ch11 life cycle and portfolio strategies
TRANSCRIPT
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
PART 3
STRATEGIES FOR THE
ENTREPRENEURIAL
ORGANIZATION
CHAPTER 11
Life Cycle and Portfolio
Strategies
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
0 Time
Sales value
IntroductionLow sales
Low growth
Low profits or
losses as costs
are high
Few
competitors
GrowthIncreasing sales
Rapid growth
High profits as
costs come
down
Competitors
emerging &
competition
intensifying
MaturityStatic but high sales
Static but high profits
Focus on cost reduction
Fight for market share
Established competitors
DeclineDeclining sales
Declining profits
or losses
Competitors
exiting
The Product Life Cycle
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Introduction Phase:
Elements of Marketing Strategy
• Basic product
• Price low for repeat purchase where trial is
important or price high where novelty or
uniqueness is valued, particularly if repeat
purchase is infrequent
• Promote aggressively
• Explain product benefits
• Build awareness, encourage early adoption
• Selective distribution
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
0 Time
Sales value
IntroductionLow sales
Low growth
Low profits or
losses as costs
are high
Few
competitors
GrowthIncreasing sales
Rapid growth
High profits as
costs come
down
Competitors
emerging &
competition
intensifying
MaturityStatic but high sales
Static but high profits
Focus on cost reduction
Fight for market share
Established competitors
DeclineDeclining sales
Declining profits
or losses
Competitors
exiting
The Product Life Cycle
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Introduction Phase:
Elements of Marketing Strategy
• Basic product
• Price low for repeat purchase where trial is
important or price high where novelty or
uniqueness is valued, particularly if repeat
purchase is infrequent
• Promote aggressively
• Explain product benefits
• Build awareness, encourage early adoption
• Selective distribution
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
The Product Life Cycle
0 Time
Sales value
IntroductionLow sales
Low growth
Low profits or
losses as costs
are high
Few
competitors
GrowthIncreasing sales
Rapid growth
High profits as
costs come
down
Competitors
emerging &
competition
intensifying
MaturityStatic but high sales
Static but high profits
Focus on cost reduction
Fight for market share
Established competitors
DeclineDeclining sales
Declining profits
or losses
Competitors
exiting
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Growth Phase:
Elements of Marketing Strategy
• Develop product extensions & service levels
• Price competitively to combat competition &
penetrate market
• Promote aggressively
• Build brand
• Intensive push on distribution
• Limited trade discounts
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
0 Time
Sales value
IntroductionLow sales
Low growth
Low profits or
losses as costs
are high
Few
competitors
GrowthIncreasing sales
Rapid growth
High profits as
costs come
down
Competitors
emerging &
competition
intensifying
MaturityStatic but high sales
Static but high profits
Focus on cost reduction
Fight for market share
Established competitors
DeclineDeclining sales
Declining profits
or losses
Competitors
exiting
The Product Life Cycle
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Maturity Phase:
Elements of Marketing Strategy
• Wide range of products but expansion slows
• Modify & differentiate product
• Develop next generation of product
• Price defensively – meeting or beating
competition – to ensure maximum return
• Emphasise brand
• Promote selectively, based on special offers
or promotions and trade discounts
• Intensive push on distribution
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
0 Time
Sales value
IntroductionLow sales
Low growth
Low profits or
losses as costs
are high
Few
competitors
GrowthIncreasing sales
Rapid growth
High profits as
costs come
down
Competitors
emerging &
competition
intensifying
MaturityStatic but high sales
Static but high profits
Focus on cost reduction
Fight for market share
Established competitors
DeclineDeclining sales
Declining profits
or losses
Competitors
exiting
The Product Life Cycle
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Life Cycle and Competitive Position
Hold niche
Grow with ind.
Harvest profit
Grow fastGrow fast
Attain cost
leadership
Defend position
Attain cost
ledshp. Review
Defend posn.
Renew Grow
with industry
Find niche
Grow with
industry
Turn-around
Consolidate
Withdraw
Divest
Withdraw
Grow fast
Catch up
Differentiate
Differentiate
Focus Grow
with industry
Harvest
Catch-up
Hold niche
Focus
Grow with
industry
Differentiate
Focus
Grow fast
Differentiate
Grow fastReduce costs
Differentiate
Grow with ind.
Harvest profit
Find niche
Grow with ind.
Harvest profit
Turn around
Find niche
Consolidate
Divest
Consolidate
Cut costs
Start-up Growth Maturity Decline
Dominant
Strong
OK
Weak
Very weak
Co
mp
eti
tive
Po
sit
ion
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
The Boston MatrixM
ark
et
Att
racti
ven
ess
Low
Star Problem Child
DogCash Cow
High
Low
Market Strength
High
Decline
Maturity
Failure
Growth
Introduction Pro
du
ct /
Se
rvic
e la
un
ch
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
The Boston Matrix Strategy ImplicationsS
tar
Cas
h D
og
Cash
Co
w
INVEST FOR GROWTH
• Penetrate market• Accept moderate short-term
profits• Sell and promote aggressively• Expand geographically• Extend product range• Differentiate product/ service
DEVELOP OPPORTUNITIES
• Be critical of prospects• Invest heavily in selective
products/services• Specialise in strengths• Shore up weaknesses
GENERATE CASH
• Monitor carefully and judge when to discontinue
• Live with low growth• Improve productivity• Reduce costs• Look for ‘easy’ growth
segments
MANAGE FOR EARNINGS
• Maintain market position with successful products/services
• Differentiate products/ services to keep share of key segments
• Prune less successful products/ services
• Stabilise prices, except where a temporarily aggressive stance is required to deter competitors
Pro
ble
m C
hild
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
The Boston Matrix
Star Problem Child
Cash Cow Dog
Niche
Commodity
Commodity
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Product Life Cycle Management
Star Problem Child
Cash Cow Dog
Product extensionsProduct expansions
Product
modifications
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
The Boston Matrix - Cash Flow
Star
DogCash Cow
Revenue
Expenditure
Cash flow
Revenue
Expenditure
Cash flow
Revenue
Expenditure
Cash flow
Revenue
Expenditure
Cash flow
+ + +
- - -_________
neutral
+
- - -
_________
- -
+ + + +
- -_________
+ +
+
-_________
neutral
Problem Child
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
ABC Analysis
Contribution
Low High
Class B
Class C
Class A
Sales
High
Low
Low value to the business
High value to
the business
Corporate Entrepreneurship: Building the Entrepreneurial Organization by Paul Burns
Industry Life Cycles and Mergers &
Acquisitions
Increasing merger, acquisition and alliance activity
Phase 1
Low
concentration
Phase 2
30-45%
concentration
Phase 3
70%
concentration
Phase 4
90%
concentration
Size
Time