BCG Growth-Share Matrix

Who designed it?

Boston Consulting Group (BCG) Consultant Bruce Henderson developed this model in early 1970’s.

What is it used for?

The analysis helps to understand which brands or Strategic Business Units (SBUs) should the firm invest in and which ones should be divested.

Visual representation of the tool

It portrays the firm’s portfolio on a quadrant along the relative market share (horizontal axis) and speed of market growth (Vertical axis).

Industry attractiveness = Growth rate of that industry

Competitive position = Relative market share

These two dimensions reveal the likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it.

 Explanation & how to use it?

1. Dog:
SBUs that have low market share and low growth rate are classified as dogs. This implies that
Cash consumed – Low
Cash generated – Low
Decision: Divestiture or selling off such units.

2. Question Marks:

SBUs that are growing rapidly but have a low market share are classified as Question marks. This implies
Cash consumed: High (as they are rapidly growing)
Cash generated: Low (as they have low market share)
Decision: A careful analysis of such SBUs should be undertaken as there are two possibilities that can arise.
a. Possibility that they get converted to Stars and eventually Cash Cows (Favourable): This can be done by investing more money in them so they gain market share.

b. Possibility that they get converted to dogs (Dangerous): This can happen if the market growth declines and they are not able to capture the market share. As they have already consumed a lot of cash, it might result into losses if such a situation occurs.

3. Stars
SBUs that have high market share and high growth rate are classified as Stars. This implies
Cash consumed – High (as they are growing)
Cash generated – High (as they have a high market share)
Decision: The net of cash generated and cash consumed does not significantly contribute to the profitability of the business. If the Star can maintain the high market share as the market growth declines then these Stars can be converted to Cash Cows. Organizations should have many Stars that get converted to Cash Cows as Cash Cows ensure future cash generation.

4. Cash Cows

SBUs that have high market share (Market leaders) in a mature market are classified as Cash Cows. This implies:
Cash consumed: Low (as they operate in a mature market)
Cash generated: High (as they are the market leaders)
Decision: They are the profitable segments of the business. The profits are used to cover the costs and also invested back  in business to convert Question marks to Stars.

Limitations

1.       It ignores factors other market share and growth rate that contribute to the profitability of the business.

2.       It assumes that each business unit is independent of others.

3.       The definition of market can make a huge difference as a SBU’s serving a niche can be classified as Cash cow or Dog depending upon what is considered as market (only niche segment or the entire industry).

The Seven S Framework

Who designed it?

McKinsey’s Business Consultants Robert H. Waterman and Thomas J Peters featured this framework in the book “In search of Excellence” during the late 1970s.

What is it used for?

It is used for identifying and analysing the internal strengths of a company. The 7S together form a network which serves as a competitive advantage to the company.

The logic behind 7S is that your competitor may replicate any one or more of the 7S attributes but it is near to impossible for the competitor to replicate all the 7S.

Visual Representation of the model:

As seen above it is a complex web of inter-relationships between the 7S. It helps you visualize the effects of the changes in either of the S attributes to the other S attributes.

 

Why do consultants use it?

It helps them to diagnose how organizations are created.

It also helps them to understand the ability of an organization to change after taking into account the relationship between the 7S and its effect on one another. It gives them an idea about what changes to suggest to the organization in a way that all the 7S are aligned.

Explaining each of the 7S

1.     Skills

It comprises of institutional skills as well as individual skills. It is about how the staff works.

Due to globalization, size and complexity of the organizations increased and the need of employees possessing specialized skills has increased. Organizations nowadays outsource the work that requires specialized skills.

E.g.: A textile company planning to upgrade its technology should have skilled workers to handle the same.

2.     System

System means the processes of the company. It gives you an idea about how work is done. It helps you to identify loopholes and take preventive action to prevent damage/losses.

E.g.: Risk management processes, HR processes etc.

3.     Structure

Structure refers to the Organization Structure. It aim to make the employees working in an organization understand the authority-responsibility relationship and what each employee is accountable for. It gives the clarity and scope of their role in the organization.

E.g.: Line Structure versus Team Structure.

4.     Staff

Staff refers to the people in the company. The intrinsic quality of the company. It is the talent pool. Nowadays the importance is given to diversity and thinking ability of the staff.

5.     Strategy

Strategy is straight-forward. What is the company doing to gain a competitive advantage? Strategy is dynamic and it should be adaptive.

6.     Style

It means culture of the organization. It is about how we do things in the organization. It includes the informal rules of conduct at the company. The characteristic or the style that the employees working in the company possess.

7.     Shared Values

What is the organization trying to achieve? This question usually doesn’t change overtime and is applicable for a prolonged period of time. The standards may increase. The social missions are added to “Shared Values” as it affects the organization’s reputation.

E.g.: An organization may be profit organized or not profit organized.