Transcript PRESENTATION NAME - ICSI Knowledge Portal

BCG Matrix –
A Business Portfolio Tool
By:
Shruti Gupta
What is Business Portfolio?
Methods of Portfolio Planning
The two best-known portfolio planning methods
are from the Boston Consulting Group and by
General Electric/Shell:
• BCG Matrix
• GE Matrix
BCG Matrix – An Introduction
• The BCG matrix model was developed by
Bruce Henderson of the Boston Consulting
Group in the early 1970's.
• The BCG matrix/ BCG model is the most
renowned corporate portfolio analysis tool.
What is BCG Model?
• The first step in BCG Matrix is to identify the
various Strategic Business Units ("SBU's") in a
company portfolio.
• According to this technique, businesses or
products are classified as low or high
performers depending upon their market
growth rate and relative market share.
 Relative market share - this serves as a measure of
SBU strength in the market
 Market growth rate - this provides a measure of
market attractiveness
WHY BCG MATRIX?
To assess:
• Profiles of products/businesses
• The cash demands of products
• The development cycles of products
• Resource allocation and divestment
decisions
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
BCG Matrix
THE BCG MATRIX COMPONENTS
• Stars – High market share and High growth
rate (high competition)
• Cash Cows – High market share but low
growth rate (most profitable)
• Question marks – Low market share and high
growth rate (uncertainty)
• Dogs – Low market share and low growth rate
(less profitable or may even be negative
profitability)
STARS
HIGH GROWTH, HIGH MARKET SHARE
• Stars are leaders in business.
• They require heavy investment to maintain its large
market share.
• It leads to a 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.
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.
QUESTION MARKS
HIGH GROWTH , LOW MARKET SHARE
• Most businesses start of as question marks.
• They will absorb great amounts of cash if the
market share remains unchanged
• Question marks have potential to become star
and eventually cash cow but can also become
a dog.
• Investments should be high for question
marks.
DOGS
LOW GROWTH, LOW MARKET SHARE
• Dogs are the cash traps.
• Dogs do not have potential to bring in much
cash.
• Business is situated at a declining stage.
Strategies based on the BCG Matrix
There are four strategies possible for any product / SBU under the BCG
analysis. These are:
1)
2)
3)
4)
Build – By increasing investment, the product is given an impetus such
that the product increases its market share. Make further investments
(for example, to maintain Star status, or to turn a Question Mark into a
Star).
Hold – The company cannot invest. Maintain the status quo (do
nothing). The company invests just enough to keep the SBU in its
present position. Example – Holding a star there itself as higher
investment to move a star into cash cow is currently not possible.
Harvest – Best observed in the Cash cow scenario, wherein the
company reduces the amount of investment and tries to take out
maximum cash flow from the said product which increases the overall
profitability.
Divest – Best observed in case of Dog quadrant products which are
generally divested to release the amount of money already stuck in the
business.
ADVANTAGES OF BCG-MATRIX
• It is simple and easy to understand.
• It helps to quickly and simply screen the open
opportunities, and helps in thinking as to how
one 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.
LIMITATIONS OF BCG-MATRIX
• It uses only two dimensions i.e., Relative
market share and market growth rate.
• Problems of getting data on market share and
market growth.
• High market share does not mean profits all
the time.
• Business with low market share can be
profitable too.
Success Sequence in BCG Matrix
Disaster sequence in BCG Matrix
Example: COCA COLA
• Coca-cola Company returned to India in 1993 after a gap of 16 years after
nourishing the global community with the world’s largest selling soft drink
since 1886.
• HCCB (Hindustan Coca Cola Beverages Ltd.) serves in India some of the
most recalled brands across the world including names such as Coca-cola,
Sprite, Fanta, Thumbs up, Limca, Maaza and Kinley (packaged drinking
water), Minute maid pulpy orange, etc.
• The business system of the company in India directly employs
approximately 6,000 people, and indirectly creates employment for many
more. Coca-Cola India has increased its market share from 57 percent in
the carbonated soft drink (CDs)category in 2005 to 61 percent at the end
of December 2006.
• Coca Cola was the first in the country to launch cans, plastic cap leak proof
bottles and full length delivery crates.
• Ranking: They own 4 of the world’s top 5 non-alcoholic sparkling
beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta.
• Company Associates: 90,500 worldwide (December 31, 2007)
• Operational Reach: 200+ countries
• Consumer Servings (per day): 1.5 billion.
Mission: Our Roadmap starts with our mission, which is enduring. It declares
our purpose as a company and serves as the standard against which we
weigh our actions and decisions.
• To refresh the world..
• To inspire moments of optimism and happiness
• To create value and make a difference
Vision: Our vision serves as the framework for our Roadmap and guides
•
•
•
•
•
•
every aspect of our business by describing what we need to accomplish in
order to continue achieving sustainable, quality growth.
People: Be a great place to work where people are inspired to be the best
they can be
Portfolio: Bring to the world a portfolio of quality beverage brands that
anticipate and satisfy people’s desires and needs
Partners: Nurture a winning network of customers and suppliers, together
we create mutual, enduring value
Planet: Be a responsible citizen that makes a difference by helping build
and support sustainable communities
Profit: Maximize long-term return to share owners while being mindful of
our overall responsibilities
Productivity: Be a highly effective, lean and fast-moving organization
PRODUCT LINE OF COCA-COLA IN INDIA
SWOT Analysis of Coca Cola
Strength
• Strong leading brands with high level of consumer
acceptance – this allows the company to extend its
products to attract new customers
• Large scale of operations – Coca-Cola products are
already sold in 200 countries.
• Leading market position – the brand has a large
market about 5% ahead of its main
competitor PepsiCo.
• Strong cash flows from operations- the brand is able
to create over $ 50million a day.
Weakness
• Impact of Financial market volatility which in
turn affects the liquidity position of the
company.
• Slow decision making can give competitive
advantage to the competitors such as
PepsiCo may be the first to introduce
a product.
Opportunities
• Global growth in non-alcoholic ready-to-drink
beverage industry- this trend is set to generate
retail sale in the industry to more than
$1trillion by 2020.
• Growing global bottle water market
• Booming global functional drinks market e.g.
energy drink.
• Target the ageing customers and the young
and more environmental concern people
Threat
• Economic climate – countries from all over the
world have felt the impacts of the current
recession. This may be a problem for Coke,
which derives approximately 75% of its sales
from outside North America.
• Health and wellness has created a concern for
carbonated products specially in the USA and
Europe.
• Overdependence on bottling partners
• Intense competition – either local or global
market.
BCG-MATRIX FOR THE PRODUCT LINE
OF COCA-COLA
STARS - HIGH GROWTH, HIGH MARKET SHARE
•
Thumbs up, Maaza, Kinley
CASH COWS - LOW GROWTH, HIGH MARKET SHARE
•
Limca, Coca Cola
QUESTION MARKS - HIGH GROWTH , LOW MARKET SHARE
•
Fanta, sprite
DOGS - LOW GROWTH, LOW MARKET SHARE
•
Diet Coke, Minute maid
Depiction of BCG Matrix in a PLC
.
From the diagram we can conclude that:INTRODUCTION STAGE:• FANTA & SPRITE are at the introduction stage , as both are much new in
the market as compared to thumbs up and limca.
GROWTH STAGE:• THUMBS UP, KINLEY & MAZAA are at the growth stage having high growth
and low market share.
MATURITY STAGE:
• LIMCA, COCA-COLA are at the maturity stage having low growth but high
market share.
DECLINE STAGE:• DIET COKE, MINUTE MADE PULPY ORANGE & KINLEY SODA are at the
decline stage, proving to be non profitable products having low growth
and low market share.
Conclusion
• LIFE CYCLE: To be able to market its product properly, a firm
must be aware of the product life cycle of its product. The
standard product life cycle tends to have five phases:
Development, Introduction, Growth, Maturity and Decline.
• Star Strategy: Invest profits for future growth and for earning
more of market share and profits.
• Cash Cow Strategy: Use profits to finance new products and
growth elsewhere.
• Question Mark Strategy: Either invest heavily in order to push
the products to star status, or divest in order to avoid it
becoming a Dog.
• Dog Strategy: Either invest to earn market share or consider
disinvesting.
Thus the BCG matrix is the best way for a business portfolio analysis. The
strategies recommended after BCG analysis help the firm decide on the
right line of action and help them implement the same.
Thank you
Any Questions pls?
Disclaimer Clause: Views expressed in this presentation
views of the author do not necessary reflect those of the
Institute.