A1.

Draw and explain BCG Matrix with examples

Large organizations often have many strategic business units (SBUs) and a parent company. For example,
Samsung of South Korea is involved in a wide range of markets including arms, pharmaceuticals and
consumer electronics each having its distinct products.

Parent companies such as Samsung can use the BCG Matrix in managing their SBUs to make strategic
choices for maximum advantage.

The BCG Matrix classifies the portfolio of SBUs into four categories based on market growth rate
(industry attractiveness) and relative market share (competitive position). These two aspects provide an
assessment of the financial performance of the business portfolio by providing an understanding of the
investments needed to support the business units and the cash that could be generated from running the
business unit.

The analysis is usually carried to find out which business units the firm should invest and which business
units the firm should divest.

BCG matrix

Relative market share

High Low

High Stars Question marks

Market growth

Low Cash cows Dogs

Relative market share

Relative market share = market share (eg sales turnover of own firm) / market share (sales turnover) of
the largest competitor.
A higher relative market share generally indicates higher profit potential. This is because if a business
produces more, higher economies of scale could be achieved, and costs could be reduced from the
production experience gained.

Market growth

The assessment of market growth rate as high or low can vary from industry to industry depending on the
conditions of the market. As new markets may grow rapidly while mature markets grow slowly, a definite
rate could not be established. Organizations usually aim for rapidly growing markets as they have the
potential for higher returns. However, firms in growing markets may consume a lot of cash if there is
intense competition in the market.

SBUs (or brands) can be classified as follows according to the position on the matrix

 Stars are business units with a high market share operating in rapidly growing industries. Stars
generate good returns but also needs investment to maintain its market share and to compete with
the rivals in the market. Stars have the potential to become cash cows in the long term.
 Cash cows are business units with a high market share operating in a mature market. Therefore,
they do not require high investments.
 Question marks are business units with low market share operating in rapidly growing markets.
Parents should assess them to determine their potential to become a star.
 Dogs are business units with a low market share operating in slow growth or declining markets.
Generally, dogs are not worth investing in. Although a dog may tie up funds, a parent may hold a
strategic advantage by keeping a dog. Therefore, a deeper analysis must be made to determine
whether to divest or liquidate the business unit.

The general idea is to maintain a balanced portfolio, where profits from cash cows could be used to
finance stars and question marks, while keeping a minimum of dogs.
Using the Matrix

Example

SBU Relative market share Market growth rate

(%) (%)
SBU 1 40 15
SBU 2 45 2
SBU 3 9 20
SBU 4 10 1

Using the BCG matrix, the above SBUs can be classified as follows:

Relative market share

High Low

SBU 1 SBU 3
High
Star Question mark

Market growth

SBU 2 SBU 4
Low
Cash cow Dog

SBU 1 with a relatively high market share in a growing market has the characteristics of a star and should
be invested and developed in order to achieve future cash flows.

SBU 2 has a relatively high market share but the market growth is low. This is an indication of a being a
cash cow and therefore should be retained.

SBU 3 has a relatively low market share in a rapidly growing market. Therefore, it could be invested and
developed as it has the potential to become a key player in the market.

SBU 4 has a relatively low market share and is operating in a low growth market. If the performance is
declining beyond tolerable levels, this SBU should be divested, leased out or liquidated.

A2. Explain the difference between stakeholders and shareholders with an example for each
Stakeholders

Any person, group or organization that has an interest in the actions of an organization can be considered
a stakeholder. Stakeholders can be affected by the actions of the organization and at the same time they
can affect the actions of an organization. Johnson and Scholes classified stakeholders into three
categories.

1. Internal:
For example,
a. Management of the organization
b. Employees
2. Connected:
For example,
a. Shareholders
b. Debt holders
c. Customers
d. Suppliers
3. External:
For example,
a. The community in which the organization operates
b. Special interest groups
c. The Government

A useful framework to map the potential influence of stakeholders was developed by Mendelow.

Using the framework:

1. organizations can monitor the movement of stakeholders across the stakeholder groups
2. organizations can map how their policies and strategies can affect the different stakeholder
groups

Different stakeholders expect different things from the organization and therefore each stakeholder group
has different claims from the organization. These claims are generally classified into direct and indirect
claims.
Direct claims are usually made by stakeholders who directly communicate with the organization through
their own voice. As such their claims are clear and straightforward. However, those with indirect claims
cannot usually make their claims themselves. An overseas supplier, for example, may not have the power
to raise any claims due to their remote geographic location.

Shareholders

A Shareholder, on the other hand, is any person or organization that holds at least a minimum of one
share (equity) in a particular organization. As such they are the owners of the organizations and are
always stakeholders of the organization. For example, company A is a shareholder of company B where
company A holds 40% of the ordinary shares of company B.

Roles of shareholders

Shareholder responsibilities include, but are not limited to, the following:

 Approving/removing directors and assigning the roles and responsibilities of directors

 Deciding the salary of the directors
 Making decisions where directors do not have the authority. For example, amending the articles
of association

Shareholder rights

As owners of the organization, they have certain rights.

 They are entitled to profits generated by the organization (as dividends) and there may be
additional benefits from increased stock valuations.
 They also hvae the right to vote in shareholder meetings.
A3. Fill the following cash flow statement

July August September October November December

Cash inflows 2,000.00 2,000.00 2,500.00 2,500.00 2,500.00 1,500.00

Cash outflows 2,000.00 2,000.00 2,000.00 3,200.00 1,800.00 1,700.00

Net cash flow - - 500.00 (700.00) 700.00 (200.00)

Opening Balance 1,500.00 1,500.00 1,500.00 2,000.00 1,300.00 2,000.00

Closing Balance 1,500.00 1,500.00 2,000.00 1,300.00 2,000.00 1,800.00

B1. Draw up a SWOT analysis for a company you’re familiar with. Include at least 2 strengths, 2
weaknesses, 1 threat and 1 opportunity

As part of the annual assessment of Maldives Transport and Contracting Company Plc (MTCC), a SWOT
analysis was conducted.

Strengths Weaknesses

- Experienced technical team with over - Policies and procedures outdated to

40 years of experience in harbour meet current demands.
development and marine transport - Outdated ERP software cannot cater to
services. the needs of changing business
- Largest fleet of marine vessels and environment.
harbour construction machineries,
vehicles and equipment in the
Maldives.

Opportunities Threats

- Government being the majority - Being a government owned entity, the

shareholder, MTCC has been offered company is subject to frequent
to develop roads across Maldives. management changes leading to loss
of strategic focus.
B4. Prepare a breakeven analysis diagram for the following. Clearly show the breakeven point.

Fixed costs: MVR 5000

Variable cost per unit: MVR 40

Selling price per unit: MVR 150

Output Fixed cost Variable cost Total cost Total revenue Profit/Loss
10 5000 400 5400 1500 -3900
20 5000 800 5800 3000 -2800
30 5000 1200 6200 4500 -1700
40 5000 1600 6600 6000 -600
50 5000 2000 7000 7500 500
60 5000 2400 7400 9000 1600
70 5000 2800 7800 10500 2700
80 5000 3200 8200 12000 3800
90 5000 3600 8600 13500 4900
100 5000 4000 9000 15000 6000

Breakeven analysis
16000
14000
12000
10000
8000
6000
4000
2000
0
10 20 30 40 50 60 70 80 90 100

Fixed cost Variable cost Total cost Total revenue

The breakeven point is the volume of output where the total costs equal the total revenue.

BE point = Fixed costs / Contribution per unit

Therefore, BE point = 5000/(150-40), which is 45.45 units.