BCG ANALYSIS
OBJECTIVES
As a person with knowledge of the BCG growth/share matrix, the author has always brought up to his superiors the viability of strategy formation regarding its analysis and at times fail to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how the analysis of the BCG growth/share matrix is thought up, formulated and then imparted down into its subsidiaries of the company or organization. The author hopes to have an in-depth understanding as to how the critical information provided by the BCG growth/share matrix enables companies and organizations to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focussed upon, i.e. innovation and diversity. Innovation was discussed with regard to the BCG growth/share matrix analysis of a company where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
EXECUTIVE BRIEF
This essay utilized Palm, Inc. as the model organization to review its present utilization of B.C.G. analysis and how they dealt with critical situations. From the analysis, key trends in the company’s utilization of B.C.G. analysis were then identified, how it worked and its effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess the benefits of using B.C.G. analysis with regard to its suitability to critical situations, during which the internal capabilities of Palm, Inc. in relation to the strategy being followed by the company was determined also. An overall analysis of the performance and effectiveness of B.C.G. analysis was also conducted in reference to Palm, Inc. to assess and compare the capabilities of B.C.G. analysis with those of others. Gaps and limitations in the capabilities of B.C.G. analysis were then identified.
Finally, several choices of strategies to improve the operations management of Palm, Inc. using B.C.G. analysis as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
INTRODUCTION
B.C.G. analysis refers to a marketing procedure involved in brand marketing and strategic management which most companies and business organizations utilize to determine what products to add to its portfolio. The results of the analysis significantly help in the efficient and effective implementation of the policies and tasks necessary to satisfy a firm's customers, employees, and management. B.C.G. analysis also focuses on the careful management of the processes involved in the production and distribution of products and services (2001).
More often than not, small companies don't really have the capabilities to implement B.C.G. analysis. Instead, these companies engage in activities that various schools of business management typically associate with B.C.G. analysis. These activities include the monitoring of products, product development, production and distribution.
However, B.C.G. analysis deals with all operations done within companies and organizations. Activities such as the management of purchases, the control of inventories, logistics and evaluations are often related with B.C.G. analysis. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, B.C.G. analysis includes the analysis and management of internal processes.
Palm, Inc. will be the model business entity that will be used in this research based on their history in the effective use of B.C.G. analysis.
OVERVIEW OF PALM, INC.Palm, Inc. is a business entity specializing in mobile computing. Its products enable its customers to put the power of computing in their hands, along the process accessing the information they need. Palm, Inc. was established in 1992 by and , which later co-invented the Palm Pilot.
In 1995, Palm, Inc. was acquired by U.S. Robotics Corporation. In June 1997, Palm, Inc. became a subsidiary of 3Com when the U.S. Robotics Corporation was acquired by 3Com. As its subsidiary, 3Com then made Palm, Inc. an independent company on March 2, 2000 through a public trade under the ticker symbol PALM ().
However, after the September 11, 2001 bombings of the Twin Towers in New York, the value of the company also came falling down. This drastic fall was also being blamed to the mistakes in the choice of marketing strategies that were implemented at that time. In August 2003, the company renamed its hardware division to palmOne, Inc. In April 2005 palmOne was bale to buy PalmSource's share in the 'Palm' trademark for about US million. Then just last July 2005, palmOne launched its new name and brand going back to Palm, Inc. and trading under the ticker symbol PALM.
Company Mission / Corporate Objectives
Palm, Inc. aims for sustainable growth as a broad market leader in mobile computing as well as for segment leadership. In both cases, the Palm, Inc. brands will play a crucial part. Palm, Inc. is able to establish its broad leadership usually by acquiring other strong mobile computing companies and their products, which are then combined into a new, larger company (1989). Offering training to its employees, improving the company operations, and the introduction of new technologies then reinforces the positions of the various Palm products. This practically results in economies of scale that is able to create a distribution network for both the local and international Palm products. If a market is already in the control of other mobile computing companies, Palm, Inc. devotes its attention towards the development of a premium segment with its various Palm products (1995).
The mission of Palm, Inc. is to secure the growth of the business in a sustainable manner, while at the same time constantly improving the company’s profitability. The strategy to achieve this involves four elements:
PALM, INC. GROWTH-SHARE MATRIX
A. Cash Cows
Palm products include smart-phones and handheld computers. These are equipped with a Personal Information Management (PIM) software and other note-taking applications. A range of additional features including high resolution colored screens and wireless capabilities ensure that there's a Palm product designed to meet the needs of clients anywhere in the world.
B. Dogs
Hand-held computers are different from a laptop. Palm products focus more on the management and access of information rather the creation and editing of documents. For this reason, Palm, Inc. has developed a unique set of guiding principles - simplicity, wearability and mobility. Total commitment to these principles makes Palm products very user-friendly to its customers.
C. Question Marks
It is a common knowledge that the mobile devices industry is still a relatively new industry and is still in its early stages of development. However, it has shown signs of rapid growth and it is being estimated that there will be more than a million mobile devices that will be shipped within the year. And it is further being expected that within the next years the tremendous growth and technological advancements will continue in the mobile world. Mobile commerce and multimedia terminals are just some of the technological advancements already being expected. Therefore, the continued growth and development will also make it imperative for localization to occur in the mobile industry in the years to come.
The software development for mobile devices of Palm, Inc. certainly will become the target for localization because of its dynamism. There are still plenty of operating systems for mobile devices that software developers can use. But since development cycles are much shorter than computer software development cycles, Palm, Inc. may need to rush the release of its localized versions of software. By doing this measure, they will be the first to launch software in various markets, thus putting more pressure on the localization process. Also, the redesigning and streamlining of both software development and the localization process will become imperative if this scenario.
D. Stars
Palm, Inc. is making an effort to increase awareness of its various Mobile Workforce solutions. These are actually solutions for people who rely on carrying computers around as part of their jobs. The first part of this initiative revolves around the concept of sales in the mobile field. The purpose of Palm, Inc. in this effort is to show how they can help their customers and clients incorporate their Palm devices into their sales force automation strategy.
Palm, Inc. BCG Matrix
Each circle represents a Palm product or brand. The size of the circle indicates the value of the sales of that Palm product or brand.
PALM SBUs
Palm, Inc. is the world's leading producer of hand-held computers. Interestingly enough, Palm, Inc. has an even larger share in the market for hand-held computer operating systems. Around eighty (80) percent of hand-held computers in the United States operate on a Palm operating system. Microsoft is the only major competitor with a share of sixteen (16) percent. The hardware market gives Palm, Inc. a market share of sixty (60) %. Of the major competitors, Sony Corporation and Handspring are both using Palm's operating system, and hold about 7% and 14% market shares respectively. Other competitors, such as Compaq and H-P, use Microsoft's operating system, but both companies have below 10% market share. Palm, Inc. has had so much success in the consumer market, but the future goals include selling more products to corporations.
BENEFITS OF B.C.G. ANALYSIS
Because of Palm, Inc.’s successful application of its B.C.G. analysis, the following benefits were achieved over the years:
· Financial Stability
Financial stability is crucial especially in the pursuit of research and development activities. In the mobile computing industry, it is important to remain updated with the latest technological developments to be able to stay competitive in the market.
· Excellent Product Performance and Price
The designing of the best mobile products comes as a result of well-funded research and development activities. The strong performance of mobile products in the market could also be linked to their cost-effectiveness. However, the company has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
· Effective Distribution of Products
High brand awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new models (2001).
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous facilities situated in the United States and other countries worldwide.
· Unique Quality Technology
Palm, Inc.’s commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
· Differentiated Products
Through the production and marketing of differentiated products originating from their research and development activities, Palm, Inc. is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables Palm, Inc. to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, Palm, Inc. is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures (1997).
LIMITATIONS OF B.C.G. ANALYSIS
The BCG growth-share matrix is only able to determine market share and industry growth rate. This means that this business tool is limited towards determining only the factors of profitability, the purpose of any business. The matrix also fails to consider integral elements of industry attractiveness and competitive advantages.
Because of these significant limitations of the B.C.G. Analysis, Palm, Inc. has experienced several problems in its operations over the years, especially in the ASEAN region. These are:
Macro-Environment-Strategy GapsPolitical Crises
The occurrence of political and electoral crises within ASEAN region was not helpful at all to Palm, Inc.’s strategy to solidify its top position in the mobile computing industry. While the implementation of AFTA promoted common tariffs among member countries, other non-member countries had no choice but to follow the individual national tariffs imposed on their products. Nevertheless, Palm, Inc. viewed the liberalization of the mobile computing industry as an opportunity rather than threat as the earlier issues have identified (1997).
Economic Instability
The occurrence of global recessions brought about by companies closing down and the loss of jobs had a direct impact on Palm, Inc.’s strategy of dominating the world market. Also, there were huge differences in terms of the GDP per capita earnings among the ASEAN member countries. This situation made Palm, Inc. ponder about its positioning strategies in certain ASEAN countries.
Social/Cultural Uprising
With the rise in the middle to upper-middle class households in certain countries within the ASEAN region, there existed a strategy mismatch for not considering the potential for consumer market.
Technological Revolution
There was a need for Palm, Inc.’s business strategy to be aligned to the revolutionary technological changes that impacted the mobile computing industry.
Industry Environment-Strategy GapsIntensified Industry Rivalry
There was a high level of rivalry that occurred in the mobile computing industry. This certainly had a grave impact on the overall mobile computing industry profitability, and posed a threat to Palm, Inc.
Buyers
Since the bargaining power of buyers was high, it offered both opportunities and threats. It also had a deep impact on the mobile computing industry profitability. Thus, gaps existed in the form of customer segmentation, in which Palm, Inc. also considered positioning itself.
Suppliers
Suppliers had only average bargaining powers resulting in lower profitability for the mobile computing industry. Palm, Inc. capitalized on this situation by forming strategic alliances with other mobile companies or even acquisitions.
Substitutes & New Entrants
Both of these industry elements posed very little threat to the mobile computing industry, much less on the industry’s profitability. The only issue that had a major impact on Palm, Inc.’s strategy was the technological changes that produced substitutes which threatened the industry.
B. Strategy-Capabilities GapsPalm, Inc.’s technical expertise in the manufacturing processes and its continuous pursuit of research and development activities became a stumbling block with changes in the technological trends. There became an impending need to have better market insights. Sound marketing strategies and the access to distribution channels were not enough to guarantee success for Palm, Inc.
STRATEGIC OPTIONSDeriving from the gap analysis between the environment, strategy and capabilities, many strategic options would become imperative. It is therefore essential to evaluate these strategic options as to whether they are appropriate to the issues addressed, whether they are feasible enough to be implemented and their acceptability to key stakeholders.
A. Business Level StrategyThere is definitely a need to reconcile both the inside-out and outside-in capabilities. While Palm, Inc.’s business strategy involves focusing on the results of the B.C.G. analysis with market position following its resource base, the company will be put into a disadvantageous position should it choose to neglect both the macro as well as industry environment. Therefore, Palm, Inc. has to be aware of the latest technological changes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as market sensing, customer linking, channel bonding and technology monitoring (2002).
The advantages enjoyed by the company may come in the form of increased revenues. Knowing what the market demands and the latest trends could help Palm, Inc. fully exploit its research and development capabilities to come out with product designs which are cost-effective but high in quality and performance. The strategic option can even be used as marketing tool where the focus is on staying close to your customers and listening to their feedbacks. On the flip side of the coin, there will be huge mobilization of resources involved, and the associated risks bestowed on the company.
Nevertheless, the mentioned strategic option seems the most practical in the wake of globalization, since there is a sudden shift towards a more integrated and independent world economy. The key stakeholders too should not have any objections so long the company’s core business is not threatened. By virtue of Palm, Inc.’s centralized control of its subsidiaries, it is being expected that major barriers should not exist in carrying out such an option except additional time may be required given the scope and span of Palm, Inc.’s operations.
RECOMMENDATIONS
A tie-up or merger with various local telecommunications company offers tremendous benefits in terms of access to the company’s subscribers, infrastructure and even its resources. However, Palm, Inc. must not lose sight of its core competencies while pursuing these tie-ups. Otherwise, the image of Palm, Inc. might be put in jeopardy.
Meanwhile, the collaboration of Palm, Inc. with its major competitors can be seen as a ridiculous move at first. However, upon close examination, this move could pave the way for Palm, Inc. to increase even more its market shares and revenues. The bottom line is both sides would be able significantly gain financially in such an alliance. Palm, Inc.’s strengths in product development combined with the financial capabilities of either Compaq or Microsoft can transform them suddenly into an unbeatable force to reckon with. One possible setback, however, is the differences in the cultures of the companies involved. Another possible setback could be whether any of Palm, Inc.’s competitors has the need to form alliances (1997).
The third option also focuses on alliances, but this time with either one of the suppliers specializing in manufacturing of mobile products or the product’s operating system. The benefits of these alliances should outweigh the costs in the long run.
In terms of appropriateness, all three options are able to directly address the current issues mentioned. However, the question remains whether Palm, Inc. could be able to implement any of these options, and whether these options can be acceptable to the key stakeholders. Any merger or alliances may also involve the sharing of expertise. Palm, Inc. has traditionally relied on the inside-out approach. It is important to note that any merger transactions would have many implications on the company’s values and culture as well as the resources. The key stakeholders definitely would be concerned with such options and need to be convinced of the positive aspects. Somehow, Palm, Inc. will be able to overcome this barrier in managing strategic changes in the process of implementing any of the above mentioned strategic options.
CONCLUSION
The results of the analysis carried out on the impacts of B.C.G. analysis on Palm, Inc. indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the continued utilization of Palm, Inc. on B.C.G. analysis could lead to its improvement faster than average.
The review of the capabilities and resources of B.C.G. analysis revealed very little inconsistencies regarding Palm, Inc.’s strategies. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the company.
The analysis among the environment as well as the capabilities of B.C.G. analysis revealed certain limitations, most of which are biased towards the environment. However, these limitations paved the way towards determining a number of recommended strategic options to secure the competitiveness of Palm, Inc.
Also, Palm, Inc. has to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options.
Credit:ivythesis.typepad.com
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