Strategic Thought Transformation - The IIPM Think Tank

S T R A T E G I C L E A R N I N G
pending on that percentage that differentiates
a “good” industry from a “bad” industry; a
good industry is typically expected to at least
perform better than the average growth of
the company in question (and in this case, the
midpoint will be the average growth rate of the
corporation’s various SBUs). The BCG Matrix
primarily helps the strategic planner identify
the competitive position of various strategic
business units (SBUs) of a large corporation
by establishing a linkage between the Market
Growth Rate (MGR) and the Relative Market
Share (RMS) of various SBUs. The BCG Matrix
or the Growth-Share Matrix thus maps
the business unit positions within these two
important determinants of profitability. The
matrix has four quadrants as can be seen in
the diagram given.
• Question Marks: SBUs which are either
at an introductory stage, or require more
investment to gain a stronger market
share
• Stars: This is a relatively stronger competitive
position. Here, there is scope for both,
growth and profits
• Cash Cows: SBUs in this quadrant are in
a stronger competitive position, but the
market is failing to grow.
• Dogs: This is the weakest competitive position
where costs are high, and even the
market growth is declining. This indicates
towards SBUs that need to be done away
with.
Product
Market
Share (in %)
2000 2001
Nearest
Competitor’s
Market share
(in %)
Calculations
Relative Market Share (RMS): SBU
Sales / Largest competitor’s sales.
(Note: If the SBU is the market leader, then
the next best competitor in terms of sales
becomes the ‘largest competitor’; but of the
SBU is a market follower, then the industry’s
largest player’s sales are taken as largest
competitor’s sales.)
Market Growth Rate (MGR): {Current
Year’s Industry Sales – Last Year’s Industry
Sales} x 100 / Last Year Industry Sales.
(Note: The growth rate taken to plot the
SBU on the matrix is of the industry’s and
not of the SBU’s.)
Analysis of the BCG Matrix
Once the various SBUs are mapped on the
matrix, depending on what quadrants an
SBU falls within, the following strategies
Last Year’s
Industry Sales
(2000) ( in
Rs. Crore)
This Year’s
Industry
Sales
(2001)
Relative
Market
Share
(RMS)
Market
Growth
Rate(in
%)
Personal Wash 58.6 59.4 12.6 3203 3228.6 4.71 0.8
Washing Powder 37.7 38.8 23 2114 2137.25 1.68 1.1
Detergent 46 46.5 19 1433 1440 2.44 0.49
Toothpastes 36.6 36.1 47.8 2000 1990 0.76 -0.5
Shampoos 67.5 65.3 13 696 680.68 5.02 -2.2
Skin Creams 54.7 56.8 7.5 930 949.53 7.57 2.1
Packaged Atta 20.3 19.1 7.7 320 319.68 2.53 0.1
Packaged Tea 36.2 36.1 18.7 4200 4183.2 1.93 -0.4
are adopted:
• Question Marks – Build
The strategy here is to invest more, build
the SBU’s market share and turn the Question
mark into a Star.
• Stars – Hold
This strategy indicates towards maintenance
of current investments so that the
SBU is at a constant and consistent progression,
while the returns are still maximising.
This is also an ideal strategy for
strong Cash Cows.
• Cash Cows – Harvest
The strategy here is to reap the benefits of
the strong SBU, even through short-term
investments. This strategy is particularly
used for Cash Cows that are turning from
‘Strong’ to ‘Weak’.
• Dogs – Divest
The strategy here is to divest the SBU by
phasing it out or selling it – in order to use
the resources elsewhere (e.g. investing in
the more promising “question marks”).
The BCG Matrix
Sindustan Lever Limited (SLL)
Primary Analysis
At the back of sound financial results for
the financial year 2006, SLL is ready to face
a more protracted and gruelling marketing
warfare to protect its market share.
Let’s take a hypothetical example of SLL’s
performance vis-à-vis competitors for the
financial year 2001 in the various segments
that it caters to (Refer to the box for more
information on calculation of values).
Knowing that SLL operates in various
markets as given in the product column, we
try to understand the competitive positioning
of these portfolios. Based on the representation
that is drawn, the following primary analysis
can be made:
An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS 23