8/14/2019 Bcg &Ge Models

1/16

BCG &GE Models

8/14/2019 Bcg &Ge Models

2/16

Introduction

The creation of SBUs enables thesetting of SBUs mission and objectivesand the allocation of resources acrossSBUs in the organizationSenior management need to have aframework to evaluate SBUs and toassign limited resources among them;hence portfolio analysisMany models but only 2 are coveredhere: BCG, & GE models

8/14/2019 Bcg &Ge Models

3/16

8/14/2019 Bcg &Ge Models

4/16

BCG Product Portfolio MatrixDimensions

Relative Market Share (Log Scale)

ProductSalesGrowthRate

8/14/2019 Bcg &Ge Models

5/16

BCG Matrix (contd)

The horizontal axis is the RelativeMarket Share shown in a log scale

Horizontal line is usually set as 1.0Relative Market ShareAn SBU to the left of this line means itis the market leader in the industry orsegment in which it operatesConversely, an SBU to the right of thisline (1.o RMS) means it is not theleader

8/14/2019 Bcg &Ge Models

6/16

BCG Matrix (contd)

The vertical axis is the growth rate5 levels may be used: product, product lines,market segment, SBU and business growthrateHorizontal line is usually set as 10% GrowthRateSBUs above the set value (10% line)represents high growth ratesConversely, SBUs below this value depictsslower growth rate

8/14/2019 Bcg &Ge Models

7/16

Matrix Quadrants

High Low

High

Low

ProductSalesGrowthRate

Relative Market Share

8/14/2019 Bcg &Ge Models

8/16

Strategic Perspectives of Products in Different

QuadrantsFour different strategic perspectives

InvestmentEarningsCash-flow, and

Strategy Implications

8/14/2019 Bcg &Ge Models

9/16

Question Marks(Problem Children)

Investmentheavy initial capacityexpenditures and high R&D costsEarningsnegative to low

Cash-flownegative (net cash user)Strategy Implications

If possible to dominate segment, go after share.If not, redefine the business or withdraw

8/14/2019 Bcg &Ge Models

10/16

StarsInvestmentcontinue to invest for capacityexpansionEarningsLow to high earningsCash-flowNegative (net cash user)Strategy Implications

Continue to increase market shareeven at theexpense of short-term earnings

8/14/2019 Bcg &Ge Models

11/16

CowsInvestmentCapacity maintenanceEarningsHighCash-flowPositive (net cashcontributor)Strategy Implications

Maintain market share and cost leadershipuntil further investment becomes marginal

8/14/2019 Bcg &Ge Models

12/16

DogsInvestmentGradually reduce capacity

EarningsHigh to lowCash-flowPositive (net cash contributor) if deliberately reducing capacity

Strategy ImplicationsPlan an orderly withdrawal tomaximize cash flow

8/14/2019 Bcg &Ge Models

13/16

Industry example: SAPSAP is the worlds leading provider of business software solutions.

Headquartered in Walldorf, GermanyMore than 28,200 customers in over120 countriesMore than 96,400 installations of SAPsoftware

Total Revenue - 7,514 millions

8/14/2019 Bcg &Ge Models

14/16

Strategic Business Solutions:Enterprise Resource PlanningCustomer Relationship Mgmt ToolsSupply Chain Mgt

Product Life-cycle Mgt

8/14/2019 Bcg &Ge Models

15/16

SBU MKtGrowthRate

MktShare

Compt.M.S

R.M.S(%)

Quad

ERP 14% 40% 22%O+PS

1.81 Star

CRM 6% 15.9% 24.9%

Siebel

0.64 Dog

SCM 4% 11% 10%O+PS

1.1 CashCow

PLM 7.1% 8.3% 33.3%EDS

0.25 Dog

8/14/2019 Bcg &Ge Models

16/16

BCG Matrix