BCG Matrix & GE Nine Cell Matrix

BY:-Vivek Ranjan
Boston consulting group (bcg)

Matrix is developed by Bruce Henderson of the Boston Consulting Group in the early
1970s

According to this technique, business or products are classified as low or high

performance depending upon their market growth rate & relative market share.
Relative market share & market growth

To understand the Boston Matrix you need to understand how market share &
market growth interrelated.

Market Share
Market share is the percentage of the total market that is being
serviced by your company measured either in the revenue terms
or unit volume terms.
 Relative market share

Business Unit Sales this year

RMS :-
Leading rival sales this year

The higher your market share, the higher proportion of the market
you control.
 Market growth rate

Market Growth is used as a measure of a markets attractiveness.

Individual Sales this year Individual sales last year

MGR =
Individual Sales last year
The bcg growth-share matrix
 It is portfolio planning model which is based on the observation that companys business unit
can be classified in to four categories .

Question Marks
Stars
Cash cows
Dogs

It is based on the combination of market growth & market share relative to the next based
competitor.
Question marks/problem children ( high growth, low market
share)

Most business start of as question marks

They will absorb great amount of cash if the market share remains unchanged (low)
Question marks have potential to become star & evenly cash cow but can also
become dog.
Investment should be high for question marks.
 Stars
(high growth, high market share)
Stars are leader in business
They also require heavy investment to maintain its large market share.
It leads to large amount of cash consumption & cash generation.
Attempts should be made to hold the market share otherwise the star will became a
cash cow.
 Cash cows
( low growth, high market share)
They are foundation of the company & often the stars of yesterday.
They generate more cash than required
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
 Dogs
(low growth, low market share)
Dogs are the cash traps
Dogs do not have potential to bring
High cost Low quality
Business is situated at a declining stage
Why bcg matrix

To asses
Profile of product /business
Cash demands of products
The development cycle of product

Resource allocation & divestment decisions

benefits

BCG matrix is simple & easy to understand

It helps to quickly & simply screen the opportunity open to you, & help you think
about how you can make the most of them.
It is used to identify how corporate cash resources can best be used to maximize
companys future growth & profitability.
Limitation

BCG matrix uses only two dimensions relative market share & market growth rate.
Problem of getting data on market share & market growth
High market share does not mean profits all time.
Business with market share can be profitable too.
BCG-Matrix for the product line of

Coca-Cola
 Stars
(high growth, high market share)
 Cash cows
(low growth, high market share
 Dogs
(low growth, low market share)
 Question marks
(high growth, low market share
GE Nine Cell Matrix
GE Nine Cell Matrix

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform

business portfolio analysis as a step in the strategic planning process.

The GE/McKinsey Matrix identifies the optimum business portfolio as one

that fits perfectly to the company's strengths and helps to explore the most
attractive industry sectors or markets.

The objective of the analysis is to position each SBU on the chart depending
on the SBU's Strength and the Attractiveness of the Industry Sector or
Market on which it is focused. Each axis is divided into Low, Medium and
High, giving the nine-cell matrix as depicted below.
GE Nine Cell Matrix

Different factors can be used to define Industry Attractiveness. Like:-

Market Size, Market Growth Rate, Demand variability, Industry Profitability, Competitive Rivalry, Global
Opportunities, Entry and exit barriers, Capital requirement, Macro environmental Factors (PEST)

Different factors can also be used to define SBU Strength. Like:-

Market Share, Distribution Channel Access, Financial Resources, R&D Capability, Brand equity, Production
Capacity, Knowledge of customer and market, Caliber of management. Relative cost position

The factors and their relative weightings are selected. The rating values for each factor are entered for each
SBU and Industry.
 GE Nine Cell Matrix
Industry Attractiveness Business Unit Strength

Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

GE Nine Cell Matrix

Grow Business units that fall under grow attract high investment. Firms may
go for product differentiation or Cost leadership. Huge cash is generated in this
phase. Market leaders exist in this phase.

Hold Business units that fall under hold phase attract moderate investment.
Market segmentation, Market penetration, imitation strategies are adopted in
this phase. Followers exist in this phase.

Harvest - Business units that fall under this phase are unattractive. Low priority
is given in these business units. Strategies like divestment, Diversification,
mergers are adopted in this phase.
GE Nine Cell Matrix

Strength
a) It allows intermediate ratings between high and low and between strong and week.

b) It helps in channeling the corporate resources to business and achieving competitive

advantage and superior performance.

c) It helps in better strategic decision making and better understanding of business scope.

Weakness
a)It tends to obscure business that are become to winners because their industries are
entering at exit stage.

b)Assessment of business in terms of two factors is not fair.

EXAMPLE OF GE NINE CELL MATRIX
About Maruti Udyog

Founded in 1981
Products are Maruti 800, Omni, Alto,SX4,Swift Desire,Swift,A-star, Gypsy,Wagon R,Ritz,others.
Vision The Leader in the Indian Automobile Industry, Creating Customer Delight and
Shareholders Wealth;a Pride of India
Core Values : Our Core Values drive us in every endeavour-
Customer Obession,
fast, Flexible & first mover,
Innovation & creativity
Networking & Partnership
Openess & Learning
HOFERS MODEL &
COEVOLVING
By: Rashmi Kumari
BBA-6
Hofer matrix

Hofer matrix is one of the tools used to determine the assessment of the strategic
position of the company, as determined by its internal and external factors.
15 squares matrix was created by Charles W. Hofer.
Rules of design: Matrix is created on the basis of two criteria: the maturity of the
sector, divided into 5 phases and the competitive position of companies in the sector.
In this way circles are created, which represent different areas of activity in the
company, and the size of the circle is proportional to size of the sector. Sometimes
segments could be added to the circle, which reflect the market share of company in
the sector.
Below is a sample matrix constructed according to the principles set out by
Hofer. In its interpretation attention should be paid to possible strategies
for products, their life-cycle phases and the markets in different sectors.

COMPETITIVE POSITION
Phases of the development of the sector Strong Average Weak
Early Development A
Rapid Growth B C
Shake-out D
Maturity/ Saturation E F
Decline G
 Business unit A seems to be a potential Star. It holds a large market share, it is in the stage of
life cycle development and has a strong competitive position on the market. As such, unit A
represents a potential candidate in the competition for corporate resource competition. E.g. cerelac
is the star product from Nestle.
Business unit B is somewhat similar to A. However, it has a relatively small share of the market
given its strong competitive position. A strategy would have to be developed to overcome this low
market share in order to justify more investments.
Business unit C has a small market share, its salient feature resides in the fact that it holds a
competitively weak position and it entered a small market whose development is underway. A
strategy that may increase the market share and develop the competitive position must be
elaborated so that the future investments be accounted for. For the unit C a strategy residing in
the elimination from the market must be applied, so that the investment for the first two units may
be favourised.
Business unit D is in a shakeout period, has a relatively large share of the market, and is in a
relatively strong position. Investment should be made to maintain that position. E.g., nestle with
most of the capacity addition is expected in categories like prepared dishes, milk products and
chocolates.
Business units E and F are cash cows and should be used for cash generation. E.g. Maggi & KIT-
KAT
Business unit G appears to be a dog. It should be managed to generate cash in the short run, if
possible; however, the long-run strategy will more the likely be divestment or liquidation. E.g.
Nestea.
Coevolving

Co-evolution is the joint and interactive outcome of managerial

intentionality, organizational efforts and environmental change.
It considers organizations, their populations and their environments as
the interdependent outcome of managerial actions, institutional
influences and extra-institutional changes (technological, sociopolitical
and other environmental phenomena).
 Co-evolution assumes that organizational and environmental changes
occur in a simultaneous and interactive manner. Thus, strategy is not
merely a passive response but rather a proactive intention to change
both task and institutional environments facing the firm.
Organizational and environmental changes are bi-directional,
interactional and mutually influencing and evolving. Organizations and
their parts, both internal and external (such as regulators, suppliers,
competitors or partners), co-evolve with each other and with a
changing environment.
Example

Mexicos Cemex, the worlds top building solution company, has worked
with the UK government through publishing sustainable development
reports since 2007. Construction in the UK is highly regulated by the
government, requiring foreign companies to operate under high
standards concerning environment, quality, and safety. While Cemex
works with the UK government to ensure such standard compliance, its
executives also regularly meet UK officials in an effort to create a cost-
effective environment that stimulates the entire industrys international
competitiveness.
PATCHING & STRATEGY
AS SIMPLE RULE
By:
Akriti Sarraf
 PATCHING
Patching is the strategic process by which corporate executives routinely remap businesses to
changing market opportunities. It can take the form of adding, splitting, transferring, exiting,
or combining chunks of businesses. Patching is less critical when markets are relatively
unchanging, but when markets are turbulent, patching becomes crucial. It allows corporate
managers to focus on the best opportunities and leave the less promising ones behind..
At first glance, patching may seem to be just another name for reorganizing. But patchers'
have a distinctive mind-set. While managers in traditional companies see structure as mostly
stable, managers in companies that patch believe structure is inherently temporary. Patchers
also develop corporate strategy differently. Traditional managers set corporate strategy first,
whereas managers who patch keep the organization focused on the right overall set of
business opportunities and then let strategy emerge from individual businesses.
Patching changes are usually small in scale and made frequently Managers at patching
companies pay extraordinary attention to the size of their business units, which should be
small enough for agility and large enough for efficiency.
Example:

Hewlett-Packard is not the only corporation that has relied on patching

to sustain long-term reinvention and growth. Patching is a key factor in
the success of several traditionally high-performing companies like 3M
and Johnson & Johnson. 3Ms managers, for example, grew their highly
successful micro replication operations by adding, combining, and
transferring businesses around market applications as diverse as
computer privacy screens and reflective guardrails. Patching is also part
of the repertoire at new-economy stars like Dell Computer, Intuit, and
Cisco Systems.
STRATEGY AS SIMPLE
RULES
STRATEGIC ALTERNATIVES
AT BUSINESS LEVEL
By: Aishwarya Raj
BBA-6
Introduction

Michael Porter is a professor at Harward Business School.

A firms success in strategy rests upon how it positions itself in respect to

its environment.

Michael Porter has argued that a firm's strengths ultimately fall into
one of two headings: cost advantage and differentiation.

By applying these strengths in either a broad or narrow scope, three

generic strategies result:, cost leadership differentiation, and focus
 Generic Strategies

Cost Leadership Differentiation Focus

Superior profits through Creating a product or Concentrating on a

lower costs. service that is perceived limited part of the
as being unique market.
E.g. : WalMart, throughout the
Tesco industry E.g. : PepsiCo

E.g. : Mcdonald,
FedEx
Porters Generic Strategy

Advantage Advantage
Target Scope
(Low Cost) (Product Uniqueness)

Broad Cost Leadership Differentiation

(Industry wide)

Narrow Focus Strategy Focus Strategy

(Market wide) (low cost) (differentiation)
Cost Leadership Strategy

Aiming to become Lowest Cost Producer

The firm can compete on the price with every other industries and earn
higher unit profits.
Cost reduction provides the focus of the organisations strategy.
Targets a broad market.
Competitive advantage is achieved by driving down costs.
A successful cost leadership strategy requires that the firm is the cost
leader and is unchallenged in this position.
Especially beneficial : where customers are price sensitive
 The central goal of Wal-Mart is to keep retail prices low -- and the company has been
very successful at this.
Experts estimate that Wal-Mart saves shoppers at least 15 percent on a typical cart of
groceries.
Wal-Mart Stores Inc. is rolling out its "everyday low prices" (EDLP) retail strategy to
more international markets to replace the more usual high-low pricing in emerging
markets. EDLP means working with suppliers to ensure their prices are constantly low,
but also means price changes are kept to a minimum.
Wal-Mart also employs a good structure that works with the systems to empower the
low price strategy.
Wal-Mart has in place a set of systems that helps it achieve its strategy of low prices
everyday.
Differentiation Strategy

A differentiation strategy calls for the development of a product or

service that offers unique attributes that are valued by customers.
Customers perceive the product to be different and better than that of
rivals.
The value added by the uniqueness of the product may allow the firm
to charge a premium price for it.
Differentiation can be based on product image or durability,after-
sales,quality,additional features.
It requires flair,research capability and strong marketing.
 McDonald's customers are of all classes, but largely working and middle
classes, and people of all ages.

McDonalds strove to meet a customer wait time at no more than one

minute in line and 30 seconds at the counter.
 McDonald's understood that the parent was making the purchasing decision, most
likely based solely on price. What McDonald's marketing executives did was ingenious.
They put a $.50 toy in with the hamburger, french fries, and Coke. Then they gave it a
special name, calling it a Happy Meal. Then they marketed it to the kids.

McDonald's knows that some customers go to its stores to take a quick break from
their day's activities and not because McDonald's was able to make their food ten
seconds faster than a competitor. So McDonald's marketing executives then put
together the phrase, Have you had your break today?

They've taken competing on price right out of the picture, says Greshes. They bring
you quality, convenience, service, and value and they make you feel like you are
getting a break in your hectic day.
Focus Strategy
The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or differentiation.
The premise is that the needs of the group can be better serviced by focusing
entirely on it.
A firm using a focus strategy often enjoys a high degree of customer loyalty,
and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have
lower volumes and therefore less bargaining power with their suppliers
However, firms pursuing a differentiation-focused strategy may be able to
pass higher costs on to customers since close substitute products do not exist.
 By successfully adopting the 'focus' strategy since 1997, PepsiCo has emerged
as the second largest consumer packaged goods company.
The company has significantly strengthened its competitive position in the
beverages segment.
By acquiring leading beverages' company like Tropicana products (July
1998), South Beach Beverage Company (October 2000) and Quaker Oats
(December 2000)
Sustainable Competitive Advantage

A sustainable competitive advantage occurs when an organization acquires or

develops an attribute or combination of attributes that allows it to outperform its
competitors. These attributes can include access to natural resources or access to highly
trained and skilled personnel human resources. It is an advantage (over the
competition), and must have some life; the competition must not be able to do it right
away, or it is not sustainable. It is an advantage that is not easily copied and, thus,
can be maintained over a long period of time. Competitive advantage is a key
determinant of superior performance, and ensures survival and prominent placing in
the market. Superior performance is the ultimate, desired goal of a firm; competitive
advantage becomes the foundation. It gives firms the ability to stay ahead of present
or potential competition and ensure market leadership.
Resource-Based View of the firm
In 1991, Jay Barney established four criteria that determine a firm's competitive capabilities
in the marketplace. These four criteria for judging a firm's resources are:
Are they valuable? ( Do they enable a firm to devise strategies that improve
efficiency or effectiveness? )
Are they rare? (If many other firms possess it, then it is not rare. )
Are they imperfectly imitable (because of unique historical conditions, causally
ambiguous, and/or are socially complex)?
Are they non-substitutable? (If a ready substitute can be found, then this condition is
not met? )
When all four of these criteria are met, then a firm can be said to have a sustainable
competitive advantage. In other words, the firm will have an advantage in the
marketplace which will last until the criteria are no longer met completely. As a result, the
firm will be able to earn higher profits than other firms with which it competes.
Developing Sustainable Competitive
Advantages
Customer Loyalty: Customers must be committed to buying merchandise and services
from a particular retailer. This can be accomplished through retail branding, positioning,
and loyalty programs. A loyalty program is like a "Target card. Now, when the customer
uses the card as a credit card, Target can track all of their transactions and store it in
their data warehouse, which keeps track of the customer's needs and wants outside of
Target. This will entice Target to offer products that they do not have in stock. Target
tracks all sales done on their cards. So, Target can track customers who use their card at
other retailers and compete by providing that merchandise as well.
Location: Location is a critical factor in a consumer's selection of a store. Starbucks coffee
(shown here ) is an example. They will conquer one area of a city at a time and then
expand in the region. They open stores close to one another to let the storefront promote
the company; they do little media advertising due to their location strategy
 Distribution and Information Systems: Walmart has killed this part of
the retailing strategy. Retailers try to have the most effective and efficient way to get their
products at a cheap price and sell them for a reasonable price. Distributing is extremely
expensive and timely.
Unique Merchandise: Private label brands are products developed and marketed by a
retailer and available only from the retailer. For example, if you want Craftsman tools, you
must go to Sears to purchase them.
Vendor Relations: Developing strong relations with vendors may gain exclusive rights to sell
merchandise to a specific region and receive popular merchandise in short supply.
Customer Service: This takes time to establish but once it's established, it will be hard for a
competitor to a develop a comparable reputation.
Multiple Source Advantage: Having an advantage over multiple sources is important. For
example, McDonald's is known for fast, clean, and hot food. They have cheap meals, nice
facilities, and good customer service with a strong reputation for always providing fast, hot
food.
THANK YOU