5. A treatise on corporate strategic governance and ethics Boston consulting matrix presentation

BCG Matrix

1. BOSTON CONSULTING GROUP MATRIX BY AHMAD GARBA AUWAL, B.Sc., M.COM ., ACA NNDC-ICAN CENTRE, KANO

2. 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. NNDC-ICAN CENTRE, KANO

3. Introduction Cont.…. The matrix helps companies to analyze their Strategic Business Units (SBUs) or product lines and enable them to allocate resources. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses, in terms of current profitability, as well as the likely cash flows. NNDC-ICAN CENTRE, KANO

4. Relative Market Share and Market Growth To understand the Boston Matrix you need to understand how market share and market growth interrelate.    NNDC-ICAN CENTRE, KANO

5. 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. NNDC-ICAN CENTRE, KANO

6. MARKET SHARE RELATIVE MARKET SHARE (CASH GENERATION) RMS = Business unit sales this year Leading rival sales this year The higher your market share, the higher proportion of the market you control. NNDC-ICAN CENTRE, KANO

7. MARKET GROWTH RATE Market growth (Cash Usage) 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. NNDC-ICAN CENTRE, KANO

8. MARKET GROWTH RATE The mid-point of the growth side of the matrix is often set at 10% per year. If market growth is higher than this, it is ‘high’ and if annual growth is lower, it is ‘low’. It should be said that 10% is an arbitrary figure. NNDC-ICAN CENTRE, KANO

9. BCG MATRIX NNDC-ICAN CENTRE, KANO

10. BCG MATRIX NNDC-ICAN CENTRE, KANO

11. 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. NNDC-ICAN CENTRE, KANO

12. QUESTION MARKS High growth , Low market share Most businesses start 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. NNDC-ICAN CENTRE, KANO

13. STRATEGY FOR QUESTION MARKS “?” The product will need a lot of new investment to increase market share. The strategic choice is between investing a lot of cash to boost market share or to disinvest/ abandon the product NNDC-ICAN CENTRE, KANO

14. 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. Over time, stars should gradually become self-financing. NNDC-ICAN CENTRE, KANO

15. STRATEGY FOR STAR An entity should market a star product aggressively, to maintain or increase market share. A large continuing investment in new equipment and R&D will probably be needed. Stars should at some stage generate enough cash to be self-sustaining. Until then, the cash from cash cows can finance their development. NNDC-ICAN CENTRE, KANO

16. 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. NNDC-ICAN CENTRE, KANO

17. STRATEGY FOR CASH COW Defend and maintain market share. Spending on innovation (R&D) should be limited. The cash generated by a cash cow can be used to develop other products in the portfolio. NNDC-ICAN CENTRE, KANO

18. 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. NNDC-ICAN CENTRE, KANO

19. STRATEGY FOR DOGS These might generate some cash for the business, and if they do, it might be too early to abandon the product. The product has a limited future, and strategic decisions should focus on its short-term future. There is a danger that the product will use up cash if the firm chooses to spend money to preserve its market share, thus, firm should avoid risky investment aimed at trying to ‘turn the business round’. NNDC-ICAN CENTRE, KANO

20. BCG STRATEGY BY PROF. ALI GARBA ‘ Milk the Cow, invest in the Star, analyze the Question marks and divest the Dog ’ NNDC-ICAN CENTRE, KANO

21. OTHER BCG STRATEGY NNDC-ICAN CENTRE, KANO

22. WHY BCG MATRIX ? To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment decisions NNDC-ICAN CENTRE, KANO

23. BCG MATRIX WITH CASH FLOW NNDC-ICAN CENTRE, KANO

24. BCG AND PLC CORELLATION NNDC-ICAN CENTRE, KANO QUESTION MARK the product/Industry is in the Introductory STAR : the product/Industry is at its Growth period CASH-COW : its when the product/industry is at Maturity phase DOG : The PLC phase is at Declining stage of the Product/Industry

25. 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. This business model is a decent model which if used in the right situation it can help a business to increase and monitor its market share and growth NNDC-ICAN CENTRE, KANO

26. ADVANTAGES The matrix enables a company to identify “dog” products that should be withdrawn from the market; and It helps organizations to determine if a product classified as a “question mark” product can become a star or cash cow product. NNDC-ICAN CENTRE, KANO

27. LIMITATIONS It only works with market share and growth rate, but these are not the only measures of success. Difficulty in analyzing some markets: it is not so useful for analyzing entire markets, which might consist of many different market segments Invalidity of some assumptions such as a high market share in a low growing market will tend to generate more cash flow may not be valid. NNDC-ICAN CENTRE, KANO

28. LIMITATIONS The BCG growth model share fails to consider the wide range of factors that affect cash flow beyond market share and market growth. BCG matrix classifies businesses as low and high, but generally, businesses could also be medium. It might be difficult to identify which products are competing with one another. There might be problems with defining the geographical areas of the market. NNDC-ICAN CENTRE, KANO

29. CONCLUSION Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products. NNDC-ICAN CENTRE, KANO

30. OPPORTUNITIES & THREATS NNDC-ICAN CENTRE, KANO

31. OPPORTUNITIES & THREATS NNDC-ICAN CENTRE, KANO

32. OPPORTUNITIES & THREATS NNDC-ICAN CENTRE, KANO

33. COMPETITIVE ENVIRONMENT & OT NNDC-ICAN CENTRE, KANO

34. COMPETITIVE ENVIRONMENT & OT NNDC-ICAN CENTRE, KANO

35. COMPETITIVE ENVIRONMENT AND OPPRTUNITY & THREAT NNDC-ICAN CENTRE, KANO

36. NNDC-ICAN CENTRE, KANO

37. PRACTICAL QUESTIONS QUESTION 1 a. Zidat Bottling Company has five different products: Zidat Cola, Zidat Orange, Zidat Apple, Zidat Bitters and Zidat Water. Faced with economic recession in the country, the company consulted you as an expert in business strategic management to advise it on the usefulness of the Boston Consulting Group (BCG) matrix, in its efforts to enhance the company’s overall profitability. NNDC-ICAN CENTRE, KANO

38. PRACTICAL QUESTION cont.……. You are required to: i . Discuss the different categories into which Zidat’s products can be grouped and specify how the company should treat each of the product groups in accordance with the specifications of the BCG matrix. (8 Marks) ii. Discuss the limitations of the BCG matrix. (11 Marks) iii. Advise the company on whether it should adopt the matrix in analyzing the competitive strength of its products to enhance overall profitability. (5 Marks) ICAN MAY 2018 NNDC-ICAN CENTRE, KANO

39. PRACTICAL QUESTIONS QUESTION 6 As part of a training session in strategic management, deploy a diagram, to explain how a firm would use the Boston Consulting Group (BCG) model to analyze its business portfolio. Explain each category of products identified in the BCG model. (Total 15 Marks) ICAN NOVEMBER 2018 NNDC-ICAN CENTRE, KANO

40. PRACTICAL QUESTIONS Required: a. Analyze the strengths of Toyin Trust Insurance Plc before 2000. (5 Marks) b. Analyze the strengths and weaknesses of Toyin Trust Insurance Plc after 2000. (5 Marks) c. Suggest essential strategies to sustain the company – Toyin Trust Insurance Plc. (10 Marks) (Total 20 Marks) Q4 ICAN NOVEMBER 2015 NNDC-ICAN CENTRE, KANO