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Extended BCG Matrix - Extended BCG Matrix Extended Syed...

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Unformatted text preview: Extended BCG Matrix Extended Syed Ferhat Anwar Sharif Rayhan Siddiqui Shakil Huda Concept of Portfolio Concept Large companies normally manage quite different businesses, each requiring its own strategy, these are termed as strategic business units (SBU). An SBU strategic An has three characteristics (Kotler, 1999): has • It is a single business or collection of related It businesses that can be planned separately from the rest of the company. from • It has its own set of competitors. • It has a team, which is responsible for It strategic planning and profit performance and who control most of the factors affecting profit. who The Classical Model 1 of 7 The Classical Model 2 of 7 Classical The market growth rate on vertical market on axis indicates the annual growth rate of the market in which the business operates. In the figure it ranges from 0 percent to 20 percent. A market growth rate above 10% is considered high. Classical Model 3 of 7 Classical Relative market share, which is measured on the Relative which horizontal axis, refers to the SBU's market share SBU's market relative to that of its largest competitor in the segment. It serves as a measure of the company's strength in the relative market segment. A relative market share of 0.1 means that the company's sales volume is only 10% of the leader's sales volume; a relative share of 10 means that the company's SBU is the leader and has 10 times the sales of the next-strongest has strongest competitor in that market. Relative market share is divided into high and low share, using 1.0 as the dividing line. Relative market share is drawn in log scale, so that equal distances represent the same percentage increase. Classical Model 4 of 7 Classical Question marks: Question marks are business Question Question that operate in high growth markets but have low relative market shares. Most businesses start off as question marks as the company tries to enter a high-growth market in which there is already a high growth market leader. A question mark requires a lot of cash because the company has to spend money on plant, equipment, and personnel to keep up with the fast growing market, and because it wants to overtake the leader. The term question mark is appropriate because the company has to mark is think hard about whether to keep pouring money in to this business. Classical Model 5 of 7 Classical Stars: If the question-mark Stars: mark business is successful, it becomes a star. A star is the market leader in a high growth market. A star does not necessarily produce a positive cash flow for the company. The company must spend substantial funds to keep up with the high market growth and fight off competitors' attacks. Classical Model 6 of 7 Classical Cash cows: When a market's annual Cash When growth rate falls to less than 10 percent, the star becomes a cash cow if it still has the largest relative market share. A cash cow produces a lot of cash of the company. The company does not have to finance capacity extension because the market’s growth rate has slowed down. market growth Because the business is market leader, it enjoys economics of scale and higher profit margins. The company uses its cash-cow business to pay its bills and cash cow support its other businesses. Classical Model 7 of 7 Classical Dogs: Dogs are businesses that have Dogs Dogs weak market shares low –growth growth markets. They typically generate low profits or losses. The company should consider whether it is holding on to these businesses for good reasons or for sentimental reasons. reasons Extended Model 1 of 6 Extended Developed by Syed Ferhat Anwar, Sharif Rayhan, Syed Sharif and Shakil Huda. 2000. Shakil • It places too much emphasis on entry into the high It growth businesses and thus may neglect the current businesses, which are not a part of the high growth, high share market (Kotler, 1999). high 1999). • Many businesses will end up in the middle of the matrix Many as a result of compromises in rating, and this makes it hard to know what appropriate strategies should be undertaken by such business (Kotler, 1999). undertaken • The Matrix gives market share and market growth The fundamental positions in the development strategy, but market division and market structure are difficult and often ill-defined quantities (Lilien, 1992). often Extended Model 2 of 6 Extended • Real life problems are associated with negative Real growth of the market. The negative growth could be both in terms of annual growth rate or even when considering a life time tracking. Negative growth does not necessarily mean that the product has entered the decline phase, but could be a result of certain controllable or uncontrollable resource constraint. The BCG Matrix does not consider the negative growth rate. • The approach assumes that all competitors The have the same overhead structures and experience curves and that position on the experience curve corresponds to market position. position. The Extended Model 3 of 6 The Extended Model 4 of 6 Extended The under-developed in realty are quite under in diverse in nature, when representing businesses having lower growth and share they tend to act like followers taking less risk. On the other hand being small they may not be able to compete with the larger firms due to financial constraints. Such business should consider expansion as their strategy. The expansion plan must be aided through external financing. Extended Model 5 of 6 Extended Orphan : These businesses require proper Orphan These care, through high promotion, product extension, market extension, etc. and may shift to cash cow or star. Such products cash or star. Such are evident in the real life and show how Product Life Cycle (PLC) shifts have been observed to have taken place while products had entered the later maturity or even decline stages. Such business will require more of strategic support rather than financial support. Extended Model 6 of 6 Extended Dead : Businesses that have Dead Businesses negative growth rate and extremely low market share cannot survive stiff competition and thus should be divested. Such businesses are usually a result of emotion rather than profit and harm the entire company. ...
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