Book Review — Perspectives on Strategy from the Boston Consulting Group
BCG comes out with writings and publications which are focused on business strategy views and recommendations. These writings and publications are also called as perspectives. This book is a collection of 75 most influential perspectives which originated from BCG. A majority of these articles were written in the 1970s and 1980s. Hence the focus on manufacturing, declining technology costs, and Japan is clearly visible.
The book is not written as a narrative and being a compilation of writings; readers can select any article according to his/her interest or value-addition. I would be reviewing 3 articles which I enjoyed.
1.The product Portfolio — Bruce D. Henderson,1970
The article mentions the pre-requisite for a successful company — a portfolio of products with different growth rate and different market share. A firm should have both high growth and low growth product simultaneously. The high growth product needs cash inputs to grow while the low growth product should generate additional cash. The article also describes products on the basis of market share and growth as shown below –
According to the article, every product eventually becomes a dog or a cash cow i.e. the growth eventually stops and the market share determines the product. However, the presence of a dog is not required as it implies the inability to achieve market share or getting out reducing the losses. The article emphasizes the importance of a balanced portfolio where the cash cows provide funds required by stars and the significance of converting question marks into stars with additional funds.
2.Life Cycle of the Industry Leader — Bruce D. Henderson,1972
This article begins with a description of pioneer companies. This results into an organization which has a very wide product portfolio complemented by an equally good service. However, as the market size increases, more competitors start entering it. The initial failures mostly arise from knowledgeable customers who know what they need and hence are always on the lookout for cheap but competent suppliers who can meet certain standards. The competitors who satisfy these demands are rarely profitable. However, since they focus on only a narrow range of supplies, their costs start reducing. The market leader now decides to price its product keeping in mind certain profit margins. This price is easily defeated by small competitors and it further leads to a reduction in market share of the erstwhile market leader. Eventually, the market leader becomes a high cost, high-price, low volume specialist. In order to protect themselves from this scenario, market leaders have to identify this problem early and carry out major changes w.r.t policies which provided them initially gains. Some forces which might work against this adjustment of policies are –
· A few good years in a cyclical business can give an illusion of well-being while problems get blamed on business conditions
· Some managements might be measured by short-term results. This would make major policy changes unattractive.
3.Specialization — Richard K. Lochridge, 1981
This article mentions all competitors as specialists. It is not possible for 2 competitors to serve customers who are exactly alike, at the same cost, in the same way, and at the same time. The value which customers place on differentiation can be measured by their purchasing behavior, i.e. how much is being sold and at what price. The article divides costs into 2 broad categories — cost required for participation in business and the discretionary costs. Specialization can be defined as a result of both varieties in customer needs and willingness of competitors to serve those needs. It is very difficult to achieve a competitive advantage in all cases, but rewards are exceptional wherever they are achieved.