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BCG Matrix and VRIO Framework for Woolworths Limited

Posted by Sophia Morgan on Jul-30-2018

BCG Matrix

The BCG matrix is a strategic management tool that was created by the Boston Consulting Group, which helps in analysing the position of a strategic business unit and the potential it has to offer. The matrix consists of 4 classifications that are based on two dimensions. These first of these dimensions is the industry or market growth. The other of these dimensions is the relative market share of the strategic business unit. Strategic business units are placed in one of these 4 classifications. The BCG matrix for Woolworths Limited will help decide on the strategies that can be implemented for its strategic business units.

Strategic business units with high market growth rate and high relative market share are called stars. Businesses should invest in their stars and can implement vertical integration, market penetration, product development, market development, and horizontal integration strategies. Strategic business units with high market growth rate and low relative market share are called question marks. These strategic business units require close considerations whether the business should continue with them or divest. Strategic business units with low market growth rate but with high relative market share are called cash cows. The business should invest in these to maintain their relative market share. Lastly, the strategic business units with low market growth rate and low relative market share are called dogs. The business should divest these strategic business units.

BCG Matrix of Woolworths Limited

The BCG Matrix for Woolworths Limited will help Woolworths Limited in implementing the business level strategies for its business units. The analysis will first identify where the strategic business units of Woolworths Limited fall within the BCG Matrix for Woolworths Limited.

Stars

  • The financial services strategic business unit is a star in the BCG matrix of Woolworths Limited. It operates in a market that shows potential in the future. Woolworths Limited earns a significant amount of its income from this SBU. Woolworths Limited should vertically integrate by acquiring other firms in the supply chain. This will help it in earning more profits as this Strategic business unit has potential.
  • The Number 1 brand Strategic business unit is a star in the BCG matrix of Woolworths Limited, and this is also the product that generates the greatest sales amongst its product portfolio. The potential within this market is also high as consumers are demanding this and similar types of products. Woolworths Limited should undergo a product development strategy for this SBU, where it develops innovative features on this product through research and development. This will help Woolworths Limited by attracting more customers and increases its sales.
  • The Number 2 brand Strategic business unit is a star in the BCG matrix of Woolworths Limited as Woolworths Limited has a 20% market share in this category. It also the market leader in this category. The overall category is expected to grow at 5% in the next 5 years, which shows that the market growth rate is expected to remain high. Woolworths Limited should use its current products to penetrate the market. This could be done by improving its distributions that will help in reaching out to untapped areas. This will help increase the sales of Woolworths Limited.

Cash Cows

  • The supplier management service strategic business unit is a cash cow in the BCG matrix of Woolworths Limited. This has been in operation for over decades and has earned Woolworths Limited a significant amount in revenue. The market share for Woolworths Limited is high, but the overall market is declining as companies manage their supplier themselves rather than outsourcing it. The recommended strategy for Woolworths Limited is to stop further investment in this business and keep operating this strategic business unit as long as its profitable.
  • The Number 3 brand strategic business unit is a cash cow in the BCG matrix of Woolworths Limited. This is an innovative product that has a market share of 25% in its category. Woolworths Limited is also the market leader in this category. The overall category has been declining slowly in the past few years. Woolworths Limited has the power to influence the market as well in this category. It should, therefore, invest in research and development so that the brand could be innovated. This will help the category grow and will turn this cash cow into a star. The overall benefit would be an increase in sales of Woolworths Limited.
  • The international food strategic business unit is a cash cow in the BCG matrix for Woolworths Limited. This business unit has a high market share of 30% within its category, but people are now inclined less towards international food. This change in trends has led to a decline in the growth rate of the market. The recommended strategy for Woolworths Limited is to invest enough to keep this strategic business unit under operations. If it no longer remains profitable and turns into a dog, then Woolworths Limited should divest this strategic business unit.

Question Marks

  • The local foods strategic business unit is a question mark in the BCG matrix for Woolworths Limited. The recent trends within the market show that consumers are focusing more towards local foods. Therefore, this market is showing a high market growth rate. However, Woolworths Limited has a low market share in this segment. The recommended strategy for Woolworths Limited is to invest in research and development to come up with innovative features. This product development strategy will ensure that this strategic business unit turns into a cash cow and brings profits for the company in the future.
  • The Number 4 brand strategic business unit is a question mark in the BCG matrix for Woolworths Limited. This strategic business unit is a part of a market that is rapidly growing. However, this strategic business unit has been incurring losses in the past few years. It has also failed in the attempts made at innovation by research and development teams. The recommended strategy for Woolworths Limited is to divest and prevent any future losses from occurring.
  • The confectionery strategic business unit is a question mark in the BCG matrix for Woolworths Limited. The confectionery market is an attractive market that is growing over the years. However, Woolworths Limited has a low market share in this attractive market. The low sales are as a result of low reach and poor distribution of Woolworths Limited in this segment. The recommended strategy for Woolworths Limited is to undergo market penetration, where it pushes to make its product present on more outlets. This will ensure increased sales for Woolworths Limited and convert this strategic business unit into a cash cow.

Dogs

  • The plastic bags strategic business unit is a dog in the BCG matrix of Woolworths Limited. This strategic business unit has been in the loss for the last 5 years. It also operates in a market that is declining due to greater environmental concerns. The recommended strategy for Woolworths Limited is to divest this strategic business unit and minimise its losses.
  • The Number 5 brand strategic business unit is a dog in the BCG matrix for Woolworths Limited. This is operating in a market segment that is declining in the past 5 years. The company also has negative profits for this strategic business unit. However, it is expected that the market will grow in the future with environmental changes that are occurring. The recommended strategy for Woolworths Limited is to invest in the business enough to convert into a cash cow. This will ensure profits for Woolworths Limited if the market starts growing again in the future.
  • The synthetic fibre products strategic business unit is a dog in the BCG matrix of Woolworths Limited. The market for such products has been declining, and as a result of this decline, Woolworths Limited has been facing a loss in the past 3 years. The market share for it is also less than 5%. The recommended strategy for Woolworths Limited is to divest this strategic business unit to minimise any further losses.
  • The artificially flavoured products strategic business unit is a dog in the BCG matrix for Woolworths Limited. These products were launched recently, with the prediction that this segment would grow. However, with increasing health consciousness, people are now refraining from consumption of artificial flavours. The market is shrinking, and Woolworths Limited has no significant market share. The recommended strategy for Woolworths Limited is to call back this product.

Some of the strategic business units identified in the BCG matrix for Woolworths Limited have the potential of changing from their current classification. For example, a dog changing to a cash cow. These have been identified in the BCG matrix of Woolworths Limited and recommended strategies to ensure such change have also been made.

VRIO Framework

The VRIO Framework or VRIO analysis is a strategic management tool that is used to analyse a firm’s internal strengths and resources. It helps identify which one of its internal strengths and resources can be a source of sustained competitive advantage. The analysis is based on the idea that a firm’s internal resources are a source of sustained competitive advantage if they are valuable, rare, cannot be imitated by competition, and are organised to capture value for the organisation. The VRIO analysis requires looking at a firm's resources based on these 4 factors.

Based on the analysis, each resource can either provide a sustained competitive advantage, has a good competitive advantage, temporary competitive advantage, competitive parity or competitive disadvantage. A sustained competitive advantage exists when a resource is valuable, rare, non-imitable and organised. A good competitive advantage occurs if it is valuable, rare, and non-imitable. A temporary competitive advantage exists if it is valuable and rare. A competitive parity occurs if it is only valuable. Lastly, the resource is a competitive disadvantage if it is neither of the 4. The analysis takes place in this order by first assessing whether a resource is valuable, rare, imitable and organised.

References

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.

Barney, J. (2002). Gaining and Sustaining Competitive Advantage, 2nd ed. Prentice Hall, Upper Saddle River, NJ.

Cardeal, N., & Antonio, N. S. (2012). Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?

Hambrick, D. C., MacMillan, I. C., & Day, D. L. (1982). Strategic attributes and performance in the BCG matrix—A PIMS-based analysis of industrial product businesses. Academy of Management Journal, 25(3), 510-531.

Jurevicius, O. (2013a). VRIO Framework. Retrieved from https://www.strategicmanagementinsight.com/tools/vrio.html

Jurevicius, O. (2013b). BCG growth-share matrix. Retrieved from https://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.html

Knott, P. J. (2015). Does VRIO help managers evaluate a firm’s resources? Management Decision, 53(8), 1806-1822.

Seeger, J. A. (1984). Research note and communication. Reversing the images of BCG's growth/share matrix. Strategic Management Journal, 5(1), 93-97.

Smith, M. (2002). Derrick's Ice–Cream Company: applying the BCG matrix in customer profitability analysis. Accounting education, 11(4), 365-375.

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