The BCG matrix for Reliance Industries An Emerging Player in Global Petrochemicals and Energy will help decide on the strategies that can be.
TRANSCRIPT
BCG Matrix Analysis of ReliancePresented by Nwankwo Emmanuel
Main Subsidiaries Reliance Telecommunication Limited (RTL) Reliance Globalcom Reliance Communications Infrastructure Limited (RCIL) Reliance Big TV Limited
Reliance Infratel Limited(RITL)
Why BCG MatrixThree techniques most widely used and most referenced in the business literature: BCG-Growth Share Matrix GE-McKinsey Industry Attractiveness-Business Strength Matrix Arthur D. Little Life Cycle ApproachThe BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.
Stars
Question Marks
?
$Cash Cows Dogs
4 categories in a portfolio of a company1. Stars (=high growth, high market share) 2. Cash Cows (=low growth, high market share)
use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.
profits and cash generation should be high , and because of the low growth, investments needed should be low. Keep profits high. Foundation of a company.
4 categories in a portfolio of a company (contd)3. Dogs (=low growth, low market share) avoid and minimize the number of dogs in a company. beware of expensive turn around plans. deliver cash, otherwise liquidate. divest, but occasionally hold for possible strategic repositioning, which can lead to question mark or cash cow.4. Question Marks (= high growth, low market share) characteristics of all, worst cash
because high demands and low returns due to low market share. generate insufficient cash, simply absorb great amounts of cash and later, as the growth stops, a dog. either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash.
The two dimensional analysis of BCG MatrixThe BCG or Growth-Share matrix imposes a two-dimensional analysis on management of Strategic Business Units: a comparative analysis of business strength and an assessment of the environment. The business strength measure is the business's Relative Market Share. The environmental measure is the Market Growth Rate. Formulas for Relative Market Share and Market Growth Rate:
Indian mobile mkt 2010Service ProviderBharti Airtel Reliance Com + RTL Vodafone Essar BSNL Tata Teleservices IDEA Aircel MTNL Uninor Sistema Shyam Loop Mobile STel Videocon HFCL Infotel Etisalat/Allianz
Subscriber (Mn)130.61 105.15 103.75 70.62 67.88 65.28 38.46 5.12 5.02 4.21 2.89 1.11 0.65 0.327 0.004
Market Share (%)21.73 17.49 17.26 11.75 11.29 10.86 6.40 0.85 0.84 0.70 0.48 0.19 0.11 0.06 0.00
Relative Market Share1.243 0.805 0.794 0.541 0.520 0.500 0.295 0.039 0.039 0.032 0.022 0.009 0.005 0.003 0.000
overall telecom operator market share
India Wireless Operators Revenue Market Share
Bharti Airtel 32% Vodafone 20.8% [Consistent] Idea Cellular 12.7% [Moderate Growth, but commendable] Reliance Communications -11.7% [ Losing to competition ] BSNL 9.3% [ Losing to competition] Tata Tele [ Gaining on the back of DoCoMos innovative strategies Aircel 4%
India Wireless Connection (2010) Telecom Operator Bharti Airtel RCOM Vodafone BSNL IDEA Cellular Tata Teleservices Aircel Market Share Relative Market Share 32.0% 11.7% 20.8% 9.3% 12.7% 8.5% 4.0% 2.735 0.366 0.650 0.291 0.397 0.266 0.125
Top CDMA operators in India
Telecom Marke Relative Operator t Market Share Share (in %) MTS (SSTL)1.0% RCOM MTNL BSNL HFCL 0.017
56.0% 1.514 0.0% 6.0% 0.0% 0.000 0.107 0.000
Tata 37.0% 0.661 Teleservice s
BCG Analysis for Reliance Communications20%18%16%14%12%10%8%6%4%2%0%10x 8x 7x 5x 3x 1x .7x .5x .4x . 3x .2x .1x
Strategy for substantial growth
Stars
Question Marks
?
$Cash Cows Dogs
Cash reinvestment
Stars
Question Marks
?
$Cash Cows Dogs
BCG Matrix (Three Paths to Success) Continuously generate cash cows and use the cash surplus from the cash cows to invest in the question marks that are not selfsustaining. Reinvest in Stars, as the market matures, stars will degenerate into cash cows and the process will be repeated. Segment the market for dogs, nurse the dogs to health or manage for cash.
Three Paths to Success
Stars
Question Marks
?
$Cash Cows Dogs
BCG Matrix (Three Paths to Failure) Over invest in cash cows and under invest in question marks. Under invest in the stars. Over milk the cash cows.
Three Paths to Failure
Stars
Question Marks
?
$Cash Cows Dogs
The 4 Portfolio Strategies
limitations of the BCG Matrix1. 2. 3. 4. 5. High market share is not the only success factor Market growth is not the only indicator for attractiveness of a market Sometimes Dogs can earn even more cash as Cash Cows How growth and share are measured highly affect the overall analysis. It does not provide sufficient direction for most effective ways to implement the investment strategies. Recommendation: Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected.
references1. 2. 3. 4. 5. 6. 7. http://www.bcg.com/about_bcg/history/history_1968.aspx http://www.rcom.co.in http://www.simonbrandon.com http://www.telecomindiaonline.com/india-telecom-growth-and-subscribers-2010.html http://www.thehindubusinessline.com/2010/05/22/stories/2010052252590700.htm. http://www.businessweek.com/globalbiz http://www.trai.gov.in/WriteReadData/trai/upload/PressReleases/740/PRelease28June10 .pdf 8. http://www.ibef.org/industry/telecommunications.aspx. 9. http://en.wikipedia.org/wiki/Reliance_Communications 10. http://economictimes.indiatimes.com/News/News-By-Industry/Telecom/GSM-CDMAplayers-maintain-subscriber-growth-momentum/articleshow/4281903.cms 11. Carl W. Stern, George Stalk - Perspectives on Strategy from The Boston Consulting Group
A model developed by the consultancy of the same name in the 1970s. It is focused on the cash flows generated by products' and businesses' portfolios as a result of relative market share and growth. Market share is measured relative to the product's largest competitor. This technique became a staple of market strategies in the 1980s. In the Boston matrix products are classified according to their ability to either generate or to consume cash. These are the main categories with their famous labels for each dimension of the matrix.• Cash cow, a product or business with high market share and low market growth;• Dog, one with a low market share and low growth;• Problem child (or question mark), one with low market share and high growth potential;• Star, one having high growth and growing market share, but not as high a share and therefore not as cash generative as a cash cow.
The matrix is not static and the interrelationship between the various classifications makes the model very useful, particularly for developing market strategies. For example: stars are businesses or products with outstanding opportunities that do not generate excess cash because they are still growing market share in face of competition. They may well be self-financing. Stars of today may become the cash cows of the future. Excess cash is provided by the cash cows that are entering a period of low growth in mature markets but which need relatively little cash investment. Cash cows are assumed to enjoy lower cost, economies of scale, and high profit margins. Dogs, by contrast, have low market shares in low-growth markets and tend to generate either a loss or a relatively low profit. They typically take up more management time than warranted and, unless they can be strategically justified, such as contributing to overheads, are potential candidates for divestment. Problem children (or question marks) need considerable cash investment because they have a low relative share but high growth prospects. They are therefore cash users and could become stars of the future. Management must choose between further speculative investment and even withdrawal, depending on their prospects in their target markets.
The BCG remains a useful framework for portfolio analysis. It has, since the 1980s, been subject to various criticisms of its shortcomings and has become less reliable as a framework for practical marketing action. The main criticism levelled at the matrix is the assumption that all of a company's products and business units work in an interconnected life cycle. In this life cycle, the mature and profitable funds and fuels the new and growing while the old falters and eventually is terminated. Another one of the problems that practitioners have with the BCG matrix is that it is difficult to delineate and define what a ‘market’ is, and, consequently, to measure market share precisely. It does not take into account technological discontinuities that can alter the entire shape and dynamics of a marketplace within a very short space of time. Beyond that, some critics have also pointed out the underlying assumption that cash generation is always organic with a company and does not take into account many other ‘inorganic’ or external cash generating instruments that are available which could affect a portfolio and market position. Also, one would have to be careful in its uses—particularly using it as a guide to divestments and product withdrawals—as it offers an overly simplistic formula to determine ‘dog’ status. General Electric Corporation developed a more sophisticated analytical matrix model (known as the GE matrix) that used industry attractiveness and business strengths as the main axes of analysis.
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