A profitable strategy for developing your business in 15 minutes
Talking with Top Managers of the most successful companies in Ukraine, I became convinced that any strategic management model should be based on effective business logic. One of the best embodiments of this principle in history is the BCG tool, the Grows-Share Matrix model, which changed the philosophy of business and strategic management.
This model was at the origins of the creation of the greatest products/brands in the history of companies and is used effectively to this day. At the same time, this method is very rarely used in the practice of strategic planning and management in Ukraine. The main reasons for this are the unavailability of the full version of the methodology, as well as the high cost of performing such work by consulting companies.
The Reliability of the BCG Matrix Approach
Developed by Boston Consulting Group, one of the world's three largest consulting firms, the Grows-Share Matrix business model embodies the best practices of more than 4000 companies around the world. Created in 1963 in Boston, it was actively used by many companies, which later made it possible to significantly improve it. As a result, we (SWOT) have a tool for achieving high business performance.
Purposes of application
Business development based on increasing competitiveness and profitability, increasing market share and achieving synergy based on analysis and management of the development of strategic business units (SBU) and/or management zones (SZH).
Using this strategic model (BCG Grows-Share) for your business allows you to develop a strategy based on universal analysis:
- Products (range) and their groups
- Brand and trademarks
- Retail outlets or enterprises within the company (shops, salons, centers, restaurants and other assets), business units
- Business areas (types of activity)
- Sales markets and their segments (SZH).
Model logic
The logic of the model is simple, like everything ingenious. It is based on two highlighted principles:
1) the effect, symbolically called the “life cycle” - characterizing the stages of development that, by analogy with a person and all other objects (living and inanimate nature), both business, product, market and industry go through in their development;
2) “economy of scale” consisting in a change in the company’s costs per unit of production with an increase in production volumes and/or sales.
To simplify perception and further analysis, the results of a strategic business audit are grouped in the matrix and presented in the form of a logical symbolic designation of the positions of the analyzed business areas:
- "Dogs" with low market share in a slow-growing market
- “Question Marks” with low market share in a rapidly growing market
- Cash Cows with a large market share in a slow-growing market
- "Stars" with a large market share in a rapidly growing market
1. "Dogs"
Dogs have low market share and low growth rates, and do not generate or should consume much cash. However, “dogs” are financial traps, since the money invested and received from them has little growth potential. Such business units are candidates for disposal from the company's portfolio.
2. Question Marks
Question marks are fast-growing products and as a result consume large amounts of cash, but since they have low market share, they do not generate much cash. The result is a significant consumption of net cash. Question Mark has the potential to gain market share and become a star, and ultimately a cash cow when market growth slows. If it does not become a market leader, it will become a “dog” when the market growth rate decreases. Question marks must be carefully analyzed to determine whether they are worth the required investment to increase market share.
3. Cash Cows
As leaders in a mature (established) market, cash cows exhibit a return on assets (ROA) that is greater than the market growth rate - so they generate more money than they consume. These divisions need to be “milked”, profits must be made and as little as possible invested in them. They provide the cash needed to put “question marks” into market leadership.
4. "Stars"
Stars generate large amounts of cash due to their strong relative market share, but also consume significant amounts of cash due to their high market-driven growth rate. So, they spend and bring in approximately the same amount of money. If a star can maintain its large market share, it will become a cash cow when market growth slows down.
Further, based on the business model, fairly specific alternatives for business development, recommendations and activities aimed at achieving goals to increase the competitiveness and profitability of the company are proposed.
Features and Value of the BCG Matrix Model
- At the moment, it is one of the most effective and versatile marketing tools used by the most successful companies in the world in all markets. This business model allows you to achieve leadership in your segments, constantly increasing your competitive position, profitability and operating efficiency of your company.
- Allows you not only to choose an effective strategy, but also to avoid mistakes by eliminating all incorrect alternatives. Thus, you get business development alternatives, each of which will allow your business to achieve success.
- We effectively adapt (customer-oriented) BCG Matrix to the industry specifics of the Customer, which allows us to accurately determine the most effective business development strategy.
A unique opportunity to predict the strategies of major competitors
Nowadays, the development of strategy for almost all major players in both the global, European and regional markets cannot do without the use of BCG Matrix. Thus, the use of the BCG matrix in business practice of the main competitors allows our professionals (SWOT) to effectively apply the unique knowledge and skills of using this tool, which forms the basis for developing marketing strategies of successful competitors in order to determine their strategies, predict their behavior (expected actions) for developing the most effective counteraction strategy for your business.
Results for your business
The results of a BCG Grows-Share Matrix analysis by SWOT company professionals for your business will be:
- business audit of the actual state of the business portfolio, competitive positions of the company and business areas
- analysis of strategic business units (lines of activity, goods/services, enterprises) and/or strategic business areas (markets and their segments) in which the company operates or where it would like to enter
- determining the company’s prospects for each business area
- determining the strategies of main competitors
- establishing strategic priorities for managing the company's development (80% of business success), based on the state and potential of the market shares of business units, market growth rate and cash flow
- effective strategic alternatives, the best strategy for developing business areas and the optimal structure of activities
- description of the strategy with detail in various areas of business, based on the overall development goal of the organization.
The main result is effective strategic alternatives for business development (aimed at achieving the Customer’s goals) and justification of the best, as the most effective strategy for the company, which will ensure optimal return on investment in the short and medium term; increasing the competitiveness of your business, increasing the market share and profitability of the company.
