Question

Compare and contrast SWOT and BCG matrixes ?

Answer 1

SWOT Analysis

The history of the SWOT analysis can be traced to Albert Humphrey during the 1960’s. This technique is essentially a model used for methodical planning to assess the strengths, weaknesses, opportunities, and threats concerned with a business or project. It includes the determination of the organization's objectives, and recognition of the external and internal features that may be beneficial, or adverse for the achievement of those objectives. SWOT analysis should be initiated by initially specifying the objectives. Subsequently, the SWOT analysis is integrated in the organization's planning model, which is used for strategic planning. Strengths and weaknesses consist of the organization's internal factors, while opportunities and threats are the external features that may influence the objectives of an organization.

Strengths:

The factors that may contribute to strengths include the availability of resources, and their performance ability. The resources are analyzed according to the capacity to acquire required resources, and the efficient deployment of resources. Ability is evaluated by the capability to adjust according to environment, maintenance of persistent market growth, and the ability to produce or enter new markets.

The following could be included in strengths:

Your professional marketing capability.

A novel service or product.

Business location.

Quality procedures.

Any other business feature that improves the service or product.

Distinctive or low cost organizational resources.

Weaknesses:

The organization's weaknesses are established through failures, losses, and the incapability to respond to market changes. Causes of weaknesses could be weak managerial proficiency, poor quality, obsolete technology, inefficient systems, or inadequate resources. Other reasons are unfavorable business location, inefficient market strategy, and bad reputation. Analysis of weaknesses will determine the management strategy to develop and implement the remedial measures.

The following could be included in weaknesses:

Deficiency in marketing proficiency.

Unfavorable business location.

Inferior quality service or product.

Bad reputation.

Opportunities:

Opportunities are normally ample. However, a plan needs to be developed to use these opportunities efficiently, and at the appropriate time. The plan should include proper definition of the service or product, target markets, resources required, returns anticipated, and the risk tolerance. Weaknesses of the competitors are opportunities that can be availed by a proper focus on such areas, and employing a suitable strategy to obtain maximum advantage. Alternatively, the organization's strengths may be used to create a joint venture with the opponents.

The following could be included in opportunities:

An emergent market like the internet.

Unification, joint ventures, or strategic coalition.

Introducing new segments that may propose enhanced profits.

A modern global market.

A market abandoned by an unsuccessful opponent.

Threats:

Threats occur from economic, social, political, or technological reasons. Technological advancements may render the organization technology as obsolete. Change in market conditions due to changed customer requirements, or political environment may be potential threats for an organization

The following could be included in threats:

Another participant in the local market.

Price confrontation with opponents.

A competitor who possesses a novel service or product.

Opponents who have better contacts with distribution channels.

Taxation initiated on your service or product.

Bcg matrix

Any business knows that, to survive, it has to have products that bring in money now and products that will bring in money in the future, and identify which products are a drain on resources without potential to come back. While it's easy to identify the profitable products, determining how the rest of your portfolio fits into the growth scheme can be harder. The BCG matrix was designed as an analysis tool to help you determine the role of products on your future profit margin so you can decide where to invest.

Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth-share matrix – provides a framework for analyzing products according to growth and market share. The BCG matrix has been used since 1968 to help companies gain insights on what products best help them capitalize on market-share growth opportunities.

Reeves Martin, senior partner and managing director of the Boston Consulting Group, said that nearly 50 years after its inception, the BCG matrix remains a valuable tool for helping companies understand their potential.

Creating your matrix

First, you'll need data on the market share and growth rate of your products or services. When examining market growth, you need to objectively compare yourself to your largest competitor and think in terms of growth over the next three years. If your market is extremely fragmented, however, you can use absolute market share instead, according to the Strategic Thinker blog.

Next, you can either draw a matrix or find a BCG chart program online. (There are several that are free, available for subscription or part of another charting program.) In this four-quadrant chart, market share is shown on the horizontal line (low left, high right) and growth rate along the vertical line (low bottom, high top). The four quadrants are designated "stars" (upper left), "question marks" (upper right), "cash cows" (lower left) and "dogs" (lower right).

Place each of your products into the appropriate box based on where they rank in market share and growth. Where you choose to set the dividing line between each quadrant depends in part on how your company compares to the competition. Here is a breakdown of each quadrant:

Stars: The business units or products that have the best market share and generate the most cash are considered stars. Monopolies and first-to-market products are frequently termed stars. However, because of their high growth rate, stars also consume large amounts of cash. This generally results in the same amount of money coming in that is going out. Stars can eventually become cash cows if they sustain their success until a time when the market growth rate declines. Companies are advised to invest in stars.

Cash cows: Cash cows are the leaders in the marketplace and generate more cash than they consume. These are business units or products that have a high market share but low growth prospects. According to NetMBA, cash cows provide the cash required to turn question marks into market leaders, cover the administrative costs of the company, fund research and development, service the corporate debt, and pay dividends to shareholders. Companies are advised to invest in cash cows to maintain the current level of productivity, or to "milk" the gains passively.

Dogs: Also known as pets, dogs are units or products that have both a low market share and a low growth rate. They frequently break even, neither earning nor consuming a great deal of cash. Dogs are generally considered cash traps because businesses have money tied up in them, even though they are bringing back basically nothing in return. These business units are prime candidates for divestiture.

Question marks: These parts of a business have high growth prospects but a low market share. They consume a lot of cash but bring little in return. In the end, question marks, also known as problem children, lose money. However, since these business units are growing rapidly, they do have the potential to turn into stars. Companies are advised to invest in question marks if the product has potential for growth, or to sell if it does not.

In “Principles of Marketing,” when there is a need to conduct an in-depth analysis to determine the vitality and viability of an organization’s grand strategic vision, a SWOT Analysis is the most popular de facto Strategic Analysis tool according to Phillip Kotler. In a steady hand, it is a tool for dissecting the controllable (Strengths & Weaknesses) and uncontrollable (Opportunities & Threats) forces at play both internally and externally at a high level. The result will be more potently effective if used in conjunction with the Boston Consultant Group (BCG) Matrix, a lesser-known counterpart that will enable better comprehension strategically in both the micro- and macro-level.

It would be easy to combine the data from SWOT Analysis and BCG Matrix tools since both share many similarities and are normally presented as a grid template comprised of four sections with relevant headings. (Example: For SWOT Analysis — Strengths, Weaknesses, and Opportunities & Threats, and for BCG Matrix — Stars, Question Marks, and Cash Cows & Dogs.) It is important to list clearly the questions, discussion points, and examples within the relevant section of the template grid. By analyzing the list of questions, we would be able to determine the strategic path for an organization; however, the result will differ depending on an individual or a group of people.

An example of differing opinion is illustrated in the confusing scenario in which Kawasaki’s (The Art of the Start, p. 20) suggestion to kill the Cash Cows, which are considered sacred in many companies — big or small strategically. BCG Matrix indicates that Cash Cows are a product or business unit holding the largest market share and requiring minimum investment to maintain profit margin (www.bcg.com). In essence, it is actually an opportunity component in a SWOT Analysis. No individual in the right frame of mind would do it. It is a consensus that managing a product/business unit requires talent as market forces will be the key ingredient in evaluating the strategic direction. In addition, there is a constant need for continuous improvement, identification of new markets, and enhanced development. Product/Business Unit cycle is never certain due to volatility in market dynamism. Of necessity, start-up must reinvent itself in order to be at the forefront of the other competitors. This scenario might play a part in shifting the Cash Cows dynamic to the status of a Star portfolio (Kotler and Armstrong, 2003). Rather than killing the Cash Cows (p.20), why doesn’t the author propose to develop a new product/business unit to augment the Cash Cows portfolio? This new process will definably face hardship at the very beginning but, again, Kawasaki is the author of “The Art of the Start.” Go figure!

For an organization to grow organically and strategically, it must identify itself to be either a leader (Star & Strength) or a follower (Question Mark & Weakness). Let’s take Honda Motor Corporation as the prime example. Saichiro Honda started in a small bicycle repair shop before his start-up company grew into a motorcycle company. Throughout the growth period, the company did not limit itself only to automobiles and robotics. Their most recent investment in jet engine manufacturing is taking baby steps to fruition. Honda is a mobility company that deals in the transportation of precious human cargo. The Power of Dreams is their tag line, which clearly portrays the company’s commitment to new technological advancements (www.Honda.com). Honda never envisioned itself as an automobile company, which is it main Strength (Star), but as a people mover. The company’s main source of profitability (Opportunities and Cash Cows) is their use of technology, innovation, and creativity in pinpointing new markets for its range of products.

Ultimately, the result for all Strategic Analysis tools, such as SWOT Analysis and BCG Matrix, is purely subjective because of the dynamic market forces that work in very mysterious ways. Relative to the business continuity standpoint, it is certainly an advantage to utilize tools such as a SWOT Analysis and BCG Matrix to provide an organization the guidance necessary to navigate to greener pastures and, along the way, avoid the pitfalls misdirection.