BCG Matrix Strategic Management Tool
The BCG matrix was founded on the notion that business can be similarly managed as a portfolio, just like how the investment is handled. The tool classifies a corporate firm based on the relative share of the market and market group. Portfolio with high relative market share has high cash returns and higher profits than those with lower market share due to high bulk production and hence economies of scale. A high market growth portfolio is characterized by higher earnings but consumes a lot of cash in the form of investment to stimulate further growth. BCG tool can be applied in health care organization to determine the products and service portfolio into four categories as stars, cash cows, dogs, and problematic children or question marks (Kontu et al., 2019). BCG analysis provides an understanding of brand or products that require further investment and the ones for divestment.
Dog category brands have both a low market share in the slowly growing market compared to competing brands or products. These are potential units for divestment because they generate negative or low cash returns. The most profitable brands fall in the cash cows quadrant as they generate a lot of cash for investing in the stars (Berkowitz, 2017). For stars, investment is necessary for maintaining its market share rather than market growth due to the saturated market. Portfolio in the star quadrants generate a lot of cash but consume substantial money to generate further growth. They constitute the primary units that require additional investment to turn them into cash cows. Problem child has a low market share in a fast-growing market hence closer consideration to determine if they are worth investing in or not.
The service distribution of the two multispecialty medical groups was classified into the BCG’s four quadrants based on their relative market share and market growth (Al Mansoori et al. 2018). Review of services a revealed a 65% cash cow, 10% for stars, question marks was 20%, and 5% for dogs. The second medical group has 20% for cash cows, stars 60%, dogs 5%, and 15% for problem children. The review indicates that most of group one services falls in the cash cow quadrant characterized by a large share of the market in a slowly growing market. Analysis of Medical Group has most services in the stars quadrant suggesting a bright future if it can turn them in cash cow through investment. Group one has only 10% of the services in the stars group indicating a dull future for this medical group. About 20% of group two services fall in the cash cow category implying it currently enjoys minimal sales returns compared to the Medical Group Two facility. However, dogs have the least number of services for both medical facilities.
Implications and Conclusion
The implications for the medical groups are as follows: First, medical group one has a dull future compared to medical group Two due as shown by 10 and 60 per cent of services in the stars quadrant respectively. Medical Group Two should invest substantial cash into stars service portfolio to turn them into cash cows to generate high cash returns and profitability. Medical Group one should only invest in the cash cows to sustain its current share of the market. In conclusion, Medical Group One is currently performing better than Medical Group Two in terms of cash returns and profitability. However, Group Two is likely to outperform Group One through a prudent investment that would turn stars into cash cows.
References
Al Mansoori, S. A. N. A., Ab Yazid, M. S., Khatibi, A., & Azam, S. F. (2018). Strategic Management And The Healthcare Sector In Abu Dhabi (Seha): A Theoretical Review. European Journal of Management and Marketing Studies.
Berkowitz, E. N. (2017). Essentials of health care marketing (4th ed.). Sudbury, MA: Jones & Bartlett Learning.
Kontu, A., Kantola, J., Vanharanta, H., & Kontu, K. (2019, February). Sustainable Competitive Advantages in the Industrial Service Business. In International Conference on Intelligent Human Systems Integration (pp. 600-606). Springer, Cham.