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Contents
1 Introduction
2 BCG Matrix
2.1 Background
2.2 How it Works
2.3 Strengths and Weaknesses
2.4 Application to Competitive Intelligence: Automotive Industry
3 GE/McKinsey Matrix
3.1 Background
3.2 How it Works
3.3 Strengths and Weaknesses
3.4 Application to Competitive Intelligence: Apple Inc.
4 BCG Matrix vs. GE/McKinsey Matrix
5 Conclusion
6 References
Introduction
Competitive Intelligence (CI) often requires a great deal of analysis to convert gathered information into
useable intelligence. Several different analytical techniques can be utilized in order to accomplish this
task. This project looks at two analytical techniques, the Boston Consulting Group (BCG) Matrix and
the GE/McKinsey Matrix, their respective advantages and disadvantages, what CI situations they are
best suited for, and provides an example of their use when applied to the CI scenario of the smartphone
industry.
BCG Matrix
Background
The BCG Matrix (Growth-Share Matrix) was created in the late 1960s by the founder of the Boston
Consulting Group, Bruce Henderson, as a tool to help his clients with efficient allocation of resources
among different business units. It has since been used as a portfolio planning and analysis tool for
marketing, brand management and strategy development.
In order to ensure successful long-term operation, every business organization should have a portfolio of
products/services rather than just one product or service. This portfolio should contain both high-growth
and low-growth products/services. High-growth products have the potential to generate lots of cash but
also require substantial amounts of investment. Low-growth products with high market share, on the
other hand, generate lots of cash while needing minimal investment.
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How it Works
The BCG Matrix helps a company with multiple business units/products by determining the strengths of
each business unit/product and the course of action for each business unit/product. An understanding of
these factors will give the company the highest probability of winning against its competitors, since the
intelligence generated can be used to develop portfolio management strategies.
The BCG Matrix helps managers classify business units/products as low or high performers using the
following criteria:
1. Relative market share (strength of a business unit's position in that market)
2. Market growth rate (attractiveness of the market in which a business unit operates)
Relative market share (RMS) is the percentage of the total market that is being controlled by the
company being analyzed. It is calculated using the following formula:
RMS = Unit sales this year / Unit sales this year by a leading rival
The relative market share is measured on a scale where 1.0 is considered a cut-off point. An RMS of
more than 1.0 indicates that this company/product/business unit has a higher market share than the
leading competitor.
Market growth (MGR) is used as a measure of a markets attractiveness. It is calculated using the
following formula:
MGR = (Individual sales this year - individual sales last year) / Individual sales last year
High growth markets are the ones where the total available market share is expanding, offering plenty of
opportunity for everyone to make money. Traditionally, a market growth rate of 10% has been used as a
cut-off point for the purpose of classifying the units in the business portfolio. Any unit with a growth
rate of more than 10% would be placed in the high growth segment of the BCG Matrix.
This classification places business units/products in the following four categories:
1. Stars BUs/products characterized by high-growth and high- market share. They often require
heavy external investment to sustain their rapid growth as they may not be producing any positive
cash flow. Eventually, their growth will slow, and they will turn into cash cows.
2. Cash Cows - BUs/products characterized by low-growth, high-market share. These are well
established and successful BUs that do not require substantial investment to keep their market
share. They produce a lot of cash to be used for other business units (Stars and Question Marks) of
the company.
3. Question Marks - BUs/products characterized by low-market share in high-growth markets.
They require a lot of financial resources to increase their share since they cannot generate enough
cash themselves. The crucial decision is to decide which Question Marks to phase out and which
ones to grow into Stars.
4. Dogs - BUs/products with low-growth, low-market share. In addition, they often have poor
profitability. The business strategy for a Dog is most often to divest. However, occasionally
management might make a decision to hold a Dog for possible strategic repositioning as a
Question Mark or Cash Cow.
The BCG model follows the following major steps:
1. Identify major organizational business units (BUs) and identify RMS and MGR for each BU
2. Plot the BUs on the BCG Matrix
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3. Classify the BUs as Question Marks, Stars, Cash Cows and Dogs
4. Develop strategies for each BU based on their position and movement trends within the matrix
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It is also important to constantly analyze business news to look at what other companies are
selling/divesting or acquiring. If they are selling a product/BU with a small market share in a declining
market then we know they are most probably selling a Dog. The question is why are they selling it? Do
they need the cash to fund a new Star? If GM tomorrow announces that they are selling its hybrid
vehicle division, does it mean that they are in possession of a new technology that will revolutionize the
entire industry? Looking at the competition through the prism of the BCG Matrix would help managers
ask the right questions and then collect necessary intelligence in the process of answering them.
The BCG Matrix could also be used by business analysts for the purpose of forecasting future trends.
These analysts would analyze whole industries/technologies using the BCG Matrix in order to predict
future changes. For example, business analysts at GM could develop various scenarios to predict the
future of the automobile. With the price of oil and other commodities rising, they need to look beyond
traditional technologies and sources of energy and evaluate other alternatives. From this point of view,
the analysts could plot various traditional and breakthrough technologies on the BCG Matrix in order to
determine the current Question Marks, Starts, Cash Cows and Dogs and forecast how the Matrix will
change in the next 5-10 years under various scenarios (high inflation, scarcity of resources, change in
consumer tastes and demands). Another application of the BCG Matrix in CI would be to see where the
currently emerging technologies will be five years from now from the point of view of relative market
share and market growth. Most of the breakthrough technologies today would appear in the Question
Mark quadrant of the BCG Matrix. How will this picture change in 2-3 years from now? By monitoring
and plotting these changes the business leaders at GM could get an insight into what will drive the future
of the automotive industry in the future. In fact, in this context the BCG Matrix could become an
important part of the business foresight which combines deep analysis of the past patterns and emerging
trends with business insight. Those who are able to come up with the most accurate foresight and timely
capitalization on it will be the future leaders in the industry.
GE/McKinsey Matrix
Background
The GE/McKinsey Matrix was developed jointly by McKinsey and General Electric in the early 1970s
as a derivation of the BCG Matrix. GE, by that time, had approximately 150 different business units and
was disappointed with the profits derived from its investments. This raised internal concerns about the
approach the organization had to investment decision making. While exploring new models to
implement, GE started to be interested in visual strategic frameworks like the Growth-Share Matrix
created by the Boston Consulting Group (BCG) a few years before. However, the BCG Matrix showed
to have some limitations. It was considered not flexible enough to include all the broader issues that a
company was facing while operating in a fast changing global environment. The GE/McKinsey Matrix
solves most of the issues of the BCG model and proposes a more sophisticated and comprehensive
approach to investment decision making.
How it Works
The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix and it is primary used to perform business
portfolio analysis on the strategic business units (SBU) of a corporation. A business portfolio is the
collection of all the business units within a corporation and a large corporation has normally many
SBUs. Each SBU is a distinctive and unique unit that falls under the same strategic hat. A well balanced
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portfolio is one of the top priorities of a large organization. The strategic business units are the basic
blocks that compose a business portfolio. A unit can be a divisions or even a whole company owned by
the parent organization.
The nine-box matrix provides decision makers with a systematic and effective framework for a
decentralized corporation to make better supported investment decisions and for developing strategies
for future product development or new market segment entries. Instead of looking solely at each unit's
future prospects, a corporation can adopt a multi-dimensional approach based on two components that
will indicate how well the unit will perform in the future. The two components used to evaluate
businesses, which also serve as the axes of the matrix, are the 'attractiveness' of the relevant industry and
the unit's 'competitive strength' within the same industry. Each axis is then divided into Low, Medium
and High.
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The circles representing SBUs are then placed within the matrix. As a result, the executives of the
corporation will have a clear and powerful analytic map for understanding and managing their entire
multi-unit business. The units that fall above the diagonal indicate the investment and growth to be
pursued; the units along the diagonal require a thorough analysis and individual selection for investment;
finally the units below the diagonal might indicate divestments are necessary or otherwise that
businesses can be kept only for cash reasons. The placement of the units within the matrix is a necessary
first step before the analysis phase that requires human judgement can begin. For example, a strong unit
in a weak industry is in a very different situation than a weak unit in a highly attractive industry.
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company performing this analysis decides to compete with Apple, it should do so in the newest, fastestgrowing markets (tablets and smartphones), as these represent the areas of greatest opportunity, despite
Apples early dominance.
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When running intelligence projects, a particular attention should be given to the type and quality of data
that is used with these tools. The data has to always be validated with a non-correlated secondary source
of information and corporations should tap both into internal and external data to get a broader picture.
Below is an example of internal and external sources that could be used:
* Inside People (Internal to the organization)
* Inside Documents (Internal to the organization)
* Outside People (External to the organization)
* Outside Documents (External to the organization)
Conclusion
Both the BCG and GE/McKinsey Matrix have proven over the years to be useful tools in order to assess
the strength of a companys portfolio of products relative to the attractiveness of the market they inhabit.
They can be used both internally as a strategy tool and externally as a competitive intelligence
technique, with their strength lying in their ease of use and interpretation. Despite these strengths, users
must be aware of their limitations and would be wise to use them primarily as an overview or as a
complement to other analytical techniques.
References
http://www.netmba.com/strategy/matrix/bcg/
http://www.vectorstudy.com/management_theories/BCG_matrix.htm
http://www.slideshare.net/wadekar/bcg-matrix?src=related_normal&rel=1164421
http://www.scribd.com/doc/4202596/Bcg-Matrix
http://excel4marketing.com/BCG_Matrix.htm
http://www.citeman.com/1634-bcg-model-of-product/
http://www.alagse.com/leadership/l13.php
http://www.12manage.com/methods_ge_mckinsey.html
http://www.quickmba.com/strategy/matrix/ge-mckinsey/
https://www.mckinseyquarterly.com/Enduring_ideas_The_GE-McKinsey_nine-box_matrix_2198
http://www.zanthus.com/databank/strategy/business_strategy.php?aspr
http://gigaom.com/apple/apple-10-k-rise-of-the-iphone/
http://arstechnica.com/apple/news/2009/11/apple-grabs-17-of-smartphone-market-in-latestquarter.ars
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