Introduction
This paper to offer a strategic recommendation based on findings from a case involving two divisions as viewed using a BCG matrix where the electric division can be located at the upper right quadrant of the matrix while the appliance division is on the lower left hand of the matrix.
Analysis and Discussion
When a division is on the upper light hand of the BCG matrix, it is said to be under the question mark cell, where is there is high market growth but a low market share. The strategy appropriate under the cell or quadrant is to build or divest the division. To build here means to invest for the purpose of increasing market share even foregoing short term earnings to attain the objective (Kotler, 1994; Churchill, Jr. and Peter, 1995). This strategy would have the effect of converting questions marks starts. However if the market share could not be improved for one reason or the other and the company cannot sustain the loss of profitability, the company is advised strategically to divest the division. The objective of divesting is to sell or liquidate the division because resources can be used better elsewhere (Kotler, 1994).
On the other hand, the appearance of the appliance division at the lower left hand indicates that the division is under cash cow cell where there is high market share and low market growth rate. This usually happens when the annual growth rate of the division or industry falls to less than 10% but it has still large relative market share (Kotler, 1994). At it produces a lot for cash for the company, the company is advised strategically to hold or harvest and not to invest further because market growth rate has slowed down.
As to reliance of findings based on the use of BCG, it must be noted that there are limitations for the use of the model (Kotler, 1994). These limitations include the fact the any recommendation based on the two factors may be insufficient and therefore there is a need to use other models or measurements either confirm or deny the findings. One model that may be used for further the analysis and to include other factors other than market share and market growth rates before the decision should be made is the general electric (GE) model (Kotler, 1994). The GE model however assigns different weights to various other factors that must first be identified. This time the two dimensions in the GE include market attractiveness and business strength and the two BCG factors of market share and market growth rate are subsumed under the two variables of the GE model. The decision that would be made using GE model would depend on weight assigned to factors and by plotting the points to model, the decisions of to build or to divest for electronic division may change depending on the totality of all the factors. The same is also possible under the cash cow position of the appliance division under BCG which may not necessarily be advised to hold or to harvest under GE model.
Conclusion
The use of BCG and GE models are just tools for making strategic decision (Byars, 1991; Cooper, 2000) and would require management the identification and weighing in of important factors for decision making. The models may, however, fail to regard the synergies of two or more divisions by forcing a choice of one over the other. If there are however data supporting the analysis using the models, management would be more strategic than deciding merely on the basis of impressions. In the instant case, to divest or to build is recommended for electronic division and to hold or harvest is recommended for appliance division under the BCG matrix.
References
Byars, L. (1991) Strategic Management, Formulation and Implementation – Concepts and Cases, New York: HarperCollins.
Churchill, Jr. and Peter (1995) Marketing, Creating Value for Customers, IRWIN, Sydney, Australia.
Cooper, L. (2000) Strategic marketing planning for radically new products, Journal of Marketing, Vol. 64 Issue 1, pp.1-15.
Kotler (1994), Marketing Management: Analysis, Planning, Implementation, and Control, Prentice Hall, USA.