Strategic Leadership Capstone A5: BCG Growth Share Matrix vs. Scenario Planning

Introduction: BCG Growth Share Matrix vs. Scenario Planning

An organization’s success is greatly dependent of its planning that shape operations. Strategic planning is central in this regard because, through it, an organization can use available resources in the most appropriate way. Understanding its weaknesses and failures, an enterprise is able to prioritize wisely in operations and resource management. Necessary changes are made with ease as the business strives towards maximizing profits. Depending on past performance, current goals, prevailing circumstances and available resources, a number of planning models can be adopted. Two of them are examined here.

Scenario planning stands out as one of the most commonly used models. It may be used along with other frameworks by planners to undertake intensive strategic thinking. It entails developing a number of possible scenarios in the future, not forgetting current circumstances. The scope of this goes into outlining how the said scenarios may affect the organization’s operations. This helps in making decisions on specific issues. For instance, a decision may be taken by a firm not to make a certain investment since events may hinder its success. The depth of this model is its stories developed to help recognize and adjust to changing aspects of the present environment. Different possible pathways which are likely to exist tomorrow are articulated. Appropriate movements are then sought for each of the paths.

This method gained widespread use especially in the 1970s because most organizations were not satisfied with the then existing planning ways. Straight-line extrapolations of past trends formed the basis of most prediction methods, which turned out to be wrong most of the time. Following smooth economic growth after the Second World War, most organizations were lulled into a false and unrealistic expectation of further smooth continuity. However, oil prices hiked in 1978 and 1973, painfully exposing the vulnerability of most businesses. The idea of using the non-rational side of humanity in business gained popularity. The uncertainty that has characterized the 21st century has made it almost a necessity for all major companies to consider this framework.

Scenario Planning

Scenario planning inter-relates the world of perceptions and that of facts to gain insight for decision-making processes. Facts are deeply explored but what are aimed at are perceptions of planners/decision makers (Bensoussan, & Fleisher, 2008). They are able to gather information which they transform into strategic significance, depending on their perceptions. The process usually starts with a lengthy discussion on the participants take on changes in society as regards politics, economics and technology. The effects of this on a certain issue are explored. As such, the group is able to come up with a list of what it considers to be its priorities. Also considered in the same light are things that are likely to affect the issue on the table and those whose results are uncertain. This helps to sketch out rough pictures of the future (Chermack, 2011).

Perhaps the British Airways is the most excellent example of a company that has successfully applied this model. Arguably, it owes most of its success to planning based on this method. It started laying strategic ground for its application in early 1994 and by October that year, it had a clear picture of the future. Every department was represented at all stages of development. In order to come up with the most realistic scenarios, information was collected from everyone involved in the company’s operations. From directors to senior managers and the most junior of staff, everyone gave their stories around which possible scenarios were built. That way, it was possible to formulate a strategic plan for a 10-year period. The scenarios took in consideration the then existing parameters in education, technology, financial markets and world trade. Expected future changes in these fields were drawn out and simple methods like brainstorming and interviews used to come up with ideas and viable courses of action. These were discussed through stages where the best were adopted as the less important that could not be so effective dropped. Workshops were organized to discuss possible new strategies, even discussing the workability of those already in use. Market changes brought about by changes in the world’s political arena were discussed. History was not ignored as it could be used to foresee future results of related developments. In a word, the company has continued to apply this model with optimal results.

Other corporations also use this planning model. They include Motorola, Royal Dutch Shell, Accenture and Disney. A significant application of this approach was by the New York Board of Trade that built an additional trading complex next to the World Trade Centre. This kept it going after the World Trade Centre was brought down by the developments of September 11th, 2001 (Ringland, 2009). This model is therefore important since it can motivate counter-actions against perceived risks; this could be the pillar of the continuity of an entire company in case of such occurrences (Chermack, 2011). However, one great disadvantage that this method has is that many resources can go into taking precautionary measures yet nothing happens. Such can have far-felt financial implications on a firm.

Present circumstances, past scenarios

 

 

Preventive measures, countermeasures, courses of action
Stories….projections….

 

BCG (Boston Consulting Group) Model

Another model widely employed is the BCG/ Growth Share Matrix. This is a framework that was first developed and adopted by the Boston Consulting Group about five decades ago. It helps corporations to get their priorities right and understand what aspects of their resources to pump more resources into, and which ones to drop. The strategy used here is the evaluation of business brand potential and portfolio, and the position of each. Business portfolio is classified into four categories depending on industry attractiveness. The industry growth rate and competitive position in relation to the market share are evaluated and used as the basis for the said classification (Bensoussan, & Fleisher, 2008). The two aspects reveal the expected profitability of the business by evaluating the amount of resources needed to be pumped into each unit and the income expected to be generated from each. This analysis aids the understanding which aspects of the business the firm should pay more attention to and allocate more resources. In addition, more insight is gained as regards which brands need to be divested.

Nike Corporation, one of the leading companies in NYSE listings applies BCG in its planning. Dealing in apparel and athletic products, the company understands the market share and performance of each of its products. It is able to plan its retail offerings, establish its market portfolio and benefit as much as it can from economies of scale. It concentrates on products that bring in more revenue, reducing production of those that do not. The company’s marketing strategists use the model to focus on market share diversification, production of more quality products and price leadership considerations.

In trying to understand the potential of each brand in the business portfolio, a firm’s businesses are classified into the categories mentioned earlier on the said criteria. The matrix is characterized by two axes which are relative to market growth and relative market share. Featuring in it are the groups discussed hereafter.

Cash cows refer to those businesses with a high market share but low growth expectations. They do not need mush cash but have the potential to generate a lot of it. They are a common phenomenon of industries that have exhausted the maturity stage, and are about to enter the decline phase (Bensoussan, & Fleisher, 2008). As opposed to cash cows, there are those businesses with a high market share and high prospects of growth. They are called Stars. Question marks, also known as Wild Cats are those with high prospects of growth but a low share in the overall market. Quite conversely, Dogs have both low market share and growth prospects.

Analysis

The analysis aims to inform the process of transferring any surplus cash from the cash cows to the question marks and the stars. Such enlightenment would also help sell off or close down the dogs. This model has faced criticism for being more self-fulfilling than realistic (Bensoussan, & Fleisher, 2008). It has also been blamed for much emphasis that companies place on market share. This blinds them to the bigger picture, especially in a situation where the fluidity of markets is increasing each day. For instance, Lego, a company dealing in mechanical toys would not be keen for the fact that it is in competition with other companies for a share of the attention of young boys. Consumer Electronics has successfully applied this model since it has always helped it to know in which components (electronics) to invest more in.

Scenario planning may be preferred over growth share matrix in cases where the firm has not established itself in the market, or it has succeeded and would like to maintain that status. Growth share index is better applied when a firm is seeking to understand the market niche and know what aspects of its business it should concentrate in, or which ones to drop.

On the other hand, BCG may not be the best to apply since motivation for its application is based on need for high market share. This is because high market share does not necessarily mean higher profits. Also, data for the two dimensions of market growth rate and market share that it employs may not be easy to get all the time.

Conclusion

In conclusion, it is important that companies choose the best planning to employ. This is usually dictated by the firm’s nature of business in terms of specialty and scope. Some methods would be more suitable than others. Nevertheless, optimum results are achieved if the methods are integrated with the others.

References

Bensoussan, B. E., & Fleisher, C. S. (2008). Analysis without paralysis: 10 tools to make better strategic decisions. Upper Saddle River, N.J: FT Press.

Chermack, T. J. (2011). Scenario planning in organizations: How to create, use, and assess scenarios. San Francisco: Berrett-Koehler. Print.

Ringland, G. (2009). Scenario planning: Managing for the future. Chi Chester: Wiley. Print.

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