BCG MATRIX AND GE MATRIX

Product Portfolio Strategies, BCG Matrix, How to make a BCG Matrix, Apple case study, BCG AND PLC, Merits and Demerits of BCG Matrix, GE Matrix, Merits and Demerits of GE Matrix

1. PORTFOLIO STRATEGY Gunpreet Kaur Gaganbir Singh, Jagdeep Singh

2. Management’s decision about products and its  product portfolio strategy  to be offered are among the most important of those affecting the future of a company. You will want a great product portfolio management system, especially when you add more and more products. Products are critical to business strategy, but they cannot guarantee business success. Management must match products with market needs and then develop corporate and marketing strategies to meet the needs that are targeted. Competitive pressures and the changing needs and wants of buyers help to explain why companies focus on planning their product portfolio strategy. Another reason for developing good product management procedures is to reduce the failure rate of new products. PRODUCT PORTFOLIO STRATEGIES:

3. Companies with multiple product lines or business units must ask themselves how these various products and SBU’s should be managed to boost overall corporate performance: How much of time and money should we spend on our best products and business units to ensure that they continue to be successful? How much of time and money should we spend developing new costly products, most of which will never be successful ?

4. HOW DO WE CLASSIFY THE PRODUCTS IN A PRODUCTS PORTFOLIO? Product Portfolio is done on the basis of the BCG matrix. The BCG matrix classifies products on the basis of the market share of the product as well as the growth rate which a product may have. On the basis of this classification, a product manager can decide what level of investments a particular product might need and what would be the returns from such a product. As the other goal of products portfolio management is cash flow management, the BCG matrix propagates balancing the cash flow between all products equally. In harsh words –  no extra revenue should be given to products which cant give the revenue back to the organization.

5. BCG MATRIX: BCG Matric, Growth Share Matrix, Boston box & product portfolio matrix are the different names for the same framework that was developed by Bruce Henderson od the Boston Consulting Group in 1970. It is very old strategic framework that makes it controversial for today’s applicability even then it is one of the most used frameworks for product portfolio management .This matrix is used to analyse strategic business units or product lines from the same corporation by putting them on a 2X2 matrix based on two factors in order to determine where to allocate extra resources? Where to cash out? And where to divest? The main purpose of a BCG matrix is to take investment decisions on a corporate level which is a part of corporate strategy.

6. As we all know the there are different levels of strategies which is illustrated in strategy pyramid. Generally people are familiar with business level strategy i.e. how do we compete or gain sustainable competitive advantage. Rather corporate strategy is about which businesses they should be in at the first place. It is about selecting the optimal set of businesses and determining how they should be integrated into a corporate whole.

7. There are two factors that are used to plot the business units in the matrix: Company Competitiveness Market Attractiveness In order to measure these factors Henderson used what he believes are the underlying drivers of these two factors i.e. Relative Market Share and Market Growth Rate. A high market growth rate means the demand is growing rapidly means there is an open door for company’s growth as well however operating in a growing market also requires major investments in assets to increase capacity and in marketing to increase market share. Therefore it is attractive to be active in a high growth market, it also results in the consumption of the large amount of cash.

8. How To Make A BCG Matrix? Step 1: Choose The Product Step 2: Define The Market Step 3: Calculate The Relative Market Share Step 4: Find Out The Market Growth Rate Step 5: Draw The Circles On A Matrix

9. APPLE CASE STUDY: Stars High Growth, High Market Share Star units are leaders in the category. Products located in this quadrant are attractive as they are located in a robust category and these products are highly competitive in the category .Example: I phone because there is large potential market for it and they have their own large share in it. Strategic choices :  Vertical integration, horizontal integration, market penetration, market development, product development

10. Question Marks High Growth, Low Market Share Like the name suggests, the future potential of these products is doubtful. Since the growth rate is high here, with the right strategies and investments, they can become Cash cows and ultimately Stars. But they have low market share so wrong investments can downgrade them to Dogs even after lots of investment. Example : Macbook because even if there is a huge need in the market but market share has not built yet. They need to focus upon the investment and divestment decisions and analyse their product, positioning, strategy and pricing. Strategic choices: Market penetration, market development, product development, divestiture .

11. Cash Cows Low Growth, High Market Share These products or services generate interesting profits and cash but need to be replaced because the future growth will be lower. If they are profitable, they can finance other activities in progress (including stars and question marks).Example: I Pad because they have less competition, there is less need in the market but they have a huge market share. Harvesting is to be done in this quadrant. Cash cows is mainly the category of products that belong to saturated or matured market. Strategic choices: Product development, diversification

12. Dogs Low Growth, Low Market Share Dogs hold low market share compared to competitors. Neither do they generate cash nor do they require huge cash. In general,  they are not worth investing in  because they generate low or negative cash returns and may require large sums of money to support. Due to low market share, these products face cost disadvantages . Example: I Pod because there is no need in the market as well there is no market share which means divestment is needed or harvest in case this product is creating a demand for star or question mark product.Like Samsung watch. Strategic choices : Retrenchment , divestiture , liquidation

13. BCG MATRIX & PRODUCT LIFE CYCLE:

14. ADVANTAGES OF BCG MATRIX: BCG Matrix is simple and very easy to understand. BCG matrix can be used to determine and to identify how corporate cash resources can best be used in order to maximize company's profitability and future growth. BCG matrix is used to evaluate balance in the firm's current portfolio of Dogs, Question Mark, Cash Cows and stars. It also provides base management to prepare and decide for future actions. BCG matrix helps the managers to become more aware on how the services, products or business unit perform. It also helps to prioritize the limited resources in order to achieve the maximum or best returns.

15. DISADVANTAGES OF BCG MATRIX: BCG matrix is costly to conduct. BCG matrix needs highly experienced person or a consultant to determine industry's attractiveness and business unit strength. BCG matrix does not take into account the synergies which might exist between two or more business units. High market share is not the only success factor. The model of BCG matrix do not take into consideration small competitors that have fast growing market share. BCG matrix uses only two dimensions : Market share and Growth rate.

16. GE MATRIX: It focuses on  2 variables : Industrial Attractiveness . How attractive is the economic sector  in which a certain Product, Service or Business Unit is located. Competitive Strength . How strong is the company  in that particular sector.   These 2  variables   are both  quantified into three categories : High . Medium . Low .

17. The result is a 3 x 3 Matrix with 9 scenarios but  3 main approaches : The  Invest / Grow  scenario. The  Selectivity / Earnings  scenario. The  Harvest / Divest   scenario.

18. HOW TO ACCESS THE INDUSTRY ATRACTIVENESS: Its Growth . If it is growing at higher or lower rates than the general economy. Number of competitors . The more saturated a market is, the worse. Entry barriers . The higher, the better, as long as you have access to it. Its average Profitability . How profitable it is. Are there substitute products that jeopardize this profitability?

19. HOW TO ACCESS THE COMPETITIVE STRENGTH: Market share . What is your Market share. Your average profitability . You can compare it with the market average. The size of your Product Mix . How deep you have penetrated the market. The strength of your Brand . How an average customer perceives your Brand.

20. WHAT ABOUT MEDIUM SCENARIOS ?

21. Ford electric car- Invest/Grow scenario: 2 main reason that explained why Ford was not investing in electric cars First reason : Ford is very Strong in the “classic Automobile” sector, but not in the electric one. Manufacturing and designing an electric car is very different from the traditional one: The Engine. The Powertrain. etc. The components are absolutely different . And  Ford was not Strong there .

22. Second reason : The market was not really booming. Demand was increasing, but people seemed to prefer traditional cars. The electric car Sector didn’t seem really attractive at all . WHAT DID FORD DO?

23. DVD VIDEO- SELECTIVITY/EARNINGS SCENARIO: The DVD-Video format is the perfect example of an “Earnings” scenario. It’s been years since “Blue-Ray” was released. Now, we have HD, 4K, 8K…  But,  has the Blue-Ray substituted the DVD-Video format? Not at all. Today, people use mainly streaming platforms for watching movies (Netflix, HBO,DFisney +, etc ). However, although there are many new alternatives on the market,  people still prefer DVDs  to Blue-Rays, or other new formats.

24. What should DVD-Video companies do? The Market is declining. There are new and better products that will replace your product sooner or later. As mentioned before, this scenario is the perfect example of a “ Maintaining Earnings ” scenario

25. MICROSOFT ZUNEMP3 PLAYER- DIVEST/ HARVEST SCENARIO There was a time when  every technology company had its own mp3 player . But only when Apple became the “reference” with its iPod, was it when Microsoft launched its own mp3 player: the  Zune . It was 2006. And what happened  1 year later ?  Apple introduced its iPhone. Mp3 players were doomed .  The new and emerging smartphone Market, made mp3 players absolutely unnecessary. People could simply use their phones.

26. What did Microsoft do? They discontinued the Zune  (its mp3 player) in 2008. That was an intelligent decision since: They were not Strong  in the mp3-player market. Moreover, had not succeeded with its product. The mp3-player  Market was no longer Attractive .

27. Remember that  it is very easy to highlight a Success, but retiring on time is always much more important . And the GE-McKinsey matrix can help you with this.

28. ADVANTAGES OF GE MATRIX:   It used 9 cells instead of 4 cells of BCG  It considers many variables and does not lead to simplistic conclusions High/medium/low and strong/average/low classification enables a finer distinction among business portfolio It uses multiple factors to assess industry attractiveness and business strength, which allow users to select criteria appropriate to their situation

29. DISADVANTAGES OF GE MATRIX: It can get quite complicated and cumbersome with the increase in businesses Though industry attractiveness and business strength appear to be objective, they are in reality subjective judgements that may vary from one person to another It cannot effectively depict the position of new business units in developing industry

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