Bcg Matrix Of Microsoft Company Info

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The BCG matrix, also known as the Boston growth-share matrix, is a tool to assess a company’s current product portfolio. Based on this assessment, the Boston matrix helps in the long-term strategic planning of the company’s portfolio, as it indicates where to invest, to discontinue or develop products. As the name suggests, the BCG matrix has been developed by the Boston Consulting Group, and it has become a very popular tool to assess a company’s portfolio and derive strategic investment decisions. But how does the BCG matrix work?

How does the BCG matrix work?

BCG Matrix is a four quadrants graphic representation of multiple segments, which can be analyze by means of Market share and Industry sales growth rate. Following are the categories of segments in BCG matrix; Cash cows, Dogs, Question mark and Stars. BCG matrix examination of Microsoft is given below. Bcg Matrix Of Microsoft Company Info Nach Baliye 6 11th January 2014 Full Episode Check out my Blog: If you've taken business class or familiar with management consulting strategies, you've probably come across this tool called a BCG Matrix. Also known as a growth-share matrix, the BCG matrix was created by Bruce Hendersen in the 70s (founder.

  1. The BCG matrix, also known as the BCG growth-share matrix, growth market share matrix, or product portfolio matrix, helps businesses with the long-term planning of their products. This tool helps companies determine which products warrant discontinuing, development, or further investing.
  2. Devised as a portfolio planning tool, or corporate planning tool, the BCG growth-share matrix was first conceived by Bruce Henderson of the Boston Consulting Group back in the 1970's. The concept is based on four quadrants in which a company's strategic business units (SBU) or products/brands are classified.
  3. 2 Microsoft Corporation’s BCG Matrix Introduction The BCG Matrix is a tool used for strategy analysis and choice process. It was authored by the Boston Consulting Group, a global private management consulting firm that specializes in strategic planning (David & David, 2017). Through the BCG Matrix, it helps the company strategists make subjective decisions to help their organization.

The BCG matrix assesses the company’s product portfolio by placing each product, division or SBU (strategic business unit) on a 2×2 grid. How does the BCG matrix work in detail? The placement of products on the grid is done by investigating two dimensions, which are the axes of the grid: the product life cycle and the experience curve. Since both criteria are rather hard to quantify, proxy values are used to illustrate these two dimensions. The product life cycle is reflected by market growth, and the experience curve is mirrored by the relative market share. These two values have to be identified for each product/division/SBU to place them on the grid. Based on the position of each product/division/SBU on the BCG matrix, investment or disinvestment decisions can be taken. The graphic below shows the BCG matrix.

The dimensions/axes of the BCG Matrix

Bcg matrix of microsoft company information

How does the BCG matrix work? To understand this, you first need to understand what the BCG matrix actually shows. The two axes have been introduced before. On the vertical axis, the market growth rate provides a measure of the market’s attractiveness. On the horizontal axis, relative market share serves as a measure of the company’s strength in the market. By dividing the BCG matrix into four fields, four types of SBU can be distinguished. These are explained in detail below.

If you want or have to conduct a portfolio analysis using the BCG matrix, you need to know where to get these two numbers for each SBU. The market growth rate can easily be researched: usually, you will find plenty of data for almost every industry and market online. The relative market share is computed by dividing the company’s market share by the market share of the strongest competitor in that market: Relative market share = Company’s market share ÷ largest competitor’s market share.

How to use the BCG Matrix

Now that we have plotted the different products, divisions or SBUs on the BCG matrix, we need to know what to do next. So how does the BCG matrix work and help to derive strategic decisions?

To arrive at these decisions, we need to understand the four types of SBU that are distinguished by the Boston growth-share matrix.

Question Marks

Question marks are low-share business units in high-growth markets. They require cash to hold their share, let alone increase it. The company needs to think hard about question marks – which ones should be built into stars, and which ones should be phased out? Question marks have the following characteristics:

  • Low relative market share in a relatively young but promising market (growing)
  • Potential of becoming stars if the market share can be increased
  • If necessary market share is not reached, question marks are likely to turn into dogs as soon as the market gets more mature
  • Careful analysis is needed to determine whether to invest or not.

Stars

Stars are high-growth, high-share businesses or products. They often need heavy investment to finance their rapid growth. Eventually, their growth will slow down, and they will turn into cash cows. Stars have the following characteristics:

  • High market share in a promising market
  • To turn a star into a future cash cow, heavy investment is needed to fight competition and expand market share.

Cash Cows

Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to maintain their market share. As a result, they produce cash that the company uses to pay its bills and to support other SBUs that need investment. As we have learned, question marks and stars require heavy investment, which usually comes from the profitable cash cows. Cash cows have the following characteristics:

  • High market share in a slowly growing or mature market
  • Create the highest cash flow
  • No further investment should be undertaken due to limited or non-existent growth potential
  • The company should try to “milk” the cash cows as long as possible.

(Poor) Dogs

Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves, but do not promise to be large sources of cash flow. Dogs have the following characteristics:

  • Low relative market share in a slowly growing or declining market
  • Products do mostly not generate large profit and may usually just break even
  • The company should divest dogs, as these products have a negative effect on the overall profitability of the company. Instead of carrying dogs along, the company should better focus on products or SBUs with greater potential.

The ideal circle of the BCG matrix

The ideal situation as suggested by the BCG matrix is the following: The company invests in promising Question marks to turn them into Stars. By further investing, Stars are turned into Cash cows. The company harvests all the cash until the Cash cows eventually turn into dogs. At that point, the company divests the product or SBU and focuses on more profitable opportunities.

The table below summarizes the characteristics of the four types of SBUs in the BCG matrix and shows the strategic implications for the company’s long-term planning.

Strategy implications of the BCG matrix – How does the BCG matrix work?

Microsoft Ansoff Matrix is a marketing planning model that helps the multinational technology company to select its product and market strategy. Ansoff Matrix distinguishes between four different strategy options available for businesses. These business growth strategies are market penetration, product development, market development and diversification.

Microsoft Ansoff Matrix

Microsoft uses all four strategy options within the scope of Ansoff Growth Matrix in an integrated way.

1. Market penetration. Market penetration refers to selling existing products to existing markets. Microsoft uses market penetration strategy to sell its Windows software and devices and other products in 116 Microsoft stores worldwide as well as through online channels and authorised distributors. The multinational technology company uses Microsoft Rewards loyalty program to pursue its market penetration strategy.

Bcg Matrix Of Microsoft Company

2. Product development. This growth strategy involves developing new products to sell to existing markets. Microsoft engages in product development strategy systematically. The tech giant’s research and development expenses increased USD 1.7 billion or 13% in 2018 compared to the previous year.[1]

Microsoft develops most of its products and services internally through three engineering groups.

  • Applications and Services Engineering Group, focuses on broad applications and services core technologies in productivity, communication, education, search, and other information categories.
  • Cloud and Enterprise Engineering Group, focuses on our cloud infrastructure, server, database, CRM, enterprise resource planning, management, development tools, and other business process applications and services for enterprises.
  • Windows and Devices Engineering Group, focuses on our Windows platform across devices of all types, hardware development of our devices, and associated online marketplaces.

3. Market development. Market development strategy is associated with finding new markets for existing products. Microsoft enters a new market whenever it sees there potential for its products and services. For example, HoloLens was made initially available only in 10 countries such as United States, United Kingdom, Canada, Australia and Germany. Once demand for this product increased in the global scale, the company made HoloLens available to an additional 29 markets with comparably lesser purchasing power such as Croatia, Poland and Turkey starting from November 2017.[2]

Bcg Matrix Of Microsoft Company Information

4. Diversification. Diversification involves developing new products to sell to new markets and this is considered to be the riskiest strategy. Microsoft uses diversification strategy occasionally. Entering the cloud business in 2006, the same year as its rival Amazon launched Amazon Web Services can be mentioned as the most notable example of diversification strategy engaged by Microsoft. This bet proved to be highly successful though.

By October 2018, Microsoft surpassed Amazon in 12-month cloud revenues, becoming an undisputed leader in cloud in the global scale. Specifically, while Microsoft earned USD 26,7 billion revenues, Amazon’s revenues totalled to only USD 23,4 billion for the same period.[3]

Microsoft Corporation Reportcontains a full analysis of Microsoft Ansoff Matrix. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis and McKinsey 7S Model on Microsoft. Moreover, the report contains analyses of Microsoft leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Microsoft marketing strategy, ecosystem and addresses issues of corporate social responsibility.

Bcg Matrix Of Microsoft Company Information

[1] Annual Report (2018) Microsoft Corporation

Bcg Matrix Of Microsoft

[2] Bowden, Z. (2017) “Microsoft is bringing HoloLens to 29 new markets starting today” Windows Central, Available at: https://www.windowscentral.com/microsoft-bringing-hololens-29-new-markets-starting-today

[3] Evans, B. (2018) “#1 Microsoft Beats Amazon In 12-Month Cloud Revenue, $26.7 Billion To $23.4 Billion; IBM Third” Forbes, Available at: https://www.forbes.com/sites/bobevans1/2018/10/29/1-microsoft-beats-amazon-in-12-month-cloud-revenue-26-7-billion-to-23-4-billion-ibm-third/#510bdfb82bf1