The BCG Matrix serves as a valuable strategic tool that organizations employ to allocate business units or products into distinct categories based on their market growth rate and market share.
In this article, we will focus on the BCG Matrix of ITC, a company that deals in a diverse mix of businesses and brands.
The BCG Matrix divides a company’s products into four categories: Question Marks, Dogs, Stars, and Cash Cows. This matrix is essential in optimizing the product portfolio and making informed strategic decisions. In this article, we examine each category while giving examples from ITC and explore how to use the BCG Matrix effectively. Finally, we will discuss the limitations of this template.
This article offers valuable insights on visualizing and optimizing product portfolios for entrepreneurs and marketing professionals alike. It explains how experts make critical decisions using the BCG Matrix. Keep reading if you want to learn more about these strategies.
Overview of ITC
ITC Limited is a renowned Indian company that operates across various industries, including cigarettes, FMCG, hotels, packaging, paperboard, and agribusiness. The company’s 13 business units span across 5 segments and export products to 90 countries worldwide creating an annual consumer spending of over H19700 million. With its diverse portfolio of brands, ITC is a persuasive choice for consumers looking for quality products from a trusted source.
In 2010, the corporation celebrated its centennial anniversary while making notable strides in revenue. The company’s annual income reached a staggering $10.74 billion, which granted it admission to Forbes’ prestigious list of top 2000 companies worldwide. To date, the organization has assembled a workforce exceeding 36500 employees and operates across an extensive network of over sixty locations
Making important decisions for the future strategy of all the brands collectively may seem overwhelming due to their vast operations.
The upper management team at ITC utilizes the BCG matrix to make informed decisions regarding its portfolio. This matrix enables marketers to establish whether they should maintain the existing product mix, introduce new products, allocate resources into current ones, or phase out certain brands in their lineup.
We’ll now dive into the BCG matrix of ITC with a detailed examination of its various categories, along with real-world examples.
BCG Matrix Analysis For ITC
Question Marks
Question Marks, or Problem Children, refer to products with a low market share in high-growth industries. Although these products have potential for growth, their future is uncertain and poses risks. In the BCG Matrix of ITC Ltd., both its FMCG (Fast-Moving Consumer Goods) business and personal care business fall under this category.
ITC is combatting market challenges through research and development initiatives. By investing in improvements to their Ayurvedic products, they aim to counteract declining shares due to the introduction of new products in the market.
These businesses, however, are still in the Question Mark quadrant. It’s important to consider that overinvesting in them could pose a risk.
The management’s strategic decisions are crucial in determining the future of the product: whether to increase investment, maintain status quo, or discontinue it altogether. It’s worth noting that Question Marks have potential to shine as Stars with proper investment and marketing strategies in place.
Dogs
The BCG Matrix categorizes dogs as products or business units with growth potential that failed to meet expectations. Typically operating in slowly-growing markets, these businesses incur losses for the organization. As such, investing in these ventures is viewed as a waste of valuable company resources.
ITC Infotech is a prime example of a dog in the ITC BCG Matrix. It is an esteemed global IT consulting and outsourcing solutions provider that specializes in catering to supply chain-based industries, aiming to create significant value for its clients.
The competition from TCS, Infosys, Accenture, and HCL has caused ITC Infotech to lose market share resulting in a challenging environment for survival.
ITC Ltd. management needs to evaluate the future of their dog business unit and choose between divesting or harvesting it for maximum profits, even if it means sacrificing market share.
Stars in BCG Matrix of ITC
In ITC’s BCG Matrix, the Star category includes high-growth products with significant market share that are expected to generate substantial profits. The Food division’s Aashirvaad Atta and Bingo! Chips are among the few products in this category that have a robust market presence and projected growth.
ITC’s Paperboards and Specialty Papers is a popular offering that enjoys a strong domestic and international presence. To gain an edge in the market, ITC focuses on investing heavily in these products with the aim of increasing its market share and consolidating its position further.
Investing in certain products can be a wise choice for an organization seeking long-term growth and profitability. However, securing such growth requires a significant initial investment. Thus, identifying these valuable products is integral to the success of any organization.
Cash Cows in BCG Matrix of ITC
ITC’s BCG Matrix identifies Cash Cows as products that hold a significant portion of a low-growth market. Due to their minimal need for investment to maintain their market share, these products generate substantial profits.
ITC’s FMCG Cigarettes is a leading example of a Cash Cow. The product has established a strong foothold in the market and continues to thrive.
ITC’s Hotels division is a highly profitable business line that generates consistent revenue due to its premium and luxury offerings, making it a Cash Cow for the company. With this reliable source of income, ITC is able to allocate funds towards other areas requiring investment.
Importance of BCG Matrix for ITC
1. Helps in Decision Making
The BCG Matrix is a useful tool for decision-making in resource allocation. By analyzing various products or business units, ITC can make informed and efficient choices about investing resources to achieve better outcomes.
2. Identifies Opportunities
ITC uses a matrix to pinpoint promising avenues for growth across various product lines. For example, if a product holds little market share in an industry with substantial expansion potential, ITC may choose to invest in that product and capture the growth on offer.
3. Controls Costs
The matrix facilitates ITC in controlling costs by detecting unprofitable products or those with low growth potential. This enables managers to make informed decisions about discontinuing such items or cutting back investments, which results in cost savings for the company.
4. Maximizes Profits
ITC can increase profits by identifying and investing in cash cow products. This strategy involves minimal investment while maintaining market share, resulting in increased profitability without additional costs.
5. Competition Analysis
The BCG Matrix is an effective tool for ITC to evaluate its market standing and monitor competitors. By utilizing this framework, the company can gain insight into its current position and identify opportunities to enhance its competitive edge.
6. Balancing Portfolio
The BCG Matrix can help ITC balance its portfolio by spreading out investments across various industries and product categories. This mitigates risk and promotes diversification of revenue streams, making it more secure for the company.
Limitations of BCG Matrix
1. Oversimplification
The BCG matrix reduces the complexities of businesses into just four categories. However, this simplification may oversimplify and lead to inaccurate decision-making.
2. Limited focus
The matrix analyzes market growth rate and market share only, neglecting other critical factors like competitive intensity, technology disruption, and market trends.
3. Inaccurate assumptions
The matrix assumes that having a high market share is always profitable. However, in reality, other factors like high costs, low margins, or aggressive price wars may work against profitability.
4. Arbitrary categorization
The categories of market growth and share, whether high or low, are not an accurate reflection of businesses’ true nature. The value of a business is much more complex and cannot be contained in such simplistic classifications. In fact, many businesses fall
5. Static analysis
The matrix fails to account for potential future shifts in product or market conditions, omitting a crucial aspect of portfolio analysis.
6. Lack of strategic guidance
The matrix framework for strategic business units falls short in providing practical direction on how to enhance performance through resource management and allocation.
Marketers and managers can enhance their BCG matrix analysis by acknowledging its limitations and taking steps to avoid common errors. By understanding the challenges associated with this framework, they can ensure that they use it effectively
Conclusion
The BCG Matrix serves as a valuable tool for ITC and other companies to make strategic decisions about their product portfolio. It enables them to evaluate the potentials of each business unit and product in terms of profitability and growth. Thus, making informed choices becomes possible through this metric.
The BCG Matrix offers a useful framework for companies to make informed decisions. However, combining it with additional analysis and market research is necessary to ensure the most effective product portfolio strategy.
References
Tanisha Mahajan 2021 Retrieved from; https://www.superheuristics.com/bcg-matrix-of-itc-ltd/
Heartofcodes Available at; https://heartofcodes.com/bcg-matrix-of-itc/
