Portfolio analysis basics

Transcription

1 BOSTON CONSULTING GROUP MATRIX PRESENTED BY: VIKAS RAI TO:SYBMS -SIES LONG TERM CORPORATE DECISIONS Pertain to the scope of the business or the portfolio strategy Portfolio strategy answers the questions: in which business shall we be? While competitive strategy answers the question how shall we succeed in each business Portfolio analysis basics Should there be a change in the current portfolio? What business should be developed further? Which are the businesses to be harvested? INTRODUCTION BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970 s. According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share. 1

2 Relative Market Share and Market Growth To understand the Boston Matrix you need to understand how market share and market growth interrelate. MARKET SHARE Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. RELATIVE MARKET SHARE RMS = Business unit sales this year Leading rival sales this year The higher your market share, the higher proportion of the market you control. MARKET GROWTH RATE Market growth is used as a measure of a market s attractiveness. MGR = Individual sales - individual sales this year last year Individual sales last year Markets experiencing high growth are ones where the total market share available is expanding, and there s plenty of opportunity for everyone to make money. THE BCG GROWTH-SHARE MATRIX It is a portfolio planning model which is based on the observation that a company s business units can be classified in to four categories: Stars Question marks Cash cows Dogs It is based on the combination of market growth and market share relative to the next best competitor. 2

3 STARS High growth, High market share CASH COWS Low growth, High market share Stars are leaders in business. They also require heavy investment, to maintain its large market share. It leads to large amount of cash consumption and cash generation. Attempts should be made to hold the market share otherwise the star will become a CASH COW. They are foundation of the company and often the stars of yesterday. They generate more cash than required. They extract the profits by investing as little cash as possible They are located in an industry that is mature, not growing or declining. 3

4 DOGS Low growth, Low market share QUESTION MARKS High growth, Low market share Dogs are the cash traps. Dogs do not have potential to bring in much cash. Number of dogs in the company should be minimized. Business is situated at a declining stage. Most businesses start of as question marks. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks. To assess : WHY BCG MATRIX? Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment decisions MAIN STEPS OF BCG MATRIX Identifying and dividing a company into SBU. Assessing and comparing the prospects of each SBU according to two criteria : 1. SBU S relative market share. 2. Growth rate OF SBU S industry. Classifying the SBU S on the basis of BCG matrix. Developing strategic objectives for each SBU. 4

5 BCG MATRIX WITH CASH FLOW BENEFITS/Advantages -1 BCG MATRIX is simple and easy to understand. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a company s future growth and profitability. ADVANTAGES LIMITATIONS HELP MANAGERS TO THINK MORE FUTURISTICALLY AND STRATEGICALLY TO UNDERSTAND THE ECONOMIES OF THEIR BUSINESSES BETTER TO IMOROVE THE COMMUNICATION BETWEEN BUSINESS AND CORPORATE MANAGEMENT TO PINPOINT INFORMATION GAPS & IMPORTANT ISSUES TO ELIMINATE WEAKER BUSINESS AND STRENGTHEN PROMISING BUSINESSES BCG MATRIX uses only two dimensions, Relative market share and market growth rate. NOT ON PLC,COMPETITIVE ADVANTAGE,DISTINCTIVE COMPETENCE Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too in introductory stage of PLC. Instead of 4cells there should be 6 cells-high,medium and low. 5

6 BCG AS A TOOL OF STRATEGIC MANAGEMENT IDENTIFY EACH SBU OR PRODUCT EITHER AS STARS OR A DOG FORMULATE DIFFERENT STRATEGY AS PER INDUCTRY GROWTH AND RELATIVE MARKET SHARE HELPS IN BRAND AND PRODUCT POSITIONING THERE BY CREATING BRAND EQUITY IN TODAY S TIME ONLY MULTIPRODUCT MULTIBUSINESS DIVERSIFIED COMPANY CAN SURVIVE IS POSSIBLE BY BCG. PRACTICAL USE MAHINDRA & MAHINDRA ITC BCG MATRIX M&M scorpio Jeep balero 6

7 Vision & Mission statements Vision: Sustain ITC s position as one of India s most valuable corporations through world class performance, creating growing value for the Indian economy and the Company s stakeholders. Mission: To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value. Business Mix of ITC Ltd. FMCG Cigarettes Foods Lifestyle Retailing Greeting, Gifting & Stationery Safety Matches Agarbattis Paperboards & Packaging Paperboards & Specialty Papers Packaging Business Mix (Cont d) Agri - Business Agri-Exports e-choupal Leaf Tobacco Hotels Group Companies ITC Infotech; etc. Business wise Sales data Business/ Year Growth % Value (Rs in Crore) FMCG-Cigarettes FMCG-Others Hotels Agribusiness Paper & pkg Net revenue

8 Market share of ITC Ltd. Outstanding market leader Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports. Gaining market share Nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards. Segment Dominance Contribution % Revenue PBIT Cigarettes 70% share 77.0% 87.7% Paper & Packg. Agri business Packaging board No. 1 in Asia 1of the largest xporters from India 7.3% 10.7% 7.0% 3.7% Hotels ITC Group ranks No.2 4.3% 5.4% FMCG (Others) 20% share of greeting cards market, 'Aashirvaad' atta is No.1 in branded segment 4.4% -7.5% The BCG Matrix for ITC Ltd. Stars Hotels Paperboards/ Packaging. Agri business. Cows FMCG-Cigarettes? FMCG- Others Dogs Maybe ITC Infotech. CONCLUSION Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix,used by large companies having multi-products. 8