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The four quadrants of the growth-share matrix. Growth-share matrix is a business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio and suggest further investment strategies. Understanding the tool BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and its potential.
It classifies business portfolio into four categories based on industry attractiveness growth rate of that industry and competitive position relative market share. These two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it.
The general purpose of the analysis is to help understand, which brands the firm should invest in and which ones should be divested. One of the dimensions used to evaluate business portfolio is relative market share. This is because a firm that produces more, benefits from higher economies of scale and experience curve, which results in higher profits.
Nonetheless, it is worth to note that some firms may experience the same benefits with lower production outputs and lower market share. High market growth rate means higher earnings and sometimes profits but it also consumes lots of cash, which is used as investment to stimulate further growth.
Therefore, business units Strategic management and matrix operate in rapid growth industries are cash users and are worth investing in only when they are expected to grow or maintain market share in the future. There are four quadrants into which firms brands are classified: Dogs hold low market share compared to competitors and operate in a slowly growing market.
In general, they are not worth investing in because they generate low or negative cash returns. But this is not always the truth. Some dogs may be profitable for long period of time, they may provide synergies for other brands or SBUs or simple act as a defense to counter competitors moves.
Therefore, it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested.
Retrenchment, divestiture, liquidation Cash cows. According to growth-share matrix, corporates should not invest into cash cows to induce growth but only to support them so they can maintain their current market share.
Again, this is not always the truth. Cash cows are usually large corporations or SBUs that are capable of innovating new products or processes, which may become new stars. If there would be no support for cash cows, they would not be capable of such innovations. Product development, diversification, divestiture, retrenchment Stars.
Stars operate in high growth industries and maintain high market share. Stars are both cash generators and cash users. They are the primary units in which the company should invest its money, because stars are expected to become cash cows and generate positive cash flows.
Yet, not all stars become cash flows.
This is especially true in rapidly changing industries, where new innovative products can soon be outcompeted by new technological advancements, so a star instead of becoming a cash cow, becomes a dog.
Vertical integration, horizontal integration, market penetration, market development, product development Question marks.
Question marks are the brands that require much closer consideration. They hold low market share in fast growing markets consuming large amount of cash and incurring losses.
It has potential to gain market share and become a star, which would later become cash cow. Question marks do not always succeed and even after large amount of investments they struggle to gain market share and eventually become dogs.
Therefore, they require very close consideration to decide if they are worth investing in or not. Market penetration, market development, product development, divestiture BCG matrix quadrants are simplified versions of the reality and cannot be applied blindly.
They can help as general investment guidelines but should not change strategic thinking. Business should rely on management judgement, business unit strengths and weaknesses and external environment factors to make more reasonable investment decisions.Apr 18, · Strategic management is a management field focusing on long-term planning and direction of the organization.
Strategic management in an organization ensures that things do not happen randomly but according to pre-planned, long-term plans/5().
Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance.
The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to . Strategic management comprises of one of the most crucial aspects of any firm. It deals with the formation, regulation, and implementation of a corporate strategy to .
A good, detailed discussion on the management of innovation by two people I have a lot of respect for in their knowledge and thinking. In particular the need for thinking in (three) different horizons I believe is terribly important.
Internal Factor Evaluation (IFE) Matrix The internal and external factor evaluation matrices have been introduced by Fred R.
David in his book ‘Strategic Management IFE & EFE Matrices. GE-McKinsey Matrix. Benchmarking. Competitive Profile Matrix. Join Our Newsletter. E-mail. Subscribe. Full explanation of the Boston Consulting Group Matrix, where and how it can be used. Includes links to similar strategy tools and organizational theories.