Boston Consulting Group

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Stategic Management
Boston Consulting Group
Toyota World Corporation

LITERATURE
REVIEW

Boston Consulting Group has three main theories regarding strategic management. They are: * The BCG matrix method
* Boston consultant group’s advantage matrix
* Experience Curve Effects

The BCG matrix method
The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product’s market grows the better it is for a company.

Placing products in the BCG matrix results in 4 categories in a portfolio of a company: 1. STARS(high growth, high market)
- Use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. -Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept. 2. CASH COWS(low growth, high market share)

- Profit and cash generation should be high, and because of the low growth, investments needed should be low. Keep profit high.
- Fondation of company.
3. DOGS ( low growth, low market share)
- Avoid and minimize the number of dogs in a company.
- Beware of expensive ‘turn around plans’
- Deliver cash, otherwise liquidate.
4. QUESTION MARKS ( high growth, low market share)
- Have the worst cash characteristics of all, because high demands and low returns due to low market share.
- If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog.
- Either invest heavily or sell or invest nothing and generate whatever cash it can. Increase market share or deliver cash.

The BCG Matrix Method can help understand a frequenly made strategy mistake: having a one-size-fits-all-approach to strategy, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation. In such a scenario: a. Cash Cows Business Units will beat their profit target easily; their management have a easy job and are often praise anyhow. Ever worse, they are often allowed to reinvest substantial cash amounts in their business which are mature and not growing anymore. b. Dog Business Units fight an impossible battle and, even worse, investments are made now and then in hopeless attempts to ‘turn the business around’. c. Question Marks and Stars Business Units get medicore size investment funds. In this way they are unable to ever become cash cows. These inadequate invested sums of money are a waste of money. Either these SBUs should recieve enough investment funds to unable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the possible cash out of the question marks that were not selected.

Boston consultant group’s advantage matrix

* Volume business. In this case there are considerable economies of scale, but few opportunities for differentiation. This is the classic situation in which organizations strive for economies of scale by becoming the volume, and hence cost, leader. Examples are volume cars and consumer electronics. * Stalemated business. Here there is neither the opportunity for differentiation nor economies of scale; examples are textiles and shipbuilding. The main means of competition, therefore, has been reducing the `factor costs' (mainly those of labor) by moving to locations where these costs are lower, even to different countries in the developing world. * Specialized business. These...
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