SUBMITTED TO SUBMITTEED BY

MISS ANJALI SHARMA PARVEEN KUMARI

MBA 4th C
ROLL NO. 204
 BOSTON CONSULTING GROUP

MATRIX ( BCG )

This technique is particularly useful for multi-divisional or multiproduct

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 BCG matrix considers two variables, namely..

1 MARKET GROWTH RATE

2 RELATIVE MARKET SHARE

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.
The BCG growth/share matrix is divided into four cells or
quadrants, each of which represent a particular type of business.
Divisions or products are represented by circles. The size of the
circle reflects the relative significance of the division/product to
group sales. A development of the matrix is to reflect the relative
profit contribution of each division and this is shown as a piesegment within
the circle.
Dogs: Low Market Share / Low Market Growth
In these areas, your market presence is weak, so it's going
to take a lot of hard work to get noticed. You won't enjoy the
scale economies of the larger players, so it's going to be
difficult to make a profit. And because market growth is low,
it's going to take a lot of hard work to improve the situation.

Cash Cows:
High Market Share / Low Market Growth
Here, you're well-established, so it's easier to get attention
and exploit new opportunities. However it's only worth
expending a certain amount of effort, because the market
isn't growing, and your opportunities are limited.

Stars:
High Market Share / High Market Growth
Here you're well-established, and growth is exciting! There
should be some strong opportunities here, and you should
work hard to realize them.

Question Marks (Problem Child):

Low Market Share / High Market Growth
These are the opportunities no one knows what to do with.
They aren't generating much revenue right now because you
don't have a large market share. But, they are in high
growth markets so the potential to make money is there.
Question Marks might become Stars and eventual Cash
Cows, but they could just as easily absorb effort with little
return. These opportunities need serious thought as to
whether increased investment is warranted.
Limitations:
Though the Product Portfolio Matrix is well known to ease the
way of portfolio analysis,
It has several limitations also. Here some of limitations are
narrate briefly:

A. High Market Share is not the only factor to measure

competitive advantage. Similarly, Market growth rate is
not the only factor to measure industry attractiveness.

B. Sometime a dog SBU used as synergy to other SBUs.

i.e. a dog may help other SBUs to gain a competitive
advantage.

C. Sometimes Dogs [of a huge market] can earn even

more cash as Cash Cows.
 Hofer’s Product/Market Evolution Matrix

Charles Hofer has proposed a three-by-five matrix where businesses are

plotted in terms of their product/market evolution and the comeptitive
position. Relative sizes of industries are shown by circles wherein in the
market share of the company is shaded as shown in Figure
The GE Business Screen is not without controversy. Some observes
argue that there is too much subjectivity in the construction of the
matrix.
According to Hofer and Schendel, "The Principal difficulty with GE
Business Screen is that it does not depict as affectively at it
might the positions of new businesses that are just starting to
grow in new industries.
In such instances, it may be preferable to use a fifteen-cell
matrix in which businesses are plotted in terms of their
competitive position and their stage of product/market
evolution". Thus, Hofer developed the Product/Market Evolution
Portfolio Matrix, or Life Cycle Matrix.
Several useful ideas concerning the strategic alternatives available
to each business unit emerge from an analysis of Figure 4-14.
-Business unit A would to be a developing winner. Its relatively
large share of the market combined with its being at the
development stage of product- market evolution and its potential
for being in a strong competitive position make it a good candidate
for receiving more corporate resources.
-Business unit B is somewhat similar to A. However, it has a
relatively small share of the market given its strong competitive
position. A strategy would have to be developed to overcome this
low market share in order to justify more investments.
-Business unit C might be classified as a potential loser. A strategy
must be developed to overcome the low market share and weak
competitive position in order to justify future investments.
-Business unit D is in a shakeout period, has a relatively large share
of the market, and is in a relatively strong position. Investment
should be made to maintain that position.
-Business units E and F are cash cows and should be used for cash
generation.
-Business unit G appears to be a dog. It should be managed to
generate cash in the short run, if possible; however, the long-run
strategy will more the likely be divestment or liquidation.
Dan Schendel and Charles Hofer developed a strategic management
model, incorporating both planning and control functions.

Their model consists of several basic steps:

(1) goal formulation,
(2) environmental analysis,
(3) strategy formulation,
(4) strategy evaluation,
(5) strategy implementation, and
(6) strategic control.

According to Schendel and Hofer, the formulation portion of

strategic management consists of at least three subprocesses:
- environmental analysis,
- resources analysis,
- and value analysis.

Porter's Five Forces

Porter's Five Forces is a framework for industry analysis and

business strategy development formed by Michael E.
Porter of Harvard Business Schoolin 1979. It draws upon Industrial
Organization (IO) economics to derive five forces that determine the
competitive intensity and therefore attractiveness of a market.
Attractiveness in this context refers to the overall industry profitability.
An "unattractive" industry is one in which the combination of these
five forces acts to drive down overall profitability. A very unattractive
industry would be one approaching "pure competition", in which
available profits for all firms are driven down to zero.
Three of Porter's five forces refer to competition from external
sources. The remainder are internal threats.
Porter referred to these forces as the micro environment, to contrast it
with the more general term macro environment. They consist of those
forces close to a company that affect its ability to serve its customers
and make a profit. A change in any of the forces normally, requires a
business unit to re-assess the marketplace given the overall change
in industry information. The overall industry attractiveness does not
imply that every firm in the industry will return the same profitability.
Firms are able to apply their core competencies, business model or
network to achieve a profit above the industry average. A clear
example of this is the airline industry. As an industry, profitability is
low and yet individual companies, by applying unique business
models, have been able to make a return in excess of the industry
average.
Porter's five forces include - three forces from 'horizontal' competition:
threat of substitute products, the threat of established rivals, and the
threat of new entrants; and two forces from 'vertical' competition:
the bargaining power of suppliers and the bargaining power of
customers.
The five forces
1 The threat of the entry of new competitors
Profitable markets that yield high returns will attract new firms. This
results in many new entrants, which eventually will decrease
profitability for all firms in the industry. Unless the entry of new firms
can be blocked by incumbents, the abnormal profit rate will fall
towards zero (perfect competition).

 The existence of barriers to entry (patents, rights, etc.) The

most attractive segment is one in which entry barriers are high and
exit barriers are low. Few new firms can enter and non-performing
firms can exit easily.
 Economies of product differences
 Brand equity
 Switching costs or sunk costs
  Capital requirements
 Access to distribution
 Customer loyalty to established brands
 Absolute cost
 Industry profitability; the more profitable the industry the more
attractive it will be to new competitors

2 The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major
determinant of the competitiveness of the industry.

 Sustainable competitive advantage through innovation

 Competition between online and offline companies; click-and-
mortar -v- slags on a bridge[citation needed]
 Level of advertising expense
 Powerful competitive strategy
[2]
 The visibility of proprietary items on the Web used by a
company which can intensify competitive pressures on their rivals.

How will competition react to a certain behavior by another firm?

Competitive rivalry is likely to be based on dimensions such as price,
quality, and innovation. Technological advances protect companies
from competition. This applies to products and services. Companies
that are successful with introducing new technology, are able to
charge higher prices and achieve higher profits, until competitors
imitate them. Examples of recent technology advantage in have
been mp3 players and mobile telephones. Vertical integration is a
strategy to reduce a business' own cost and thereby intensify
pressure on its rival.
3 The threat of substitute products or services
The existence of products outside of the realm of the common
product boundaries increases the propensity of customers to switch
to alternatives:

 Buyer propensity to substitute

 Relative price performance of substitute
 Buyer switching costs
 Perceived level of product differentiation
 Number of substitute products available in the market
 Ease of substitution. Information-based products are more
prone to substitution, as online product can easily replace material
product.
 Substandard product
 Quality depreciation

4 The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of
outputs: the ability of customers to put the firm under pressure, which
also affects the customer's sensitivity to price changes.

 Buyer concentration to firm concentration ratio

 Degree of dependency upon existing channels of distribution
 Bargaining leverage, particularly in industries with high fixed
costs
 Buyer volume
 Buyer switching costs relative to firm switching costs
 Buyer information availability
 Ability to backward integrate
 Availability of existing substitute products
 Buyer price sensitivity
 Differential advantage (uniqueness) of industry products
 RFM Analysis
5 The bargaining power of suppliers
The bargaining power of suppliers is also described as the market of
inputs. Suppliers of raw materials, components, labor, and services
(such as expertise) to the firm can be a source of power over the firm,
when there are few substitutes. Suppliers may refuse to work with the
firm, or, e.g., charge excessively high prices for unique resources.

 Supplier switching costs relative to firm switching costs

 Degree of differentiation of inputs
 Impact of inputs on cost or differentiation
 Presence of substitute inputs
 Strength of distribution channel
 Supplier concentration to firm concentration ratio
 Employee solidarity (e.g. labor unions)
 Supplier competition - ability to forward vertically integrate and
cut out the BUYER

GE-MCKINSEY MATRIX

INTRODUCTION
The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform
business portfolio analysis as a step in the strategic planning process. The
GE/McKinsey Matrix identifies the optimum business portfolio as one that
fits perfectly to the company's strengths and helps to exploit the most
attractive industry sectors or markets. Thus, the objective of the analysis is
to position each SBU on the chart depending on the SBU's Strength and the
Attractiveness of the Industry Sector or Market on which it is focused. Each
axis is divided into Low, Medium and High, giving the nine-cell matrix as
depicted below.

SBUs are portrayed as a circle plotted on the GE/McKinsey Matrix, where the size of the
circle represents a factor such as Market Size. The GE/McKinsey Matrix differs from
other tools, like the Boston Consulting Group Matrix, in that multiple factors are used to
define Industry Attractiveness and Business Unit Strength. Each factor can be given a
different weighting in calculating the overall attractiveness of a particular industry.

Typically:

Industry Attractiveness = Attractiveness Factor 1 Value by Factor 1 weighting +

Attractiveness Factor 2 Value by Factor 2 weighting, etc.

Business Unit Strength = Strength Factor 1 Value by Factor 1 weighting + Strength

Factor 2 Value by Factor 2 weighting, etc.

This template allows the user to define up to 10 SBUs to be plotted. Up to 10 different

factors can be used to define Industry Attractiveness, Typical factors would be Market
Size, Market Growth Rate, Industry Profitability, Competitive Rivalry, etc. Up to 10
factors can also be used to define SBU Strength. Typical factors are Market Share,
Distribution Channel Access, Financial Resources, R&D Capability, etc The factors and
their relative weightings are selected. The rating values for each factor are entered for
each SBU and Industry. The SBU Strength and Industry Sector Attractiveness are
calculated and the GE/McKinsey Matrix is automatically produced. The format used to
produce the Matrix is a MS-Excel Bubble Chart. Industry Attractiveness and Business
Strength are plotted on the X and Y axes. The size of the Bubble allows a further factor
to be depicted on the chart. The default factor used is Market Size. However, a
Dropdown list is available allowing the user to dynamically select any of the Industry
Attractiveness factors as an alternative.