Corporate Level Strategy – Mix and Composition of Business Units, страница 3

On the morning before the Day of Atonement I helped my Zeide to carry his very heavy stand all the way from his far end seat, near the ark, at the “grand” synagogue to the entrance hall of the synagogue.  We came early to take his usual place: left of the main gates, near a door to a side hall.  He would sit there, the stand in front of him, with the empty paper plate covered with the nice doily.  Soon the hall was completely full with others raising donations for various causes.  For the next few hours almost everyone stopped in front of my Zeide, putting a note or two on his plate.  He recognized everyone by their voice, many by their footsteps.  Recognizing the old rabbi’s footsteps (that was easy, even I could recognize those footsteps), he would stand up waiting for him to approach.  He never asked me how much the rabbi, or anybody else, put on the paper plate.  He also had at home a small inventory of utensils used by sick or bedridden people.  Those who borrowed them for any period of time, and could afford it, left donations.  Every month my Zeide prepared many envelops with varying sums of money.  He asked me to check, but though the same size, he never switched a note of a hundred, for a fifty, ten, five, or a single.  Later the envelopes would disappear.

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The BCG matrix took America by storm.  Experience curves became the key concept for corporate strategy.  It has become the best known and most widely used portfolio model, and at the same time the most frequently criticized one.  The planning focus of the BCG portfolio matrix is the cash flow provided to or extracted from each one of the business units comprising the corporation.  Cash generation and use is a strong function of market growth rate and relative market share.  The growth rate of a business unit affects the rate at which it will use cash.  The experience-curve position relative to competitors will affect the margins and the rate at which a business unit generates cash.  The sources of, and need for, cash should be balanced without jeopardizing market position.  The thrust of the BCG is to balance the cash flows among the various business units and thereby develop and meet the growth objectives of the corporation, while simultaneously accommodating its cash requirements.  During the middle and late stages of their life cycle, successful business units generate cash, which in turn should be invested in business units that are anticipated to be the major future cash generators.  This is a continuous process since, if implemented successfully, in years to come these newly successful businesses units will generate cash to be invested in yet newer promising businesses.

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The BCG model, widely used in determining corporate strategy, goes one step further, introducing the "BCG Zoo." Figure B: The BCG Model, presents this zoo. 

Stars are business units that have a relatively large market share and operate in fast-growing markets.  These are usually new units in growing industries, with resulting high profits.  They are leaders in their industry and generate relatively large revenues from sales, though they are frequently in rough balance with respect to bottom-line net cash flow, since they require large investments in fixed and working capital to ensure high growth rate in a growing market.Cash Cows have, in the past, gained large market shares, but they currently compete in industries whose growth rate has slowed down.  They usually are the Stars of the past, which today supply the corporation with enough profits to maintain the current market position.  Cash generation is good and cash needs are minimal.  These businesses can generate large cash surpluses.  They form the foundation of the corporation, providing the cash flow necessary to pursue other strategic goals.