STRATEGIC MANAGEMENT PROJECT ON Why do the dimensions in growth-share matrix (BCG) are relative to market share and market

growth rate and what do they signify?

PREPARED BYPRIYESH SHARMA ROSHAN KUMAR KEDIA ANJALI MISHRA PRIANKUSH CHAKRABORTY

The BCG growthshare matrix

This technique is particularly useful for multi-divisional or multiproduct companies. The divisions or products compromise the organisations business portfolio. The composition of the portfolio can be critical to the growth and success of the company. The BCG matrix considers two variables, namely.. x RELATIVE MARKET SHARE

x MARKET GROWTH RATE

1. relative market share for each product, the ratio of the share of the organisations product divided by the share of the market leader;

2. market growth rate for each product, the market growth rate of the product category. Relative market share is important because, in the competitive battle of the market place, it is advantageous to have a larger share than rivals: this gives room for manoeuvre, the scale to undertake investment and the ability to command distribution. Some researchers, such as Buzzell and Gale,22 claim to have found empirical evidence to support these statements. For example, in a survey of major companies, the two researchers found that businesses with over 50 per cent share of their markets enjoy rates of return three times greater than businesses with small market shares. There are other empirical studies that also support this broad conclusion. However, Jacobsen and Aaker have questioned this relationship. They point out that such a close correlation will also derive from other differences in businesses. High market share companies do not just differ on market share but on other dimensions as well: for example, they may have better management and may have more luck. However, Aaker has conceded that portfolios do have their uses, along with their limitations.

Market growth rate is important because markets that are growing rapidly offer more opportunities for sales than lower growth markets. Rapid growth is less likely to involve stealing share from competition and more likely to come from new buyers entering the market. This gives many new opportunities for the right product. There are also difficulties, however perhaps the chief being that growing markets are often not as profitable as those with low growth. Investment is usually needed to promote the rapid growth and this has to be funded out of profits. Relative market share and market growth rate are combined in the growthshare matrix, as shown in It should be noted that the term matrix is misleading. In reality, the diagram does not have four distinct boxes, but rather four areas which merge into one another. The four areas are given distinctive names to signify their strategic significance.

BODY 1. QUESTION MARKS These are products or businesses, that compete in high growth markets but where the market share is relatively low. A new product launched into a high growth market and with an existing market leader would normally be considered as a question mark. Because of the high growth environment, they can be a cash sink. Strategic options for question marks include.. Market penetration Market development Product development Which are all intensive strategies or divestment. 2.STARS Successful question marks become stars. i.e. market leaders in high growth industries. However, investment is normally still required to maintain growth and to defend the leadership position. Stars are frequently only marginally profitable but as they reach a more mature status in their life cycle and growth slows, returns become more attractive. The stars provide the basis for long term growth and profitability. Strategic options for stars include.. Integration forward, backward and horizontal

Market penetration Market development Product development Joint ventures. 3.CASH COWS These are characterised by high relative market share in low growth industries. As the market matures the need for investment reduces. Cash Cows are the most profitable products in the portfolio. The situation is frequently boosted by economies of scale that may be present with market leaders. Cash Cows may be used to fund the businesses in the other three quadrants. It is desirable to maintain the strong position as long as possible and strategic options include.. Product development Concentric diversification If the position weakens as a result of loss of market share or market contraction then options would include.. Retrenchment (or even divestment) 4. DOGS These describe businesses that have low market shares in slow growth markets. They may well have been Cash Cows. Often they enjoy misguided loyalty from management although some Dogs can be revitalised. Profitability is, at best, marginal.

Strategic options would include.. Retrenchment (if it is believed that it could be revitalised) Liquidation Divestment (if you can find someone to buy!) Successful products may well move from question mark though star to Cash Cow and finally to Dog. Less successful products that never gain market position will move straight from question mark to Dog.The BCG is simple and useful technique for strategic analysis. It is convenient for multi-product or multi-divisional companies. It focuses on cash flow and is useful for investment and marketing decisions. One should not however, ignore the limitations of the technique. Definition (qualitative and quantitative) of the market is sometimes difficult. It assumes that market share and profitability are directly related. The use of high and low to form four categories is too simplistic. Growth rate is only one aspect of industry attractiveness and high growth markets are not always the most profitable.

It considers the product or business in relation to the largest player only. It ignores the impact of small competitors whose market share is rising fast. Market share is only one aspect of overall competitive position. It ignores interdependence and synergy. Companies will frequently search for a balanced portfolio, since.. Too many stars may lead to a cash crisis Too many Cash Cows puts future profitability at risk And too many question marks may affect current profitability. Group exercise.. Using the data provided construct a BCG and answer the following questions, Has the company a balanced portfolio? From the BCG what do you see as strengths and why? Propose generic strategies for each division or product.

A GLANCE AT THE TATA GROUP.

As the Tata Group is a worldwide concern operating in more than 100 countries with thousands of products, there is almost no industry which seems to be untouched by the group. Most of the data available and analysed by many researchers are based on a particular industry such as steel, automobile, chemicals, technology etc. or Tata's approach on a specific country such as Bangladesh, Vietnam, USA, and UK. However, there is no relevant data found which directly overview the group and produced any facts with the SWOT analysis, Strategic intent, Strategic capabilities, Business model, Strategic position etc. However; the present author here is tried to analyse the Tata group as a group of industries based on the data found and the recent trend of globalisation and markets, while exploring the facts of Tata's current strategies. TATAs SWOT ANALYSIS The essential need of a corporate is to analyse the Porters SWOT analysis to develop the effective and efficient strategies. Johnson (2005) pointed that, A SWOT analysis summarises the key issues from the business environment and the strategic capability of an organisation that the most likely to impact on strategy development. Furthermore; Stacy (1993, p 52) defined, SWOT analysis is a list of an organisation's strengths and weakness as indicated by an analysis of its resource and capabilities, plus the list of threat and opportunities that an analysis of its environment identifies. A strategic pattern requires that the future pattern of action to be taken should match strengths and opportunities, ward off threats, and seek to overcome weaknesses. Most of the organisational strategies are based upon the SWOT analysis where the companies analyse their strengths, weakness, new opportunities and threats. Once it is defined the company requires eliminating the weakness by converting them into strengths, to explore the new opportunities and reduce the threats. The primary strategies of the company changed with respect to the SWOT analysis in order to fulfill the corporate vision. Tata's vision Improving the quality of life is also influenced by the strategies developed to due overcome the weakness and grabs the opportunities. However, the present author tried to explain in figure (1) that the group's recent strategies are founded on the analysis afterward the group tried to go abroad to explore the new markets. The main strengths of the Tata Group are resources and capabilities (People and Raw Material), vast experience (Steel and Automobile) and the business model. The opportunities are the new markets,exports and acquisitions. The group requires overcoming the weakness; such as distribution, value chain innovation and macro environment, in order to serve the global markets with high quality and low price. Within the home country the threats are developing due to the Indias recent mergers of global markets and in global markets threats are already exist. However, as per the theory; to do so and compete in the marketplace the group required a strong strategic intent and there is a need to configure the operations, resources and capabilities to attain the essential goals.

Tatas Source of Cost Efficiency Economies of Scale Tata Motors Tata Steel Tata BP Solar India Tata Power Tata Petrodyne (Oil & Gas) Rallis India Tata Chemicals Tata Pigments
Experience Tata Quality Management Services Tata Services Tata Strategic Management Group Tata Asset Management Tata Financial Services Tata Investment Corporation Tata Consultancy Services Product/ Process Design TAL Manufacturing Solutions Telco Construction Equipment Company TRF Tata Projects TCE Consulting Engineers Tata Technologies Supply Cost Location of business TACO Supply Chain Management

BCG Product Portfolio Matrix of TATA

STARS
AUTOMOBILE TEA CHEMICALS

?
TECHNOLOGY CONSULTANCY ENGINEERING SERVICES COMPOSITES

CASH COWS
POWER STEEL OIL & GAS

DOGS
INFORMATION SYSTEMS COMMUNICATION

Business excellence has been embedded in the Tata Group through a holistic methodology that enables the group to paying attention on quality. The Tata Business Excellence Model (TBEM) is adopted by the group in the early 1990s from the renowned Malcolm Baldrige to achieve chiselled degrees of business excellence. TBEM is a model determining the quality movement in the group. The Model works under the protection of Tata Quality Management Services (TQMS). The TBEM methodology has been influenced to deliver strategic focus and aim business melioration. Furthermore; the Tatas business model takes care the value proportion of what is proposed to the market; and makes sure that the target customer segments are also addressed by the value proposition. For example; the Tatas recent announcement, of launching the cheapest cars for the Indian market for the target market of two wheeler owners such as motorcycle and scooter. The group developed the effective distribution channels to reach customers to offer the value proposition and to establish the relationship with the customers. The group uses the core capacities needed to make the business model possible, and effectively configure the activities to implement the business model. An excellent business model should be able to generate the effective competitive advantage and the value chain of a company, in order to fit with the companys strategies.

Tatas competitive advantage and value chain Hard work, preparation, research, thinking, getting the value proposition right and serving the customer better, can take care of the economic challenges. When things change, reacting appropriately to the change helps. the group may success only if they takes a broad approach and goes for cost leadership. In case of Tata automobile parts industry, the standardisation of product will help the group to achieve the lowest cost of products and while adopting the cost focus strategy. Cost focus strategy will also help the group to sweep out the highest cost producer competitors from the market. In differentiation strategy the group will succeed only if they take a broad approach and differentiate its whole range of products; for example Tatas Automobile; the launch of lowest cost car in Indian market. The value chain of Tata group is highly independent of companys resources; the value chain of Tatas is developed in a manner to produce the resources at the place of manufacturing. The groups cost leadership strategy in steel industry led the group to develop the city of Jamshedpur. The core strategies of the group are to acquire the resources and feed the other industries such as steel and automobile. However; having an excellent business model, a good competitive advantage and an effective value chain depends on the exploitation of resources and competence.

Tatas current strategies Expending globally is the main strategy of Tatas. Currently the group is acting rapidly and acquiring other companies in different countries. The Tata Group from India is rapidly building a stronger presence in South Africa, as a key part of its current globalisation strategy. The groups interests in the automobile, steel,telecom, information technology and energy sectors. This strategy is not new to the Tata group. In 2000, it bought the loss-making UK-based Tetley Tea-its first major global acquisition-which was several times its size, but more up-market, making Tata Tea the world's No. 2 branded tea maker. The Tata group's bid to buy premium vehicle brands such as Land Rover and Jaguar may bolster Tata Motors' image as a global company and help it go upscale, in much the same way that previous acquisitions such as Tetley Tea Ltd and Corus Group Plc. did for Tata Tea Ltd and Tata Steel Ltd, respectively.

Critical evaluation

While theoretically useful, and widely used, several academic studies have called into question whether using the BCG matrix actually helps businesses succeed, and the model has since been removed from some major marketing textbooks.[4] One study (Slater and Zwirlein, 1992) which looked at 129 firms found that those who follow portfolio planning models like the BCG matrix had lower shareholder returns. The matrix ranks only market share and industry growth rate, and only implies actual profitability, the purpose of any business. (It is certainly possible that a particular dog can be profitable without cash infusions required, and therefore should be retained and not sold.) The matrix also overlooks other elements of industry. With this or any other such analytical tool, ranking business units has a subjective element involving guesswork about the future, particularly with respect to growth rates. Unless the rankings are approached with rigor and scepticism, optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are classified as "question marks" with good prospects; enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars, before growth rates slow and it's too late. Poor definition of a business's market will lead to some dogs being misclassified as cash cows. As originally practiced by the Boston Consulting Group, the matrix was undoubtedly a useful tool, in those few situations where it could be applied, for graphically illustrating cashflows. If used with this degree of sophistication its use would still be valid. However, later practitioners have tended to over-simplify its messages. In particular, the later application of the names (problem children, stars, cash cows and dogs) has tended to overshadow all elseand is often what most students, and practitioners, remember. This is unfortunate, since such simplistic use contains at least two major problems: 'Minority applicability'. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high, and a definite pattern of product life-

cycles can be observed, such as that of ethical pharmaceuticals). In the majority of markets, use may give misleading results. 'Milking cash cows'. Perhaps the worst implication of the later developments is that the (brand leader) cash cows should be milked to fund new brands. This is not what research into the FMCG markets has shown to be the case. The brand leader's position is the one, above all, to be defended, not least since brands in this position will probably outperform any number of newly launched brands. Such brand leaders will, of course, generate large cash flows; but they should not be `milked' to such an extent that their position is jeopardized. In any case, the chance of the new brands achieving similar brand leadership may be slimcertainly far less than the popular perception of the Boston Matrix would imply. Perhaps the most important danger] is, however, that the apparent implication of its four-quadrant form is that there should be balance of products or services across all four quadrants; and that is, indeed, the main message that it is intended to convey. Thus, money must be diverted from `cash cows' to fund the `stars' of the future, since `cash cows' will inevitably decline to become `dogs'. There is an almost mesmeric inevitability about the whole process. It focuses attention, and funding, on to the `stars'. It presumes, and almost demands, that `cash cows' will turn into `dogs'. The reality is that it is only the `cash cows' that are really importantall the other elements are supporting actors. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. Although it is necessary to recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up the picture. The vendor, who has most of his (or her) products in the `cash cow' quadrant, should consider himself (or herself) fortunate indeed, and an excellent marketer, although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and, perhaps, to add some extra growth. There is also a common misconception that 'dogs' are a waste of resources. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead to increased sales in other profitable areas. In the whole; the group is acquiring the different strategy in the different market; such as; in the home country Tatas strategies are same as to cost leadership and differentiations. The announcement of introduction of Tatas 1 Lakh car had already penetrated the market and the rivals and competitors are worried about the market. Recently; the Global Insight stated in the analysis that , It is likely that VW will wait to see what impact Tata's proposed 1-lakh car has on the Indian automotive industry before deciding on a final strategy for entering the country.The eagerly awaited model is due to go on sale at the end of next year and will have a price tag of roughly 100,000 rupees (US$2,298), hence the unofficial name of the project. As per the Bowmans Strategic Clock analysis; adopted by Johnson & Scholes (2005); (1) No frill strategy; a low frill strategy combine a low price and low value added, low perceived product/services benefits and a focus on a price sensitive market segment. The group is using the strategy in Oil industry. (2) A Low price strategy seeks to achieve a lower price then competitors whilst trying to maintain similar perceived product or service benefit to those

offered by competitors. The Group is trying to achieve the low price strategy in markets such as automobile industry in order to provide lowest price cars and achieve a high share in the market. (3) A hybrid strategy seeks simultaneously to achieve differentiation and a price lower then that of competitors. The hybrid strategy is used by the company in various industries, it involved a higher degree of organisational excellence and integration of all the departments. Here the strategy of the group is to maintain the cost of raw materials as lowest as possible and to achieve the lowest cost of final products. The group also invested a huge amount in research and development in order to achieve the highest degree of quality at the lowest price.