1 Classify Tuff Gong's business portfolios using the BCG matrix
Business units are categorized into four groups by the BCG Matrix according to relative market
share and market growth:
Stars: Strong market share and rapid growth
Cash Cows: Large market share, little growth
High growth, low market share are question marks.
Dogs: Small market share and slow development
Danielle's Quick-Food Franchise:
Categorization: Cash Cow
Justification: The fast-food chain has a strong market position and makes large profits ($500
million). Danielle does, however, note that there is fierce rivalry, indicating that the market is
probably established or growing slowly.
Olivia's Production of MP3 Players:
Categorization: Inquiry
Justification: Although the MP3 player market has a lot of room to grow, the product is currently
not profitable and lagging behind leaders in the sector. With substantial investment, it has the
potential to rise from its current low market share to a star.
Ernest's Consulting Firm for Branding and Marketing:
Classification: Star Justification: The company is expanding quickly and has become a market
leader. It is positioned for huge future earnings despite expensive infrastructure expenses,
showing a large market share in a rapidly expanding industry.
Gjoni's Bus Tour Operator:
Grouping: Canine
Justification: The bus company's earnings are meager and it works in a flat (low growth) market,
which suggests that it has a small market share and little room for expansion.
2. How would you allocate the $250m investment across the SBUs?
Using the BCG Matrix Classification to Determine Investment Priorities for the $250 million
Investment:
Stars: To take advantage of growth potential, maintain or raise investment.
Cash Cows: Reinvest surplus funds to other units, yet maintain investment to guarantee ongoing
profitability.
Question Marks: Make strategic investments to try and gain market share and develop into Stars.
Dogs: Unless a turnaround strategy is extremely viable, divest or invest lightly.
Suggested Distribution:
Consulting Firm for Branding and Marketing (Ernest - Star):
$100 million was invested.
Justification: The company is positioned as a market leader and has significant growth potential
as a Star. Purchasing this unit now could pay off handsomely down the road.
MP3 Player Production (Olivia - Uncertainty):
$80 million was invested.
Justification: Despite the market's low profitability at the moment, significant investment is
necessary to gain market share due to its strong growth potential. With the appropriate
investment, this unit has the potential to reach stardom.
Fast-Food Restaurant (Cash Cow - Danielle):
$50 million invested
Justification: It is imperative that the fast-food business maintain its competitiveness in the face
of intense competition. Nevertheless, the investment is moderate because, like a Cash Cow, it
can produce enough revenues to finance more units.
Bus Tour Operator (Gjoni - Dog):
$20 million was invested.
Justification: It is prudent to make a little investment because the growth potential is low. You
may use this investment to look into prospects in specialized markets or to make small but
meaningful improvements.
3 How useful did you find the BCG matrix in helping allocate the $250m investment?
Advantages:
Uncomplicated Structure: The BCG Matrix offers a simple way to group business units
according to relative market share and market growth.
Strategic Focus: By determining which units have the greatest potential for future growth and
profitability, it aids in the prioritization of investments.
Resource Allocation: Directs the effective distribution of scarce resources among units with the
highest potential for return.
In conclusion, by showing which business units have the most potential for growth and
profitability, the BCG Matrix is a helpful tool for directing the allocation of investments. To
ensure a thorough approach to decision-making, it should be utilized in conjunction with
additional strategic analytical tools and managerial insights.