Introduction
The Boston Matrix model was developed by Bruce Henderson in 1970. This model aims to evaluate the position of the company on the market and allocate resources of the organization. In spite of opportunities proposed by this model, there are some authors who criticize it for simplicity and lack of objective variables used in the analysis. Bearden et al (2004) state that the Boston matrix model is an effective management tool that is helpful for managers and decision-makers to reach choices. The Boston matrix model is useful, not in the sense of assuring those correct decisions will be made, or that all management problems under conditions of uncertainty can be solved through the model. Similar ideas are shared by Boone and Kurtz (2002) and Hollensen (2007). These authors underline that this matrix permits the decision-maker to array and assess alternative courses of action in a rational manner. It thus facilitates the selection process.
Boston Matrix Model
The logic behind the Boston matrix model is relatively simple. The manager is faced with a number of factors called acts (strategies or policies). A factor or issue may be the decision to stock a certain number of items in inventory or to select a specific marketing opportunity.
The Boston matrix “positions” a company and determines its opportunities and weaknesses. After the manager chooses an act, a certain event or “state of nature” will occur in the real world. For example, the real number of units demanded is a “state of nature.” The manager controls the market share and portfolio of the organization but exerts little or no control over the “state of nature” that will exist during some future period of time. To help arrive at a solution and position under conditions of risk, the manager or analysts may sort out the acts, events, payoffs, and probabilities of the market situation in matrix form. The Boston matrix used in conjunction with the probability of each state occurring is helpful in reaching expected value figures for alternatives (Boone and Kurtz, 2002).
In spite of these opportunities, some researchers and marketers prove that the Boston matrix model is inefficient and allows a high possibility of error in predictions. For instance, the Maxwell House brand was positioned as a cash cow by the Boston matrix model. Thus, the company lost its market share and did not grow for a certain period of time (Boston Matrix, 2009). The Boston metric is widely criticized by Richard Hamermesh who supposes that many companies misuse this model and cannot effectively apply it into practice. The organization may be faced with the usual dilemma that confronts management. It must place its resources without any assurance that the number of materials ordered will really be used or sold. Hamermesh underlines that many companies confuse such concepts as allocation of resources and corporate strategy, strategic planning and strategic thinking. Such likelihood evaluations are, of course, biased and not precise. They do, still, represent the manager’s best estimate, and they are extremely important in arriving at the best solution when total information is not available. It is known that management often reaches decisions without stating such probabilities explicitly. There are noticeable difficulties in expressing probabilities in specific numbers. When decisions are made without following this process, probabilities have actually been implied or assumed. It is more desirable to have a clear statement of what management feels the probability is of an occasion occurring, thus bringing probabilities more directly into decisions (Hearth and Zanna, 2003).
Conclusion
In sum, the Boston metric model is an effective tool thus many companies misunderstand it and use wrong items and factors to build the matrix. The Boston Matrix is a convenient way of lining up alternative choices, specifying the probabilities of events occurring, and determining the expected value for each alternative.
Bibliography
- Boston Matrix. 2009.
- Hearth, D., Zanna, J. K. 2003, Contemporary Investments: Security and Portfolio Analysis. South-Western College Pub.
- Bearden, W. O., Ingram, Th. N., LaForge, L.W. 2004, Marketing, Prentice-Hall.
- Boone, L.E., Kurtz, D.L. 2002, Management, McGraw-Hill, New York
- Hollensen, S. 2007, Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition.