Ch 2: Using the BCG Matrix
Introduction
Part A: The following case is best analyzed by the BCG (Boston Consulting Group)
model. Your initial task is to allocate each of the four businesses to one of
the four boxes in the matrix.
Part B: Based on your classification in Part A, how would you allocate the
funds available for investment across the four businesses?
Activity/Task
The AHI Group
The AHI Group is a major diversified firm. Created less than 20 years ago, AHI has clear goals
of strong growth and achieving dominance in all its markets.
Originally established as a partnership, its founders are still actively involved in the
development and implementation of its core strategies. Their corporation now has four
SBU's, as follows:
1. A chain of fast food restaurants (General Manager = Clive)
2. A manufacturer of smart phones (General Manager = Kristi)
3. A digital marketing consulting firm (General Manager = Therese)
4. A bus travel company (General Manager = Jamie)
It is strategic planning time at AHI and the General Managers are outlining their resource
requirements with the founders. (Note: There is $250m available to reinvest into the
business.) The following are some excerpts from the minutes of the meeting:
Clive: "My fast-food division is the only one that is making any real profits - over
$500m last year. It's clearly obvious that we need to reinvest in THIS
business. Let's expand and grow the profits. We're facing significant
challenges from new competitors, so we really need the investment."
Kristi: "That's fine, but you've got limited growth potential. OK, we're not making
much money now, but this market is too big to not pursue it properly. So we
need the $250m to help catch up to the leaders, as they've got a big start.
That way we can generate potential huge future profits."
Therese: "Kristi, you're too far behind the leaders of Apple. I don't see the
sense in throwing money into something where we will probably
end up in a weak position anyway. Our digital marketing consulting
business is growing really well in many countries."
"We're consulting throughout the world and are considered to be
one of the market leaders with our innovative practices. Sure, we've
got lots of infrastructure costs, but this is going to be a future
goldmine. We'll make more than the fast food chain in five years’
time."
Jamie: "We're in a tough market that's pretty flat at the moment. I know we
only make $1m a year, which is small time for the rest of you. But
tourism is a big market, and we could use the investment to
somehow improve our position."
Classify these businesses into the BCG matrix below (PART A)
Star Question Mark High
MARKET
GROWTH
Cash Cow Dog RATE
Low
High RELATIVE MARKET SHARE Low
How would you allocate the $250m investment? (PART B)
