Unit 4:

BCG matrix / GE matrix, 7S

McKinsey models as tools for
strategic formulation
 Strategic Models for external environment
crisis management are
• GE-Mckinsey Matrix
• BCG Matrix
• Porter's five force model
• Porter's Generic Strategic Model
• PESTL
• Ansoff Matrix
 Strategic Models for internal environment
crisis management are
• SWOT
• Value Chain Analysis
• Balanced Scorecard
• Mckinsey 7S Model
BCG MATRIX
• Boston Consulting Group (BCG) Matrix is a tool to
evaluate a company's position in terms of its Product
portfolio
• BCG matrix is a framework created by Boston
Consulting Group to evaluate the strategic position
of the business brand portfolio and its potential
• BCG Growth Matrix considers two variables namely
– Market Growth Rate
– Relative Market Share
• These two dimensions reveal likely
profitability of the business portfolio in terms
of cash needed to support that unit and cash
generated by it
• The general purpose of the analysis is to help
to understand, which brands the firm should
invest in and which ones should be divested
 Relative market share
• One of the dimensions used to evaluate
business portfolio is relative market share
• Higher corporate’s market share results in
higher cash returns
• This is because a firm that produces more,
benefits from higher economies of scale and
experience curve, which results in higher
profits
 Market growth rate
• High market growth rate means higher
earnings and sometimes profits but it also
consumes lots of cash, which is used as
investment to stimulate further growth
• Business units that operate in rapid growth
industries are cash users and are worth
investing in only when they are expected to
grow or maintain market share in the future
• Relative Market Share = SBU Sales this year
leading competitors sales this year.

Market Growth Rate = Industry sales this

year - Industry Sales last year.
• The quadrants are split into combinations of
"market growth" and "market share", hence also
being known as the growth-share
matrix or growth-market-share matrix.
• The matrix is scored from low to high on both
the x-axis and y-axis
• The y-axis generally denotes the market growth
rate, or cash usage - with the x-axis denoting
relative market share, or cash generation
• This technique is particularly useful for multidivisional or
multiproduct companies
• This divisions or products comprise the organization called
“business portfolio.”
• The Matrix was popularized by the use of symbols mainly
representing animals, such as dogs, question marks, star and
cash cow
• This matrix is useful to develop a business portfolio strategy
when company is facing a crisis because of economic
business environment and when resultant economic forces are
creating pressures on business performance
• Economic environment of business will create
different impact on various business portfolios
of a company
• This impact may be favourable or a disaster
for various businesses
• This impact depends upon the current status of
business unit in a specific environment
• Dogs: These are products with low growth or
market share
• Question marks or Problem Child: Products
in high growth markets with low market share
• Stars: Products in high growth markets with
high market share
• Cash cows: Products in low growth markets
with high market share
 Cash cow
• Cash cow products deserve your attention
• Cash cow brands (or products) are often well established, in
constant demand, easy to produce and are therefore
extremely profitable
• As cash cow products do not require a lot of investment to
maintain a high market share, every company should
establish a cash cow to produce a reliable source of income
• These cow products should be milked to produce cash
• This can then be invested in "star" products to help establish
them as the market leader and to generate higher ROI
 Star
• Star products are market leaders which generate the highest
ROI compared to any other products, they do need continual
investment to maintain market leader status
• Stars are big cash generators and cash users
• They shine in high growth markets
• It is for this reason that companies should invest heavily in
star products or brands
• Successfully promoted star products will become cash cows
• In the event that a star product is highly innovative, it may
suffer from marketplace fluctuations ending up as a dog
 Question mark
• Question mark products are the hardest ones to determine if they
will be successful or not
• They often have a low market share and consume lots of cash and
investment resources
• With high levels of investment behind them, they have the
opportunity to become Stars
• If they fail to gain traction in a fast high growth market, they will
become dogs
• Question mark products (brands/business units) can quickly become
big loss makers and are often referred to as the "problem child“
• They need to be watched carefully
 Dog
• Dog products or brands have low growth and low market
share
• These are not worth further investment as they will put a
drain on resources for little improvement in market share
• Whilst "Dogs" do not consume a lot of cash to produce or
market, they also generate low returns i.e. they can
unnecessarily tie up time and cash with no long-term value
• Unless these products complement or boost the performance
of other products within a company's portfolio, then it is
recommended to diversify away from "dog" products.
• BCG matrix helps to understand the impact of crisis related
to economic environment and create a base to design a
strategy for a business
• Company can take decision for investment or withdrawal
from business unit
• Economic crisis can convert stars to cash cows or question
marks
• Economic environment analysis will help to identify
opportunities for business unit and with turn around
strategy, dogs and question marks can be converted to cash
cow and Star performer
 RECOMMENDATIONS ON EACH
QUADERANTS
• Dog products: 
• The usual marketing advice here is to aim to
remove any dogs from your product portfolio
as they are a drain on resources
 Question mark products
• As the name suggests, it’s not known if they will become a star or
drop into the dog quadrant
• These products often require significant investment to push them
into the star quadrant
• The challenge is that a lot of investment may be required to get a
return
• For example, Rovio, creators of the very successful Angry Birds
game has developed many other games you may not have heard of
– Computer games companies often develop hundreds of games before
gaining one successful game.
– It’s not always easy to spot the future star and this can result in
potentially wasted funds.
 Star products
• Can be the market leader though require
ongoing investment to sustain.
• They generate more ROI than other product
categories.
 Cash cow products
• The simple rule here is to ‘Milk these products
as much as possible without killing the cow!
Often mature, well-established products
• The company Procter & Gamble which
manufactures Pampers nappies to Lynx
deodorants has often been described as a ‘cash
cow company’
GE-Mckinsey Matrix
 GE-Mckinsey Matrix
• GE Matrix is a derivation of BCG Matrix
• It was developed by Mckinsey & Co. for
General Electric Company
• BCG Matrix is not flexible where as GE 9 cell
model consider all the factors related to market
attractiveness
• A large corporation may have many SBU‟s,
which are distinctive and individual
 GE-Mckinsey Matrix
• Overall strategy decision about development of
Market and further investment decisions is based on
GE 9 cell Model
• GE Matrix refers to Market attractiveness Vs
Business position in terms of strength and weakness
and further this is divided into three categories Low,
Medium and High, forming 9 cells
• Each of the nine cells is indicative of decisions
regarding market and investment
 GE-Mckinsey Matrix
• The GE matrix helps you to determine how to allocate resources
and it allows more flexibility
• The GE/McKinsey Matrix was developed jointly by McKinsey and
General Electric in the early 1970s as a derivation of the BCG
Matrix
• GE, by that time, had approximately 150 different business units
and was disappointed with the profits derived from its investments
• This raised internal concerns about the approach the organization
had to investment decision making
• While exploring new models to implement, GE started to be
interested in visual strategic frameworks like the Growth-Share
Matrix created by the Boston Consulting Group (BCG) a few years
before
 GE-Mckinsey Matrix
• The nine-box matrix provides decision makers with a
systematic and effective framework for a decentralized
corporation to make better supported investment
decisions and for developing strategies for future
product development or new market segment entries
• Instead of looking solely at each unit’s future
prospects, a corporation can adopt a multi-dimensional
approach based on two components that will indicate
how well the unit will perform in the future
• The two components used to evaluate
businesses, which also serve as the axes of the
matrix, are the ‘attractiveness’ of the relevant
industry and the unit’s ‘competitive strength’
within the same industry
• Each axis is then divided into
– Low,
– Medium and
– High.
• This model is used to manage crisis related with external
business environment especially for crisis related with
the market for products and services offered by company
• In automobile industry and subsequently for auto
component manufacturing companies, these market force
play a dominating role and can create a severe crisis
• Growth of market is a function of industry attractiveness,
i.e. possibility of generating higher revenues
• Industry attractiveness depends upon the response of
customer for specific products
• Determinants of industry attractiveness are,
– Market Growth rate,
– Market size,
– Demand Variability,
– Industry Profitability,
– Industry Rivalry,
– Global Opportunities,
– Macro environment factors [PEST]
• Decisions required to manage crisis related to
market can be derived by application of this matrix
• Nine cells give various combinations of business
strength and market attractiveness
• These combinations also suggest probable strategic
actions to overcome the crisis
• Company can change a product portfolio by
selecting appropriate strategy related to a specific
cell of model
GE McKinsey Matrix with Brief Instructions
• Invest/ grow
• Growth is facilitated by expanding the market or making
investments.
• Hold
• By making careful investments, the current market is consolidated.
• Harvest / sell
• No extra investments but mainly focusing on maximizing returns.
By assigning a weight to each factor, the GE McKinsey Matrix can
be used more effectively. Based on these weights, the scores for
competitiveness and market attractiveness can be calculated more
accurately for each business unit.
• Protect Position: Invest to protect the market position and
grow rapidly.
• Invest to Build: Invest to strengthen market position by
building on strengths. Manage areas of vulnerability.
• Build Selectively: Specialize around a potentially limited set of
strengths to enhance the ability to combat competition
• Withdraw from the market if sustainable growth or competitive
advantage is not possible.
• Manage for Earnings: Invest within these SBUs in those areas
where the earnings are good and the risks reasonably low
• Upgrade the most profitable product lines to maintain profits.
• Expand or Harvest: Expand only if this can be done
with minimal investment. Otherwise, harvest the
investment by streamlining operations.
• Protect Position and Refocus: Determine if the
business can be refocused so the current strengths of
the business are moved to a new market segment.
• Divest: Cut costs and avoid investment immediately.
Sell to realize a cash value for the business.
Difference Between BCG and
GE Matrices
 Comparison Chart
BASIS FOR BCG MATRIX GE MATRIX
COMPARISON

Meaning BCG Matrix, is a growth GE Matrix implies

share model, representing multifactor portfolio
growth of business and the matrix, that assist firm in
market share enjoyed by making strategic choices
the firm. for product lines based on
their position in the grid.

Number of cells Four Nine

Factors Market share and Market Industry attractiveness and

growth Business strengths

Objective To help companies deploy To prioritize investment

their resources among among various business
various business units. units.
 Comparison Chart contd…

BASIS FOR BCG MATRIX GE MATRIX

COMPARISON

Measures used Single measure is used Multiple measures are

used.

Classification Classified into two degrees Classified into three

degrees
 McKinsey 7s Model
• McKinsey 7s model is a tool that analyzes firm’s
organizational design by looking at 7 key internal elements:
– Strategy,
– Structure,
– Systems,
– Shared values,
– Style,
– Staff and
– Skills
• in order to identify if they are effectively aligned and allow
organization to achieve its objectives
• McKinsey 7s model was developed in 1980s by McKinsey
consultants Tom Peters, Robert Waterman and Julien
Philips with a help from Richard Pascal and Anthony G.
Athos
• The model has been widely used by academics and
practitioners and remains one of the most popular strategic
planning tools
• It sought to present an emphasis on human resources (Soft
S), rather than the traditional mass production tangibles of
capital, infrastructure and equipment, as a key to higher
organizational performance
• The goal of the model was to show how 7
elements of the company:
• Structure, Strategy, Skills, Staff, Style, Systems,
and Shared values, can be aligned together to
achieve effectiveness in a company
• The key point of the model is that all the seven
areas are interconnected and a change in one
area requires change in the rest of a firm for it to
function effectively
• The model can be applied to many situations
and is a valuable tool when organizational
design is at question
• The most common uses of the framework are:
– To facilitate organizational change
– To help implement new strategy
– To identify how each area may change in a future
– To facilitate the merger of organizations
• Strategy, structure and systems are hard
elements that are much easier to identify and
manage when compared to soft elements
• On the other hand, soft areas, although harder
to manage, are the foundation of the
organization and are more likely to create the
sustained competitive advantage
• Strategy is a plan developed by a firm to
achieve sustained competitive advantage and
successfully compete in the market
• What does a well-aligned strategy mean in 7s
McKinsey model?
• In general, a sound strategy is the one that’s
clearly articulated, is long-term, helps to achieve
competitive advantage and is reinforced by
strong vision, mission and values
• Structure represents the way business
divisions and units are organized and includes
the information of who is accountable to
whom
• In other words, structure is the organizational
chart of the firm
• It is also one of the most visible and easy to
change elements of the framework.
• Systems are the processes and procedures of
the company, which reveal business’ daily
activities and how decisions are made
• Systems are the area of the firm that
determines how business is done and it should
be the main focus for managers during
organizational change
• Skills are the abilities that firm’s employees
perform very well
• They also include capabilities and
competences
• During organizational change, the question
often arises of what skills the company will
really need to reinforce its new strategy or new
structure
• Staff element is concerned with what type and
how many employees an organization will need
and how they will be recruited, trained, motivated
and rewarded
• Style represents the way the company is managed
by top-level managers, how they interact, what
actions do they take and their symbolic value
• In other words, it is the management style of
company’s leaders
• Shared Values are at the core of McKinsey 7s
model
• They are the norms and standards that guide
employee behavior and company actions and
thus, are the foundation of every organization