The BCG Growth Matrix for BSkyB - Essay Example

The BCG Growth Matrix for BSkyB Assignment Question: You are required to critically examine the BCG growth/share matrix for an organisation of your choice. This may be a domestic organisation or a multinational company. It can be a service provider or a manufacturer. The specific question is what are the benefits and limitations of companies using this matrix as a competitive tool, in terms of potential effects on their competitive position and the reaction of competitors. Use examples from the organisation to demonstrate the benefits and pitfalls of using this approach. You can draw on primary and/or secondary sources of information about the organisation. Introduction The development of business activities around the world has led to the need for new types of strategic tools that will support daily managerial activities – especially the identification and the evaluation of a firm’s competitiveness within the modern market. Towards this direction, extremely effective strategic tools have been designed and are applied by managers internationally offering the necessary basis for the increase of corporate performance – only where particular rules are followed regarding the adaptation of these tools on a specific market. Emphasizing the importance of these strategic tools Shay et al. (1999) noticed that ‘managers today would benefit from strategic analysis tools that foster an understanding of the competitive environment from multiple perspectives’ (Shay et al., 1999, 559); however, it is necessary than in each case the appropriate strategic tool is chosen by a firm’s managers making sure that its use will benefit the firm both in the short and the long term. Current paper focuses on the examination of the role and the importance of a particular strategic tool, the BCG matrix (see Appendix, Figure 1) for the performance of a specific firm based in UK, the British Sky Broadcasting Group plc (BSkyB). The specific firm is among the FTSE 100 firms having a significant position within the British market. Therefore, the examination of its daily activities using the BCG matrix has been considered to help towards the identification of the effectiveness of this matrix when used by modern firms especially those with a simultaneous presence in many industrial sectors (like in the case of BSkyB which operates in both the telecommunications and the TV broadcasting sectors). BCG Growth/Share Matrix – characteristics and role in modern market The BCG Growth/ Share Matrix was developed by the Boston Consulting Group in order to support the development of strategic plans that will support the development of a firm’s performance taking into account the share of the firm in a particular market and the rate of growth of this market. One of the main characteristics of the BCG growth/ share matrix is that it provides the basis for an effective distribution of ‘roles’ among a firm’s resources so that all these resources are used within appropriate fields – in accordance with their characteristics and their position within the firm involved. Using the features of the BCG matrix managers in modern organizations can identify the chances for their firm’s growth – a business unit that generates a high volume of cash flow (a cash cow in the matrix) is more likely to be developed further than a business unit that is proved to be slowly developed (characterized as dog in the relevant matrix). The BCG Matrix can be viewed in the Appendix section (Figure 1). In this matrix, the various organizational sectors are divided into specific categories in accordance with their ability to produce cash flow. These categories are represented by specific symbols – each organizational unit can be characterized as a star, a question mark, a cow or a dog. These symbols can be further explained using specific corporate characteristics especially the ability/ prospect of a firm’s unit to produce cash flow. Under the principles of BCG matrix, organizational units are regarded as strategic business units; the identification and the evaluation of the potentials of these units is among the priorities of managers using the BCG matrix when having to develop strategic plans that will increase their firm’s competitiveness – especially the firm’s ability to generate cash through its various activities. It should be noticed that BCG matrix has been related with other strategic tools/ plans, like the integrated marketing communications scheme. The specific issue was examined by Anantachart (2005) who supported that ‘advertising, public relations, sales promotion, and direct marketing are defined as crucial elements for the core scheme; alternative strategies for brands in different stages are identified from the product portfolio analysis’ (Anantachart, 2005, 101). In accordance with the above, the use of BCG matrix in modern firms can take different forms under the influence of the firm’s strategic priorities, the trends of the market but also the cultural and the social framework of the region involved (the latter are likely to influence the advertisement plans used by firms operating within a specific market). In the long term, the application of BCG matrix by a modern organization can be proved to be ineffective (even if appropriately developed); in order for this matrix to perform positively (as expected by the managers that use this matrix in order to design effective strategic solutions) it is necessary that a wide range of information – regarding the various business units – is available to the firm’s managers. However, in many cases such a target cannot be achieved mostly because there is no appropriate inter-organizational communication. In this way, it is not possible for a firm’s managers to identify the role of each specific business unit and place it in the appropriate category (referring to the categories used in the context of the BCG matrix). Despite its value the BCG matrix also has a series of negative aspects/ characteristics. More specifically, in the above matrix there is no analytical presentation of the relationships developed between products and services offered through a firm’s units; only general reference is made to a firm’s units presenting their general characteristics. Even in the case of the firm under examination, the BskyB Group, the retrieval of information regarding the performance of its various units has been proved to be a challenging task; in this way, the development of a BCG matrix for the identification of an effective strategic plan for the specific organization can face a severe delay. In the literature, the effectiveness of the BCG matrix has been strongly criticized; however, it is also made clear that the flexibility of the specific strategic tool is one of the most important reasons for the expansion of its use by firms worldwide. Towards this direction, it is noticed by Nicholls (1995, 4) that ‘there is a lot we have done wrong; however, the need for tools to aid strategic decisions will always exist; for all its faults, the BCG portfolio matrix attempted to answer a problem that is still with us’. On the other hand, it is noticed that the simplicity of the specific strategic tool can be used in order to explain its use by managers worldwide; in many cases, the complex strategic tools are rejected by managers mostly because they have difficult and costly demands (regarding the completion of their various parts). On the contrary, BCG can be developed only by observing a firm’s various activities with no specific knowledge on advanced mathematics; the firm’s operation through all its activities is more likely to be the priority for a firm’s managers. In this context, Morrison et al. (1991) noticed that - referring to the BCG matrix – ‘its development and adoption however indicate yet again the power of simple and effective presentation particularly when it both addresses some of the concerns of the audience and is supported by both some theory and some evidence’ (Morrison et al., 1991, 105). The strengths and weaknesses of the specific strategic tool – as with all strategic tools developed through the years – can be examined through the empirical research; however, specific rate of participation in the relevant survey is required. When first introduced, the BCG matrix was regarded as an appropriate solution for managers that wanted to develop an effective strategic plan offering the chance for high corporate growth. However, the conditions in which the above matrix was developed have changed; in current market the changes taking place across the various industrial sectors are not always predictable; in fact, it is possible that strong turbulences appear unexpectedly in all markets around the world; under these conditions, the BCG matrix cannot be particularly effective – at least as it was decided by its creators – the Boston Consulting Group. On the other hand, the fact that a series of limitations were related with the specific matrix was considered to be an obstacle for the effective use of this matrix by modern firms around the world. For this reason, a new form of this matrix has been developed through the years by the Boston Consulting Group; it is the Advantage matrix, which is considered to be more effective for firms operating in current market conditions; even under these terms, the BCG matrix is still preferred by many organizations globally as it has been effectively tested under all market conditions and it has been found to have a relatively stable rate of performance supporting the growth of organizations even if the rate of their growth is not too high. The structure and the role of BCG matrix will be further examined and analyzed using the case of the British Sky Broadcasting Group plc (BSkyB) – a firm well established in the British market. An indicative BCG matrix has been produced for the above firm taking into account the services/ products of the firm (range, quality and competitiveness of these services/ products) but also the trends of the British market regarding the products/ services of the particular industrial sector. The matrix is based on the performance of the firm’s products/ services primarily in the British market – despite the fact that the firm has expanded its activities to other countries. The reason that only the firm’s performance in the British market has been evaluated for the development of this matrix is because if the performance of the firm in other markets would be monitored, then the matrix produced should have different form (referring to different business units included in each particular category). The above described phenomenon has been represented in a relevant graph (see Appendix, Figure 3). BCG Growth/Share Matrix of the British Sky Broadcasting Group plc (BSkyB) In order to understand the role of BCG matrix in BSkyB it is necessary to identify the potentials of each one of the firm’s units; at a next level, these units should be given one of the four ‘titles’ of the categories included in the specific matrix; each business unit should be characterized as ‘star’, ‘question mark’, ‘cow’ or ‘dog’. An indicative BCG matrix – related with the activities of BskyB in the British market – is presented in Figure 2 (Appendix). It is clear in this diagram that there are services that do not expected to generate a high cash flow for the firm (referring to the Cable TV services); there are also business units, like the Sky TV that are high profitable on a long term basis. However, this profitability is not the consequence of a high performance; it’s just the fact that the specific services/ products represent a high market share – in this context, their profitability is also expected to be high even if their rate of growth is slow. On the other hand, there are business units, like the Easynet and the Installation & Equipment Repair Services (see Figure 2, Appendix) that are characterized by a significant performance. More specifically, the specific business units represent a high percentage of the local market requiring a large amount of investment in order to keep their high rate of growth. These business units can be characterized as the ‘stars’ of the firm in terms that their performance is noticeable; however in order for this performance to be achieved it is necessary that a significant amount of investment is made on the particular business unit; in the short term this strategic plan can be proved costly for the firm (absorbing a high level of the firm’s cash); however in the long term the specific investment will produce high profits supporting the firm’s growth within its market. Particular attention should be paid regarding the representation of the various organizational units in the above diagram/ matrix. A mistake in the position of the relevant factors could lead to severe delays in the development of the specific tool by a firm’s managers. In other words, the placement of a specific business unit in one of the above categories should be appropriately justified taking into consideration the market’s conditions but also the prospects of a firm to improve its performance in the future. Towards this direction it is noticed that ‘because it is uncertain whether management should invest more cash in them to gain a larger share of the market or deemphasize or eliminate them’ (e-coach, 2008, online article). Conclusion - Implications from the use of BCG matrix in modern organizations The issues developed above prove that BCG matrix remains an effective strategic tool for the development of strategic plans that support the growth of modern organizations using the firms’ ability to generate cash through the activities of their various business units. On the other hand, the fact that the use of a strategic tool is necessary for the development of any corporate strategy leads to the assumption that the use of BCG matrix by firms may be risky as their initiatives and their strategic decisions could be ‘predicted’ by their competitors – under the terms that the various parts of BCG matrix are already known to the managers of most firms worldwide. In this context, the improvement of a firm’s position in its market could not be achieved – at least not easily achieved. On the other hand, it is not always possible (or effective) for the various business units to be given specific characteristics (named as cows or dogs) especially even if the conditions in a specific industrial sector are not stable. It is for this reason, that BCG matrix can be characterized as being too simplistic taking into consideration the increased demands of customers in the British market (as also worldwide) but also the continuous changes in all the sectors of the global market (influencing also the British market). Moreover, the BCG matrix does not include any reference to the time required for the identification and the evaluation of the qualities/ characteristics of the business units represented in the relevant plan. In other words, it seems that primarily there is no time limit regarding the identification of the characteristics of a firm’s units and their incorporation within the relevant chart/ matrix. However, in this case it would be quite possible that a firm’s activities were not appropriately evaluated; only general characteristics of a firm’s operational activities would be used instead when having to develop the firm’s strategic plan. Under these terms, when a firm’s managers are highly depended on the specific matrix in order to develop the firm’s strategic plans, it is quite possible that the relevant efforts will be led to failure; when designing and applying any organizational strategy managers should take into consideration a wide range of info having a clear time framework for the completion of the various parts of the relevant project. In the case of BCG matrix, the business units are divided into specific categories (there is no option of differentiation from the existing ones) which should be used in order to evaluate the firm’s potential to achieve a high level of growth given its position in the market and the rate of growth of the specific market. At a next level, it should be noticed that the presentation of the various business units through the BCG matrix is not absolutely accurate; the reason is that only general aspects of these units are taken into consideration when placing these units in the above matrix. Moreover, the reference to a market as having a high rate of growth can be misleading; a market that is characterized by a high level of growth can have limited performance in the long term especially if the entrance of new competitors in the specific market is continuous and the offer of services/ products is higher than the demand. At a next level, not all firm’s units can be incorporated in the specific matrix because of lack of relevant flexibility in the interpretation of their strategic priorities. Under these terms, it is quite possible that smaller firms (that do not have particularly flexible strategic plans) would face difficulties in order to use the specific matrix. The customization of the firm’s practices and ethics - that this matrix often requires – to the current market trends can have both positive and negative results. In this context, managers in modern organizations should not rely exclusively on the BCG matrix regarding the development of their firms’ strategic plans; rather they should have an alternative strategy that could be used in order to identify the firm’s strengths and weaknesses and develop an appropriate framework for the improvement of the firm’s position in the market – even in the long term. As for the BCG matrix, this has been found to be particularly important for the development of effective strategic plans internationally; however it is necessary that the specific strategic tool is reviewed as of its appropriateness for the modern market – especially referring to the British market which is a highly competitive one. Bibliography Anantachart, S. 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Crafting & Executing Strategy, 15th ed. New York, USA: McGraw-Hill Irwin. Vignali C, 1997. The MIXMAP – model for international sport sponsorship. European Business Review, Vol 97 (4) p187-193. Vrontis D, 1998. Strategic Assessment: the importance of branding in the European beer market. British Food Journal, Vol 100 (2) p76-84. Appendix Figure 1 – The BCG growth/ share matrix (source: http://www.valuebasedmanagement.net/methods_bcgmatrix.html) Figure 2 - BCG Growth/Share Matrix for BskyB products and services within the UK Market Figure 3 - BCG Growth/Share Matrix for BskyB products and services within both the UK Market and internationally Read More