Our next topic is looking at the BCG matrix or
the Boston Consulting Group matrix.
And it's sometimes called within corporate strategy,
the corporate portfolio or corporate planning decision.
So we see in this matrix on the y axis we have market growth that's
projected moving forward and isn't projected to be low or high.
And on the x axis from left to right, we have a low market share and
a high market share.
One of the assumptions of the Boston Consulting Group is that this relative
market share is an indicator of how much capabilities the firm has.
So if you have low market share, the presumption is you have low capabilities
in the area and high market share, you have high capabilities.
So let's start with the lower right hand corner that's sometimes referred to as
you can think of a company like General Electric might have businesses that
are question marks, businesses that are stars, and businesses that are cash cows.
And hopefully, they don't have any businesses that are dogs,
who we'll get to in a moment.
Let us think of a market that's a cash cow, and
a cash cow means they have really high market share, really high capabilities.
But it's also a segment of the market where demand growth is slowing, and
it may not be the future of the organization.
So you may also have companies might want to think about a portfolio about
gas powered engines and what's the world going to be like 30 years from now.
Are there going to be more hybrids, more electric cars?
So it very well may be that you start to move into star businesses can move
into cash cow businesses where the demand growth can be slowing for
the projected growth can be slowing for the future.
So that can be called a Cash Cow because it's generating a lot of revenues now.
You have a lot of market share, a lot of capabilities, and
it's currently driving a lot of your profitability but you also kind of have
some signals that this may be a market that's going to be shrinking over time.
Moving up on the right hand side.
A star business that's kind of a know brainer for
the company that's a business in which the markets has high potential growth and
at the same time, the relative market share is really high.
So those are businesses that the managers want to protect.
Quickly moving from right to left on the top,
we have a question mark businesses and those are the firm currently doesn't
have much capabilities or market share in that part of the business.
But that's a segment of the market that's really growing.
China has the company Build Your Dreams which is focusing on
electric battery operated car.
And so they're really putting a lot of investments into what they think is
going to be a high growth market in the future.
And finally of course, you have the dogs which currently you're not in it,
and it also has really low potential.
So in some ways, the really easy answers for
managers are if you're in star businesses where you have great profitability and
a great future, you stick with those businesses.
You avoid the businesses where the projected growth is low and
you currently aren't in.
The really tough questions for the managers come between choosing
between how much of money do you put into your cash cow businesses,
and how much do you put into question mark?
An example, we talked earlier about Pepsi being in the restaurant business.
So for a time they owned Taco Bell, Pizza Hut and
KFC, which was the fast food part of the business.
That's a cash cow business for them.
Doing very well good market share but the growth in that area was slowing, and
they were going into more upscale dining like even
something like California Pizza Kitchen,
which is kind of an upscale pizza experience relative to KFC.
So then the managers have a tougher decision.
Do they stick with their cash cow business of Pizza Hut or which has good returns,
and they have lots of capabilities, were they which is the cash cow.
But then going along that diagonal to the upper left hand corner,
do they move into the question mark business of California Pizza Kitchen.
They currently don't have much skills in upscale dining, but
they can see that that's where the trends in the market are.
So that becomes the tough question.
If and when you start shifting from the cash cow to the question marks.
Now, the material I just gave you could have been taught in the 1970s.
Nowadays, people who use the following terms.
Managers need to balance exploration and exploitation.
The connection I want to make for
you though is even though this is the new language of today,
it's very much connected to what was taught in the BCG matrix.
So the analogy is in the example I just gave, the knowledge generation and
exploration would be, do we explore the new market of California Pizza Kitchen or
do we keep with our exploitation of what we're doing good
now which is the staying within the Pizza Hut?
So a manager balancing between exploration and exploitation to go
back to our previous slide, the question mark area of the BCG is what
a lot of people today call the knowledge exploration or in this terms,
market exploration and the cash cow is the market exploitation.
Now if we were having a course on knowledge management, we would drill down
into all these details through the middle part of these concepts and
then on to the various applications.
But that's really not the emphasis I want to have here.
I just want to make the connection that this language being used of knowledge
exploration and knowledge exploitation is connected to the BCG matrix.