am-wk 10- strategy in action

8/7/2019 AM-WK 10- Strategy in Action

http://slidepdf.com/reader/full/am-wk-10-strategy-in-action 1/31

APPLIED

MANAGEMENT

WK 10 (Ver 1)

STRATEGY IN ACTION

Rafil- Ver 1



BCG (Boston Consulting Group) Matrix

� Provides a framework for senior management inallocating resources across business units in adiversified firm by

± Balancing cash flows among business units, and

± Balancing stages in the product life-cycle (PLC)

Rafil- Ver 1



BCG Product Portfolio Matrix Dimensions

Relative Market Share (Log Scale)

ProductSales

Growth

Rate

Rafil- Ver 1



BCG Matrix (contd)

The vertical axis is the growth rate

� 5 levels may be used: product, product lines,market segment, SBU and business growth

rate� Horizontal line is usually set as 10% Growth

Rate

� SBUs above the set value (10% line) represents high growth rates

� Conversely, SBUs below this value depicts

slower growth rate Rafil- Ver 1



Strategic Perspectives of Products in Diff erent

Q uadrants

Four diff erent strategic perspectives

� Investment

� Earnings

� Cash-flow, and

� Strategy Implications

Rafil- Ver 1



Matrix Q uadrants

High Low

High

Low

Product

Sales

Growth

Rate

Relative Market Share

Rafil- Ver 1



Key Assumptions of BCG Matrix

� Stable cost/price relationship

± Not valid if the firm is pricing on projected loweraverage unit costs in the future

� Market leader influences the average costs

� Profit margin is a function of market share

± This ignores profitable niches

Rafil- Ver 1



Strategic Perspectives of Products in

Diff erent Q uadrants

Four diff erent strategic perspectives

� Investment

� Earnings� Cash-flow, and


Rafil- Ver 1



Q uestion Marks (Problem Children)

� I

nvestmentheavy initial capacity expendituresand high R&D costs

� Earningsnegative to low

� Cash-flownegative (net cash user)


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

High Low

High

Low

ProductSales

GrowthRate


Rafil- Ver 1



Stars� Investmentcontinue to invest for capacity

expansion

�

EarningsLow to high earnings� Cash-flowNegative (net cash user)


±Continue to increase market shareeven at the expenseof short-term earnings

Rafil- Ver 1



Cows� InvestmentCapacity maintenance

� EarningsHigh

�Cash-flowPositive (net cash contributor)


±Maintain market share and cost leadership until

further investment becomes marginal

Rafil- Ver 1



Dogs� Investment

± Gradually reduce capacity

� EarningsHigh to low

� Cash-flow

± Positive (net cash contributor) if deliberately reducingcapacity

�Strategy Implications± Plan an orderly withdrawal to maximize cash flow

Rafil- Ver 1



Example of a BCG Matrix for a Fastener

Supplier in South East Asia

HighHigh LowLow

HighH

igh

LowLow

ProductProduct

SalesSales

GrowthGrowth

RateRate

Relative Market ShareRelative Market Share

AnchoringAnchoring

SystemsSystems

PowderPowderActuatedActuatedToolsTools

Cable TrayCable TraySystemsSystems

ElectricElectricPower ToolsPower Tools

ConcreteConcreteLiftingLiftingSystemsSystems

Rafil- Ver 1



BCG Matrix

(Three Paths to Success)

� Continuously generate cash cows and use thecash throw-up by the cash cows to invest inthe question marks that are not self-

sustaining� St ars need a lot of reinvestments and as the

market matures, stars will degenerate intocash cows and the process will be repeated.

� As for d ogs, segment the markets and nursethe dogs to health or manage for cash

Rafil- Ver 1



Three Paths to Success (contd)

High Low

High

Low

Market

Growth

Rate


Rafil- Ver 1



BCG Matrix -(Three Paths to Failure)

� Over invest in cash cows and under invest in

question marks

± Trade further opportunities for present cash flow

� Under invest in the stars

± Allow competitors to gain share in a high growth market

� Over milked the cash cows

Rafil- Ver 1



Three Paths to Failure (contd)

High Low

High

Low

Market

Growth

Rate


Rafil- Ver 1



Example of a BCG Matrix for a Fastener

Supplier in South East Asia

HighHigh LowLow

HighH

igh

LowLow

ProductProduct

SalesSales

GrowthGrowth

RateRate

Relative Market ShareRelative Market Share

AnchoringAnchoring

SystemsSystems

PowderPowderActuatedActuatedToolsTools

Cable TrayCable TraySystemsSystems

ElectricElectricPower ToolsPower Tools

ConcreteConcreteLiftingLiftingSystemsSystems

Rafil- Ver 1



BCG Matrix-(Three Paths to Success)

� Continuously generate cash cows and use the cashthrow-up by the cash cows to invest in the questionmarks that are not self-sustaining

� Stars need a lot of reinvestments and as themarket matures, stars will degenerate into cashcows and the process will be repeated.

�

As for dogs, segment the markets and nurse thedogs to health or manage for cash

Rafil- Ver 1



Three Paths to Success (contd)

High Low

High

Low

Market

Growth

Rate


Rafil- Ver 1



BCG Matrix (Three Paths to Failure)

� Over invest in cash cows and under invest in

question marks

± Trade further opportunities for present cash flow

� Under invest in the stars

± Allow competitors to gain share in a high growth market

� Over milked the cash cows

Rafil- Ver 1



Three Paths to Failure (contd)

High Low

High

Low

Market

Growth

Rate


Rafil- Ver 1



PORTERS 5 FORCES

BuyersSuppliers

New Entrants

Substitutes

Industry

Competitors

& extent of

Rivalry

Industry

Competitors

& extent of

Rivalry

LOW AVERAGE

NU

MEROU

S

BARRIERS

TO ENTRY

Rafil- Ver 1



Five Forces Framework

� Internal Rivalry± Price competition especially from no frills carriers

± Competition for airport landing/departure slots

� Therefore barriers to entry at major hub airports

± Passenger demand declining/static in most countries

± Regulation barriers decreasing, therefore increasing

competition in Europe (Ownership rules still protect to adegree)

Rafil- Ver 1




� New Entrants

± Since flights between countries, must have majority

ownership or the operator in one of the two countries,threat of entry is not currently global

� This could change with three to five years if open skies

agreements are brought in, therefore potential future threat.

Rafil- Ver 1




� Substitutes

± Travel by sea or land is not always convenient

± Spend leisure money on alternatives or domestic

holidays

Rafil- Ver 1




� Customer Power

± Loyalty from Frequent Flyer Program

� Supplier Power

± Fuel prices are a major cost with no substitute,

therefore powerful hold on airlines.

Rafil- Ver 1



Rafil- Ver 1



Strong brand recognition

Strongest International Presence

Customer Intimacy

Product innovationSupply Chain

STRENGHTS OPPORTUNITIES

Expand into Tier1 and Tier 2

cities

Entry into breakf ast category

Acquisition of other

restaurants

W EAKNESS

Low depth and width of product

High overall costs than rival

THREATS

Changing customer lifestyle

Increase in competition

Rafil- Ver 1



Rafil- Ver 1

am-wk 10- strategy in action

Documents