BOSTON CONSULTING GROUP MATRIX

General Electric (GE) Matrix

PRESENTED BY: Abhinav Gotmare Ajay Agrawal Mayur Amesar Rahul Shukla

INTRODUCTION
 BOSTON CONSULTING GROUP (BCG)

MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970’s.
 According to this technique, businesses or

products are classified as low or high performers depending upon their market growth rate and relative market share.

Relative Market Share and Market Growth
To understand the Boston Matrix you need to understand how market share and market growth interrelate.

MARKET SHARE
• Market share is the percentage of the total market

that is being serviced by your company, measured either in revenue terms or unit volume terms.

• RELATIVE MARKET SHARE
• RMS = Business unit sales this year

Leading rival sales this year
• The higher your market share, the higher proportion

of the market you control.

MARKET GROWTH RATE
 Market growth is used as a measure of a market’s

attractiveness.
 MGR = Individual sales - individual sales

this year last year Individual sales last year
 Markets experiencing high growth are ones where

the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.

THE BCG GROWTH-SHARE MATRIX
 It is a portfolio planning model which is based on

   

the observation that a company’s business units can be classified in to four categories: Stars Question marks Cash cows Dogs

 It is based on the combination of market growth and

market share relative to the next best competitor.

STARS
High growth, High market share
 Stars are leaders in business.
 They also require heavy investment,

to

maintain its large market share.  It leads to large amount of cash consumption and cash generation.  Attempts should be made to hold the market share otherwise the star will become a CASH COW.

CASH COWS
Low growth , High market share
 They are foundation of the company and often

the stars of yesterday.  They generate more cash than required.  They extract the profits by investing as little cash as possible  They are located in an industry that is mature, not growing or declining.

DOGS
Low growth, Low market share
 Dogs are the cash traps.  Dogs do not have potential to bring in much

cash.  Number of dogs in the company should be minimized.  Business is situated at a declining stage.

QUESTION MARKS
High growth , Low market share
 Most businesses start of as question marks.
 They will absorb great amounts of cash if the

market share remains unchanged, (low).  Why question marks?  Question marks have potential to become star and eventually cash cow but can also become a dog.  Investments should be high for question marks.

WHY BCG MATRIX ?
To assess :  Profiles of products/businesses/SBUs  The cash demands of products/SBUs  The development cycles of products/SBUs  Resource allocation and divestment decisions

Success and Disaster Sequence

Objective of BCG Matrix
Increased focus on strategy and result Improved organization performance

Improved organization communication : Vision , strategy

MAIN STEPS OF BCG MATRIX
 Identifying and dividing a company into SBU.

 Assessing and comparing the prospects of

each SBU according to two criteria : 1. SBU’S relative market share. 2. Growth rate OF SBU’S industry.  Classifying the SBU’S on the basis of BCG matrix.  Developing strategic objectives for each SBU.

SBUs of TATA group of companies
 Tata Steel

Tata Steel Europe Tata Motors Tata Consultancy Services Tata Technologies Tata Tea Titan Industries Tata Power Tata Communications Tata Sons Tata Teleservices Taj Hotels Tata Chemicals Tata Global Beverages

Portfolio Analysis of the Tata Group
 The BCG Growth Share matrix uses the dimensions

   

of relative market share and the market growth rate to establish a 2*2 matrix containing 4 main quadrants Stars (high market growth, high market share), Cash Cows (low market growth, high market share), Question marks (high market growth, low market share) Dogs (low market growth, low market share). The ideal strategy is to hold on to the Stars and the Cash Cows, divest the Dogs and take a call on the Question Marks (hold/divest).

We have conducted a detailed analysis (using the BCG Matrix) of the portfolio of companies in the Tata Group. This involved analyzing the sectors in which the Tata group operates as well as the companies in the Tata Group within each sector. We studied the operational and financial performances of each company to understand their growth stories. Special emphasis was laid on identifying the organic and inorganic growth routes pursued by each of these companies under the Tata umbrella. The conclusions drawn about these companies are based on analysis of the global strategy of the Tata group and on detailed conversations with top executives in the Tata Group.

Portfolio Analysis of the Tata Group using the BCG Matrix

The analysis reveals that
 Tata Steel, Tata Power, Tata Motors and Indian

Hotels emerge as clear Stars (high market growth, high market share).  Hence, they should be retained and the investment in these companies should be increased.  Tata Chemicals and Tata Tea emerge as the Cash Cows (low market growth, high market share) and should be held on to for the time being.  Some of the Question Marks (high market growth, low market share) are Tata Teleservices, Voltas and Tata Communications.

BENEFITS
 BCG MATRIX is simple and easy to

understand.  It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.  It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.

LIMITATIONS
 BCG MATRIX uses only two dimensions,

Relative market share and market growth rate.  Problems of getting data on market share and market growth.  High market share does not mean profits all the time.  Business with low market share can be profitable too.

General Electric (GE) Matrix

STRATEGIC PLANNING
 It is the management

task concerned with the growth and future of business enterprise.
 It provides the route

map for the firm and helps to take decision in the future with a greater awareness.

ABOUT GE MATRIX
 Developed by McKinsey & Company in

1970’s.  GE is a model to perform business portfolio analysis on the SBU’s.  GE is rated in terms of ‘Market Attractiveness & Business Strength’  It is an Enlarged & Sophisticated version of BCG.

Classification
Business Strength
Strong Medium

Weak

Market Attractiveness

Low

Medium

High

Market Attractiveness
       

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Business Strength
    

Current market share Brand image Production capacity Corporate image Profit margins relative to competitors  R & D performance  Promotional effectiveness

Strategies
1. Protect Position • Invest to grow 1 • Effort on maintaining strength 2. Invest to Build • Challenge for leadership • Build selectively on strength

2

3

3. Build Selectively • Invest in most attractive segment • Build up ability to counter competition • Emphasize profitability by raising productivity

Strategies
4. Protect & Refocus • Manage for current earning • Defend strength 5. Selectivity for Earning 4 • Protect existing program • Investments in profitable segments 6. Build Selectively • Specialize around limited strength • Seek ways to overcome weaknesses • Withdraw if indication of sustainable growth are lacking

6 5

Strategies
7. Limited Expansion for Harvest • Look for ways to expand without high risk

8. Manage for Earnings • Protect position in profitable 8 9 segment • Upgrade product line • Minimize investment 9. Divest • Sell at time that will maximize cash value • Cut fixed costs and avoid investment meanwhile

7

Study of TATA
 TATA • IT (Information Technology) : TCS • Consumer Durable : Automobiles, Titan etc. •Textiles : Tata Fabrics, West Sides etc

GE Matrix For TATA
Strong High IT

Business Strengths
Consumer Durables

Weak

Market Attractiveness
Low

Textiles

BCG & GE Matrix
Relative Position Market Attractiveness (Market Share) Market Growth Business Strength

BCG v/s GE BCG
Market Growth

GE
Market Attractiveness Market strength 9 cell Multi Business Units Secondary tools

Market share
4 cell Multi Products Primary tools

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