. of Competitors 6 20 16 3 8
Sales of Market leaders £ million 0.8, 0.7, 0.4 1.8,1.8,1.2 1.7,1.3,0.9 3.5,1.0,0.8 2.8,2.0,1.5
Industry/Product Profitability 8 6 9 5 6
% sales
Is the company balanced?
Identify strengths and weaknesses of company
Propose strategies for each division/product
The nine-cell matrix was developed by General Electric with the
assistance of McKinsey. As with the BCG it comprises a matrix of 2
dimensions.
(a) Industry attractiveness
(b) Business strength / competitive postion
In contrast to the BCG, the GEBS includes much more input than simply
industry growth rate and relative market share to assess the
attractiveness of the industry and the competitive position of the
business unit.
Profitability
Technological position
Size
1. Industry attractiveness
1.00 3.38
1.00 4.30
* For any particular industry, there will be some factors that, while
important in general, will have little or no effect on the relative
competitive position of firms within that industry. It is usually better to
drop such factors from the analysis than to assign them very low
weights.
BUSINESS STRENGTH /
COMPETITIVE POSITION
4.0
WINNER WINNER QUESTION
MARK
HIGH - grow and - grow and
build build -hold and
maintain
INDUSTRY
3.0
ATTRACTIVENESS WINNER AVERAGE
LOSER
(External factor MEDIUM - grow and -hold and
build maintain -harvest or
evaluation total
divest
weighted scores)
PROFIT
PRODUCER LOSER LOSER
LOW
-hold and -harvest or -harvest or
maintain divest divest
And
INTENSIVE
Market penetration
Market development
Product development
INTEGRATIVE
Backward integration
Forward integration
Horizontal integration
Market penetration
And
Product development
3.0
THE EFE 4
TOTAL 3
Medium
WEIGHTED 2.0 to 2.99 5%
SCORES 20%
2.0
Low
1.0 to 1.99
1.0
The Internal – Ex te rnal Mat rIx
High
3.0 to 4.0 I II III
3.0
THE EFE
TOTAL Medium
WEIGHTED 2.0 to 2.99 IV V VI
SCORES
2.0
Low
1.0 to 1.99 VII VIII IX
1.0
STRENGTHS WEAKNESSES
Current
Aims and
Objectives
OPPORTUNITIES
SO Decisions WO Decisions
ST Decisions WT Decisions
THREATS
TOWS Analysis
x COMPETITIVE POSITION
x MARKET GROWTH
(cf BCG, GEBS and IE matrices)
QUADRANT 1 (SO)
MARKET DEVELOPMENT
MARKET PENETRATION
PRODUCT DEVELOPMENT
QUADRANT 2 (WO)
QUADRANT 4 (ST)
20%
QUADRANT II QUADRANT I
5. Divestment 5. Backward integration
Liquidation 6. Horizontal integration
Concentric
WEAK Diversification STRONG
10%
COMPETITIVE COMPETITIVE
POSITION QUADRANT III QUADRANT IV POSITION
Joint ventures
4. Conglomerate diversification
diversification
Liquidation
5. Divestment
0%
-6 -3 0
SLOW MARKET GROWTH
Some Matching Tools in Strategy Formulation
The Strategic Position and Action Matrix was developed by Rowe, Mason and
Dickel (Strategic Management and Business Policy – a methodical approach,
Addison Wesley 1982). It is a matching tool that indicates what general type
of strategy and organisation should follow..
AGGRESSIVE
CONSERVATIVE
DEFENSIVE
COMPETITIVE
The technique involves the production of a vector on a matrix where the axes
represent…
Market penetration
Market development
Product development
Integration
Diversification
Market penetration
Market development
Product development
Concentric diversification
Retrenchment
Divestment
Concentric diversification
Integration
Market penetration
Market development
Product development
Joint venture
PORTFOLIO ANALYSIS: