SWOT and BCG – Let the Anaysis Begin

January 25, 2009

In “Principles of Marketing,” when there is a need to conduct an in-depth analysis to determine the vitality and viability of an organization’s grand strategic vision, a SWOT Analysis is the most popular de facto Strategic Analysis tool according to Phillip Kotler. In a steady hand, it is a tool for dissecting the controllable (Strengths & Weaknesses) and uncontrollable (Opportunities & Threats) forces at play both internally and externally at a high level. The result will be more potently effective if used in conjunction with the Boston Consultant Group (BCG) Matrix, a lesser-known counterpart that will enable better comprehension strategically in both the micro- and macro-level.

It would be easy to combine the data from SWOT Analysis and BCG Matrix tools since both share many similarities and are normally presented as a grid template comprised of four sections with relevant headings. (Example: For SWOT Analysis — Strengths, Weaknesses, and Opportunities & Threats, and for BCG Matrix — Stars, Question Marks, and Cash Cows & Dogs.) It is important to list clearly the questions, discussion points, and examples within the relevant section of the template grid. By analyzing the list of questions, we would be able to determine the strategic path for an organization; however, the result will differ depending on an individual or a group of people.

An example of differing opinion is illustrated in the confusing scenario in which Kawasaki’s (The Art of the Start, p. 20) suggestion to kill the Cash Cows, which are considered sacred in many companies — big or small strategically. BCG Matrix indicates that Cash Cows are a product or business unit holding the largest market share and requiring minimum investment to maintain profit margin (www.bcg.com). In essence, it is actually an opportunity component in a SWOT Analysis. No individual in the right frame of mind would do it. It is a consensus that managing a product/business unit requires talent as market forces will be the key ingredient in evaluating the strategic direction. In addition, there is a constant need for continuous improvement, identification of new markets, and enhanced development. Product/Business Unit cycle is never certain due to volatility in market dynamism. Of necessity, start-up must reinvent itself in order to be at the forefront of the other competitors. This scenario might play a part in shifting the Cash Cows dynamic to the status of a Star portfolio (Kotler and Armstrong, 2003). Rather than killing the Cash Cows (p.20), why doesn’t the author propose to develop a new product/business unit to augment the Cash Cows portfolio? This new process will definably face hardship at the very beginning but, again, Kawasaki is the author of “The Art of the Start.” Go figure!

For an organization to grow organically and strategically, it must identify itself to be either a leader (Star & Strength) or a follower (Question Mark & Weakness). Let’s take Honda Motor Corporation as the prime example. Saichiro Honda started in a small bicycle repair shop before his start-up company grew into a motorcycle company. Throughout the growth period, the company did not limit itself only to automobiles and robotics. Their most recent investment in jet engine manufacturing is taking baby steps to fruition. Honda is a mobility company that deals in the transportation of precious human cargo. The Power of Dreams is their tag line, which clearly portrays the company’s commitment to new technological advancements (www.Honda.com). Honda never envisioned itself as an automobile company, which is it main Strength (Star), but as a people mover. The company’s main source of profitability (Opportunities and Cash Cows) is their use of technology, innovation, and creativity in pinpointing new markets for its range of products.

Ultimately, the result for all Strategic Analysis tools, such as SWOT Analysis and BCG Matrix, is purely subjective because of the dynamic market forces that work in very mysterious ways. Relative to the business continuity standpoint, it is certainly an advantage to utilize tools such as a SWOT Analysis and BCG Matrix to provide an organization the guidance necessary to navigate to greener pastures and, along the way, avoid the pitfalls misdirection.

By: Hock-Chye

References
Kotler, Phillip and Armstrong, Gary (2003). “Principles of Marketing”. Prentice Hall: USA
Kawasaki, Guy (2004) “The Art of the Start”. Portfolio: USA
(www.Honda.com)
(www.guykawasaki.com)
(www.garage.com)
(www.bcg.com)

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9 Responses to “SWOT and BCG – Let the Anaysis Begin”

  1. Waymon Short said

    Personally; I have found that a SWOT analysis is a great way to brainstorm and develop a clear understanding of a business process. However; it is sometimes very difficult to place entries into the correct quadrants, which if not properly done will decrease the effectiveness of the analysis. After reading this article, it is clear to me that the Boston Consultant Group (BCG) Matrix is a great tool that is designed to be utilized in conjunction with a SWOT analysis because the combination yields useful insight into the underlying relationships between the quadrants in a SWOT analysis diagram. As a result; this additional information will aid users by making it easier to properly populate a SWOT analysis diagram. Great idea!

  2. Randy Sutton said

    I think I understand the similarities of the SWOT and BCG matrix, however I have to disagree a little with the contrast that is drawn from “The Art of the Start” by Guy Kawasaki. I think Kawasaki is saying many things here, but his point is that the cash cow in the marketplace will inevitably not be the cash cow of the future. New products and development will be the future of the company. You see this everyday in the pharmaceutical industry. The cash cows they reap today will inevitably be taken over by the generic drug industry as soon as the patent status runs out. This measure of the drug pipeline to come is therefore a closely observed metric for people who follow these companies. It is a principal driver in new development, mergers and acquisitions to keep the company on the cutting edge of the marketplace at large, ensuring its longevity.

  3. Chris said

    I thought Chin’s presentation was excellent. It illustrated the product life-cycle very well and helped me to see the bigger picture a little clearer.

  4. Alan Hill said

    I too see the similarities between the SWOT and BGC matrix. My organization uses SWOT at our annual management retreats to analyze our organization and identify new opportunities, usually service enhancements or new services. Although the BGC matrix is another approach, I still like the SWOT approach.

    As far as killing the cash cow, the only reason for doing this is because the product or service has run its course. An example of this in my organization is found in our services for assisting clients with QS-9000 quality management systems for the automotive industry. This standard was popular from the mid 1990′s till 2006. It was one of the first automotive based quality management system standards that was widely accepted in the US and world wide, to a lesser extent. It was adopted by the big 3 US automotive manufacturers and was pushed down to their supplier base. The QS-9000 was a “product” based quality management system and based on the 1994 edition of the ISO 9001 standard. When the 2000 version of ISO 9001 was released, the industry moved to a “process” based quality management system. A new standard was developed by ISO to adopt this concept (ISO/TS 16949). With the release of this standard, more international automotive manufacturers adopted the standard and the US manufacturers followed suit. The standard was going to be obsolete after 2006. Realizing this, we made a decision to re-focus our automotive quality management services around the new standard. This was done early in 2004. This is one example of how my organization killed a cash cow and replaced it with a new service.

  5. Jeremiah Goodson said

    An interesting article with enlightening comments. I was familiar with SWOT analysis, but the BCG Matrix was new to me. I can see the similarities as well as the potential application. My company is in the Oil and Gas industry where the product doesn’t change much, but working in IT where there is constant change I wonder if the BCG matrix may be used to help forecast possible system changes.

  6. Jeremiah Goodson said

    An interesting article with enlightening comments. I was familiar with SWOT analysis, but the BCG Matrix was new to me. I can see the similarities as well as the potential application. My company is in the Oil and Gas industry where the product does not change much, but working in IT where there is constant change I wonder if the BCG matrix may be used to help forecast possible system changes.

  7. Janaki said

    Have heard about SWOT befobut not BCG. Nice way of presenting on these concepts.

  8. PiterMcfersonz said

    I’ll be straight-forward: no one like when things like this materialize to them. So, I must reveal this rather outstanding sample

  9. Marvelous, what a web site it is! This blog provides useful facts to us, keep it up.

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