Friday, August 24, 2012
Back to writing
It's been a while since I posted anything on this blog. Time has been scarce. But I did get around to some long form writing for my current employer - a white paper on the esoteric technology of Intrusion Prevention Systems (IPS). Check out the paper at this link.
Tuesday, March 27, 2012
Competitive Strategy and the Growth-share Matrix
Many of us are familiar with the BCG growth-share matrix used for product portfolio analysis. One shortcoming of the growth-share matrix is that it does not directly account for moves by the competition. And, that may may lead one to the wrong conclusion regarding a product in the portfolio.
Take for example a product that fits the definition of cash-cow. I.e. it is a product in a mature segment, throwing off cash and as per the matrix requiring minimal investment. The result - that a firm can harvest the cash-cow with minimal investment - only really holds if the competition doesn't rock the boat. If one of the competitors were to disproportionately invest in its product in the segment, the dynamic would change.
One dynamic of particular interest is where the dominant player in the product segment choses to increase investment even though its product in the segment is already a cash-cow. Since the player is already a dominant player, a small increase in investment (as a percentage of revenue) translates to a high dollar investment in the product, relative to the competition. This should have the effect of shrinking the market share of the smallest competitors, perhaps even driving them out of the market, since they can't keep up with the dominant players' investments. It should also force the not-so-small players to decide if they want to match the dominant players investment or ready the product for divestment - hopefully before it turns into a dog.
A dominant player ought to be interested in such an increase in investment, if the investment has the potential for a profit increase, greater than the incremental investment. Such a disproportionate increase in profit is possible, even likely, if some players in the segment teeter around the break-even point or have had problems with execution.
The general business literature that I have studied in business school does not treat this topic in much depth. However, the problem seems important enough that somebody ought to have studied it in detail. Anybody have pointers to such relevant research?
Take for example a product that fits the definition of cash-cow. I.e. it is a product in a mature segment, throwing off cash and as per the matrix requiring minimal investment. The result - that a firm can harvest the cash-cow with minimal investment - only really holds if the competition doesn't rock the boat. If one of the competitors were to disproportionately invest in its product in the segment, the dynamic would change.
One dynamic of particular interest is where the dominant player in the product segment choses to increase investment even though its product in the segment is already a cash-cow. Since the player is already a dominant player, a small increase in investment (as a percentage of revenue) translates to a high dollar investment in the product, relative to the competition. This should have the effect of shrinking the market share of the smallest competitors, perhaps even driving them out of the market, since they can't keep up with the dominant players' investments. It should also force the not-so-small players to decide if they want to match the dominant players investment or ready the product for divestment - hopefully before it turns into a dog.
A dominant player ought to be interested in such an increase in investment, if the investment has the potential for a profit increase, greater than the incremental investment. Such a disproportionate increase in profit is possible, even likely, if some players in the segment teeter around the break-even point or have had problems with execution.
The general business literature that I have studied in business school does not treat this topic in much depth. However, the problem seems important enough that somebody ought to have studied it in detail. Anybody have pointers to such relevant research?
Subscribe to:
Posts (Atom)
