You are on page 1of 9

2. Critically explain the term BCG and its importance in formulation of strategy.

The term BCG matrix is a chart that had been innovated by Bruce Henderson for the BOSTON CONSULTING GROUP. The main aim is to help MNC with analyzing their business Units or Product lines. This matrix helps the company in allocating resources. It is used as analytical tool in Strategic management, Product management and Portfolio analysis.

BCG MATRIX

A scattered graph is plotted to rank product on the basis of relative growth rate and market share. CASHCOW:

It is described as the Units with high market share in a slow growing Industry. These Units Typically generate cash in excess amount of cash needed to maintain the business. They are considered boring in a” mature” market and every MNC would be thrilled to own as many as possible. They are to be “milked” continuously with minor Investments as possible, since such investment would be wasted in a industry with low growth.

DOGS: Dogs are considered as pets. There are the Units with low market share in a mature, slow- growing industry. These Units are typically considered break even generating barely enough money to maintain market share of the business. The benefit of break even Unit is that it provides Jobs and possible synergies that assists the other Units of Business. It is considered from accounting point of view that DOGS which are considered as Units are worthless, for not generating money for the company. It is considered that a company’s profitability is depressed based on return on asset ratio. This return to asset ratio is used by many MNCS to Judge how well a company is being managed. Generally DOGS are thought to be sold off.

QUESTION MARKS: (It is known as problem child). They rapidly grow and cosume large amount of cash, but because they have low market share of market and they are capable of generating much cash. The result is large net cash consumption. A question mark has the potential to become a star and eventually cash cow when the market growth slows. If the question mark does not become market leader, then after perhaps year of cash consumption it will degenerate into a dog when the market growth declines. It is clear that question marks must be analyzed carefully in order to determine whether they are worth the investments required to grow market share. STARS are the Units which generate high market share in a fast growing Industry. The hope is that stars become the next cash cow. When the is slow growth, stars become cash cows if they have been able to maintain their category leadership or they move from brief STARDOM to DOGDOM.

In most of the Business Units they start as Question MARKS; then turn into STARS. If the market growth retarded then business Units become a cash cow. At the end of the cycle the CASHCOW turn into a DOG. The main aim of BCG matrix helps the corporate analysts to decide which of their business Units to fund and how much and which Units to sell.

In the year 1970, BOST BCG stated that it is only a company which is diversified with portfolio balanced can use its strength to turn capitalize its growth opportunities. The balance Portfolio has.


STARS are UNITS which Generate High share and high growth assure the Future. CASHCOWS that Supply Funds for that Future Growth. Question Marks to be converted into STARS with added Funds.

USAGE OF MATRIX: For each Product or service, the circled area represents the value of its sales. The BCG matrix help as Map of the organization product (or service) strength and weakness, at least in term of current profitability, as well as likely cash flows. The main aim of BCG matrix is to manage cashflow.it has found that one of the main indicators of cash generation was relative market share and one which pointed to cash usage that of growth rate of market. Importance of BCG in formulation of Strategy: BCG matrix is developed by Boston Consulting Group. This management consultant plays very useful roles in the strategic Planning process of a company. This consultant renders services in different functional areas of management including the strategic planning and management process. In companies with no separate planning division or Unit, Consultant can fill that GAP. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises. Even in companies with a corporate planning division/unit, Consultant may provide specialized Inputs or insights into identified management or strategy areas. They develop tools, techniques to work out solutions to specific strategic management problems or issues - be it productivity,

cost efficiency, restructuring, long-term growth or diversification. This consultant brings with them diversified skills and experience from various companies which may not be available internally in a single company. It is clear now that MNC hire BCG for achieving their goals or objectives.

These consultants sometimes have a difficult or delicate role to play. In many companies, a situation Develops when the Chief executive or the Top Management needs to bank upon the support of an external agency like a consultant to push through strategic change in the organizational structure of the company. It may be for growth and development or downsizing.In both cases, many companies face Internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in Public sector companies where Implementing change is very difficult. Consultants are engaged to support or substantiate the company’s point of view so that change is more easily acceptable to the internal stake holders of the company. Consultants role may become delicate and, sometime, Tricky in such cases, and they should carefully weigh the ethical implication of their participation.

Critical evaluation of BCG matrix: It is found that BCG matrix is widely used. It is found that several academic studies had rised a question whether using BCG matrix helps Business exceed. And the model had been removed from some Marketing books. The study by Slater and Zwirelein 1992, Which booked at 129 firms found that by following BCG matrix, they had lower shareholders returns. The matrix ranks only share of the Market and growth rate of the industry and strongly implies actual profitability, the purpose of any business. There is possibility that a particular DOG can be Profitable with our cash infusion required. So Therefore should be retained and not SOLD. The other elements of Industry over looked by MATRIX. Being analytical tool, ranking Business units has a subjective element involve guessing about the future in reference to growth rate. The ranks should be approached with rigor and scepticism,where evaluations are optismtic in nature can lead to dotcom mentality in which even the most dubious business are classified as “ question marks” with good respects. The managers who are enthusiastic may claim that cash must be thrown at these businesses immediately in order to turn them into STARS, before growth rates and it’s too late. There will be misclassification of Some DOGS into CASHCOW. As originally practiced by the Boston Consulting Group,[3] the matrix was undoubtedly a useful tool, in those few situations where it could be applied, for graphically illustrating cash flows. If used with this degree of sophistication its use would still be valid. However, later practitioners have tended to over-simplify its messages. In particular, the later application of

the names (problem children, stars, cash cows and dogs) has tended to overshadow all else— and is often what most students, and practitioners, remember. This is unfortunate, since such simplistic use contains at least two major problems: ‘minority applicability”-The techniques of cash flows are only applicable to limited number of market where growth is relatively high and a systematic pattern of product life cycles can be observed, such as that of ethical pharmaceuticals. In majority of marketing, use may give results misleading. 'Milking cash cows'. Perhaps the worst implication of the later developments is that the (brand leader) cash cows should be milked to fund new brands. This is not what research into the FMCG markets has shown to be the case. The brand leader's position is the one, above all, to be defended, not least since brands in this position will probably outperform any number of newly launched brands. Such brand leaders will, of course, generate large cash flows; but they should not be `milked' to such an extent that their position is jeopardized. In any case, the chance of the new brands achieving similar brand leadership may be slim— certainly far less than the popular perception of the Boston Matrix would imply. Perhaps the most important danger is, however, that the apparent implication of its fourquadrant form is that there should be balance of products or services across all four quadrants; and that is, indeed, the main message that it is intended to convey. Thus, money must be diverted from `cash cows' to fund the `stars' of the future, since `cash cows' will inevitably decline to become `dogs'. There is an almost mesmeric inevitability about the whole process. It focuses attention, and funding, on to the `stars'. It presumes, and almost demands, that `cash cows' will turn into `dogs'. The reality is that it is only the `cash cows' that are really important—all the other elements are supporting actors. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. Although it is necessary to recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up the picture. The vendor, who has most of his (or her) products in the `cash cow' quadrant, should consider himself (or herself) fortunate indeed, and an excellent marketer, although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and, perhaps, to add some extra growth. There is also a common misconception that 'dogs' are a waste of resources. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead to increased sales in other profitable areas. Question 1:
(a) What corporate goal has the company adopted for the next few years and with what strategies does the company propose to realise the above goal? The company is actually targeting a growth rate which is higher than previous year in related to gross sales turnover. The following are the strategies which are proposed by the company are • By retaining leadership in recession free industry over the next few years • By understanding the challenges that lie ahead and by harnessing the full potential • APILS approach are multi pronged 1. Expansion of its product range and introduction of value added, 2. Niche products in the industrial paints area 3. Line extensionos of existing products to target lower income market segments both in rural and urban areas. 4. Expansions of production capacity 5. Continuous modernisation to keep pace with the growing demand.

6. Diversification into the unrelated but synergistic area of ceramics.

(a) What threats is the company facing or/and might face in future? What has it done and/or what could it further do to safeguard itself from threat(s)? The threats which are faced by the company in the Paint Industry 1. Threat by nearest competitor, GOODLASS NEROLAC 2. Threat from Unorganized sector which started eating the share of firms in the organized sector. 3. Prospect of Competition from imports began to worry the organized sector where APIL belong. 4. Threat due to high rate of inflation in the year 1989-1992 where excise duties were levied on prices of paint industry to increase. This disturbance created differs between organized and unorganized sector of paint industry. In order to safe guard from Threats: 1. The demand of the growing organization need to be met in terms of workforce, technology and assets. 2. A major point to be tackled is to be able to meet the growing demand of the product and to create a greater awareness of new products. (c) Evaluate the new strategies of Asian Paints (India) Limited. Particularly its proposed foray into ceramics. APIL is at planning stage in diversification from paints to ceramics. This decision fuelled by management to achieve potential growth. Even though Company has no experience in production aspect of ceramic tiles manufacturing, it has opted for ceramics because marketing will involve utilisation of its existing distribution networks for paints. Moreover paints and ceramics are building materials, So APIL Existing customer base (which can serve as a readymade market) will be targeted for its ceramics products. (d)What action plans has the company proposed to strengthen its product base? To strengthen its industrial product base, APIL has collaborated with PPG industries, An American firm, and thus enjoys the use of cathode electro deposit primer(CED).the company has concluded a tie-up with Nippon paints for original equipment paint products and with sigma coatings of Holland for corrosion coatings. The technology that has been brought home as result of these ventures is modified at the company’s plant at BHANDUP, So as to make it suitable for the Indian climate. (e) Classify all the strategic plans or proposed strategic actions of the company for achieving growth against suitable headings, e.g., Diversification, Joint Ventures, etc. The following are the proposed strategic actions of the company for achieving growth 1. Diversification: Even though APILS does not have experience in the production and technology aspects of ceramic tiles manufacturing. APILS diversified its area of work. It opted ceramics because marketing will involve utilization of existing distribution network for paints. 2. Joint ventures: To strengthen its industrial product base, APIL has collaborated with PPG industries, An American firm, and thus enjoys the use of cathode electro deposit

primer(CED).the company has concluded a tie-up with Nippon paints for original equipment paint products and with sigma coatings of Holland for corrosion coatings. The technology that has been brought home as result of these ventures is modified at the company’s plant at BHANDUP, So as to make it suitable for the Indian climate. 3. Overseas Expansion: The main purpose of expansion is to increase production and to establish at least foothold in International market. APIL increased it overseas presence in the following countries: • Asian paints(south pacific) • Asian paints(Tonga) • Asian paints(Solomon Islands) • Asian paints (Nepal) • Asian paints at Vanuatu(New Hebrides) • Joint venture unit in Townsville( Australia)

1. Introduction of Economically priced brand: The main purpose of the company is to target households with limited budgets. This project”utsav” concentrated mainly on consumers in Tamilnadu, Maharashtra and Gujarat, Thus widening the accessibility of its products to all consumer levels. 2. Technology: APIL is intent on a continuous modernisation and up gradation of its technology and its assets, so as to keep in tune with the changing requirements of the marketplace. In order to start production in Gujarat, APIL is currently negotiating with foreign collaborators for the technology. 3. Introduction of new brands to its product range: APIL is not ignoring its bread and butter business-that of paints but adding new brands to its product range. Example: powder paints to be used for both auto and non-auto appliances. There are other products like wood finishing (touch wood) that takes care of refinishing on furniture. 4. Differential pricing: The company has gone in for differential pricing to encourage all segments of the market especially in the area of decorative paints. 5. Domestic expansion:

APIL made an attempt to extend its marketing and distribution beyond the country’s major towns, to which its activities were hitherto confined. References: