Week 6
Generating alternative strategies using portfolio models

This type of strategies is known as BCG Growth-share matrix because of the two dimensions selected to be used in its analysis. Bruce believed strongly amongst the many external and internal factors that have been considered for strategic analysis, the industry attractiveness and competitive advantages are the two that he thought were the most important.

BOSTON CONSULTING GROUP MODEL




The characteristic of the four quadrants need to be discussed to appreciate the rationale behind each strategic decision to be made.

a) The question mark quadrant is positioned in a fast growth industry but with a low market share. This is true for a product newly introduced in the market. Thus, the suggested direction would be for the product to obtain an in its market share as its industry growth rate is strong.  Therefor, the company would be wise to spend on efforts towards making the products more known to the market followed by an increase in promotion and marketing so that it will move to the direction of the star quadrant. The table above illustrates the point that need to be clarified. The portable air condition would be placed in the Question mark quadrant because of the high growth rate but because it is new, its share of the market is still small.

b) The star quadrant is positions where there is a high growth rate and high relative market share. This rate is 8 is illustrated by the microwave oven appliance. Its relative market share is high (higher than that of its larger competitor) and the growth is 8%. At that high growth rate, it would be wise for the company to continue making sure that the market share is maintained or increased, and an expansion strategy would be the best option. Thus, marketing strategies would also be complementary, especially if there is a need to find new market as well as to increase the market share. Product development might be the next choice to ensure that the innovation in the product continue to meet the customer’s expectations.

c)  The third is the cash cow quadrant. This is illustrated by the electric iron where its market share is still high, but the growth rate has gone down probably because everybody has one at home. Any sales are a bonus as there is no necessity for excess marketing effort for everybody is aware of the product. Any advertising would be more a reminder rather than promotion. Consolidation would be wise, and cost cutting through backward and forward integration is highly recommended. Some would suggest and increase in R&D to prepare for the next round of new product development so as to replace the existing ones if it goes into the Dog quadrant.

d) Last quadrant is dog. Here the product is in a state where its market share has deteriorated, and its growth rate is also declining. An easy way out is to sell off the portfolio to buyers who are adopting integration strategies. For the electrical appliances company, the product can be remove from the sales list and any inventory need to be converted to cash in whatever way and no replacement made if sold. Or replacement would be by new products in the market and be placed in the Question Mark quadrant for a new cycle to begin.

General electric model

This is another of the portfolio model assisting in the generation of alternative strategies for the various portfolio under analysis. It was first presented in the 1970s perhaps at the same time as BCG but because of the letter’s popularity, in referred to as a modification of the BCG model.

1.       Industry attractiveness

The vertical axis of the GE/McKinsey matric is industry attractiveness (IA). It is determined by factors related to the industry attractiveness as in SPACE or SWOT external factors evaluation.

The columns a, b and c denote weights, capability and weighted capability for a particular product, respectively. Other possible factors that could also be incorporated into the analysis if they are of importance are:

·         Market growth rate

·         Industry profitability

·         Market size

·         Demand variability

·         Global opportunities

·         Industry rivalry

·         Micro environmental factors

Each factor is assigned weights (to reflect the degree of importance) that are appropriate for the industry.

2.       Business unit strength

The horizontal axis of the GE/McKinsey matric is the strength of the business unit. Some factors that can be used to determined business unit strength include:

·         Market share

·         Distribution channel access

·         Brand equity

·         Production capacity

3.       Plotting the information

Each business unit (in this case the products) can be portrayed as a circle plotted on the matrix the size of the circle denoting the market size and the pie denoting the market share of the product in the industry. An arrow could be inserted to show the future direction of the circle if this can be forecasted.