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Mb0052 Solved Assignment Spring 2012 Beginners

 

Ans.

The BCG matrix is a portfolio management tool used in product life cycle. BCGmatrix is often used to highlight the products which get more funding and attention within thecompany. During a product’s life cycle, it is categorised into one of four types for the purpose of funding decisions. Figure 3.5 below depicts the BCG matrix.

Figure BCG Growth Share Matrix

Question Marks

(high growth, low market share)

are new products with potential success, butthey need a lot of cash for development. If such a product gains enough market shares to becomea market leader, which is categorised under Stars, the organisation takes money from moremature products and spends it on Question Marks.

Stars (high growth, high market share)

are products at the peak of their product life cycle andthey are in a growing market. When their market rate grows, they become Cash Cows.

Cash Cows (low growth, high market share)

are typically products that bring in far more moneythan is needed to maintain their market share. In this declining stage of their life cycle, these products are milked for cash that can be invested in new Question Marks.

 Dogs (low growth, low market share)

are products that have low market share and do not havethe potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or bemanaged carefully for the small amount of cash they guarantee.The key to success is assumed to be the market share. Firms with the highest market share tend tohave a cost leadership position based on economies of scale among other things. If a company isable to apply the experience curve to its advantage, it should able to produce and sell new products at low price, enough to garner early market share leadership.

Limitations of BCG matrix:

 

Master of Business Administration- MBA Semester 4

MB0052– Strategic Management and Business Policy - 4 Credits

(Book ID: B1314)

The further classification of expansion strategy is as follows:—

Diversification

- Diversification is a process of entry into a new business in the organization either marketwise or technology wise or both. Many organizations adopt diversification strategy to minimizethe risk of loss. It is also used to capitalize organizational strengths.Diversification may be the only strategy that can be used if the existing process of an organization isdiscontinued due to environmental and regulatory factors.The two basic diversification strategies are:°

Concentric diversification

The organization adopts concentric diversification when it takes up an activity that relates to thecharacteristics of its current business activity. The organization prefers to diversify concentrically either in terms of customer group, customer functions, or alternative technologies of the organization. It is alsocalled as related strategy.°

Conglometric diversification

The organization adopts conglometric diversification when it takes up an activity that does not relate tothe characteristics of its current business activity. The organization chooses to diversifyconglometrically either in terms of customer group, customer functions, or alternative technologies of the organization. It is also called as unrelated diversification.—

Concentration

– Concentric expansion strategy is the first route towards growth in expanding thepresent lines of activities in the organization. The present line of activities in an organization indicatesits real growth potential in the present activities, concentration of resources for present activity whichmeans strategy for growth.The two basic concentration strategies are:°

Vertical expansion

The organization adopts vertical expansion when it takes over the activity to make its own supplies.Vertical expansion reduces costs, gains control over a limited resource, obtain access to potentialcustomers.°

Horizontal expansion

The organization adopts horizontal growth when it takes over the activity to expand into other geographical locations. This increases the range of products and services offered to the currentmarkets.

Retrenchment 

Retrenchment strategy is followed by an organization which aims to reduce the size of activities interms of its customer groups, customer functions, or alternative technologies.

Example

– A healthcare hospital decides to focus only on special treatment to obtain higher revenueand hence reduces its commitment to the treatment of general cases which is less profitable.Different types of retrenchment strategies are:—

Turnaround 

– Turnaround is a process of undertaking temporary reduction in the activities to makea stronger organization. This kind of processing is called downsizing or rightsizing. The idea behind thisstrategy is to have a temporary reduction of activities in the organization to pursue growth strategy atsome future point.Turnaround strategy acts as a doctor when issues like negative profits, mismanagement and decline inmarket share arise in the organization.

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