Boston Consulting Group Matrix
I woke up in the middle of the night with worry about a problem child. Not a family issue but I’ve done that too over the years. I think I figured out where the strategic business units (SBUs) of our friends in the lighting industry think they are and why they are making the decisions they are. Think out the latest happenings: Cree sells to Ideal; Amerlux sells to Delta, Eaton wants to spin off Cooper; Current, powered by GE sells the business unit to private equity firm American Industrial Partners (AIP); Simkar files for bankruptcy protection; Osram announces lower profits…on and on.
If anyone out there has taken a marketing class, I’m sure you remember the Boston Consulting Group (BCG) matrix. It’s all about market share and market growth and the strategic decisions one must make to be viable. Here’s a refresher course and how it affects the lighting industry, in my opinion:
- Stars- Stars represent business units having large market share in a fast-growing industry, like the intelligent lighting industry. They are dominant leaders in the industry they serve. They may generate cash but because of this fast growing market, Stars require huge investments to establish and maintain their lead. SBU’s located in this cell are innovators, highly competitive, attractive to investors and are positioned to take advantage of the changes only they envision. As the lighting industry transitions, I really need your help because at this stage, I really do not know of anyone who should be in this quadrant. I have my suspicions and I’m sure some will claim to belong here but what do you think? Who do you think will be the dominant market share leaders in the Intelligent Lighting industry?
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- Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing, fading industry. Legendary or traditional lighting comes to mind, ya think? Cash cows require little investment and generate cash that can be utilized for investment in Star business units. These SBU’s are the corporation’s key source of cash and are specifically the base of an organization and their core business. Here’s what woke me up in a sweat: it dawned on me that when you feel your SBU is a cash cow, you want a financial executive to run that business, right? Cash cows make money and should be “milked” to provide as much cash as possible. Someone tell me what the biggest cash cow in the lighting industry, GE, is doing? Huh? The new GE digital lighting business, Current, and I quote: “the smart, connected, commercial space for lighting” moved their SBU into the Problem Child cell…for sale.
- Problem Children (Question Marks) – Now I get to the Problem Child that keeps me up at night. Some call it Question Marks, either way, it’s SBUs with low market share in a fast-growing market: Intelligent Lighting. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. They want to be Stars. There is no specific strategy which can be adopted……expansion, retrenchment, repositioning, whatever? As with all problem children, they cannot be ignored. The best way to handle a problem child is either to invest heavily in them to gain market share and become a Star, or to sell them off before they become a Dog. GE again… So are many others. I would love to be in the halls of Philips (sorry Signify, where I was once) and Osram as they evaluate their options. Opinion: most of the traditional players are all Problem Childs at this point in the transition process as well as the high-tech electronic companies who are searching for a reason to be in the lighting business. You cannot tell the players without a score card and you certainly cannot predict who will make it to the Star quadrant.
- Dogs – My friend and cohort Chris Brown likes to say, “some are out of business and don’t know it yet.” He’s talking about Dogs. They represent businesses having weak market shares in low-growth markets: the traditional lighting market. They neither generate cash nor require huge amount of cash but due to their low market share and weak marketing practices, they will be the first to go. It’s never good to be mediocre in any business but in a mature traditional lighting industry, you could get away with it and survive and you did. In the Intelligent Lighting industry, you really cannot and must not be mediocre. For those who did survive, you have a choice, a second chance to be great: shape up, understand what’s happening and make the necessary changes in your business to compete at a high level this time, or look for work in some other industry. Just trying to make the choices as simple as possible. What do you think?
We still teach the principles of the BCG Matrix and it applies here. It’s getting clearer that those in the Cash Cow or Dog quadrants are facing Illumigeddon. Thank you Chris Brown for the wake-up call. It may still be too early to know who the Stars are or will be but it sure feels like most, even the new entrants, are Problem Childs. As we move from the Traditional Lighting industry to Smart Lighting to Intelligent Lighting, who will emerge as the innovators, who will make the necessary investments, who will reposition their business to adopt, who will expand and gain market share, who will become the future captains of our industry? Maybe you know……let us know, ok? Much appreciated…