Unit 3 DB
The purpose of this paper is to use the case of BCG Matrix as applied on two divisions of a given company, namely, on the appliance and electronics divisions. A strategic recommendation will be provided based on the findings for the electronic division, located in the upper right quadrant and the appliance division, which is located at the left quadrant of the matrix. This paper will also discuss my own opinions regarding the findings of the case and provide recommendations to negate the findings.
Discussion
It has been reported that the BCG Matrix is a portfolio planning model developed by of the Boston Consulting Group in the early 1970s, and based on the observation that a company’s business units can be classified into four categories, namely, stars in the upper left, cash cows in the lower left, dogs in the lower right, and question marks in the upper right, which are based on combinations of market growth and market share relative to the largest competitor ( 2006). Since the electronics division is on the upper right, then it is regarded as a question mark, while the appliance division is on the lower left and can be regarded as a cash cow. This just means that being a question mark, the electronics division has the worst cash characteristics because of high demands and low returns due to low market share ( 2006) and results to a large net cash consumption (2006). On the other hand, the appliance division as a cash cow is regarded as a leader in a mature market and exhibit a return on assets that is greater than the market growth rate, thus generating more cash than they consume ( 2006).
Strategy Suggestion
Since the electronics division participates in a highly competitive environment being a question mark, it must be able to either invest heavily or sell off or invest nothing and generate whatever cash it can. It must be able to increase its market share or deliver cash, for if changes do not happen to the market share, then they will simply take in great amounts of cash and later obtain low growth and low market share, such as the dog ( 2006). In addition, the division must be carefully analyzed to be able to determine whether they are worth the investment required to grow market share ( 2006). In comparison, the appliance division being a cash cow provides the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because of this, the appliance division must determine its value by calculating the present value of its cash stream using a discounted cash flow analysis ( 2006).
Conclusion and Other Suggestions
The findings of the BCG Matrix suggest that business organizations or companies can either become a cash cow or a dog, as either attaining success or failure from investments in the market. This finding is too stereotypical for it does not consider the possible solutions and strategies to make failures to a success. Because of this, I totally disagree to it because several strategies can still be done to revive the decline of a company. One possible solution is work redesign, which involves linking specific tasks to specific jobs and deciding what techniques, equipment, and procedures should be used to perform those tasks to improve motivation and performance (1997). With this, employees can have improvement in their performance, thus increasing productivity, creativity and enthusiasm in work, resulting to improvement and enhancement of products and services that would increase their market share. Another solution is to evaluate the needs and demands of the market and be able to supply it, to ensure increase in market share and profit.
In addition, this finding can be negated by stating that high market share is not the only success factor ( 2006), for success also depends on business strategies, brand image and identity, and customer needs. In addition, market growth is not the only indicator for attractiveness of a market ( 2006) because growth is affected by several factors, such as timing, customer satisfaction and need, and many others. Lastly, sometimes Dogs can earn even more cash as Cash Cows ( 2006), depending on the company’s approach and target market. From these, it must be taken note of that although the BCG Matrix is useful in evaluating the performance of business organizations, one must be able to carefully assess and examine the situation, problems, and possible solutions to ensure the continuous operation and productivity of a company.
Credit:ivythesis.typepad.com
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