(This is the text of my speech at Toastmasters Valencia at Florida State University on the 22nd of January)
When I was at business school, another student told me that every English word adopted in Spanish and ending in “I N G” was useless. He said: coaching, marketing… everything which ends in “I N G” is smoke and mirrors.
Of course, I disagree with him. Many useful English words adopted in Spanish ends in “I N G”, especially, in business.
The first step in business must be to ask ourselves where are we? And where do we want to go? I say that because, sometimes, we have an idea for a new product or service and we start to try selling it without knowing if people need it, or if it is what people are looking for.
To avoid failure, we need a business plan which includes a corporate strategy and market research. Corporate strategy because we need a map; market research because we need to explore the size, characteristics and potential of the market to find out, even before developing a new product or service, what people want and need. What a coincidence, market research is a part of a discipline which ends in ING, marketing.
In the early seventies the Boston Consulting Group developed one of the most powerful tools in the history of business strategy and marketing. The Boston matrix.
The first step in using the Boston matrix is to break the company down into Strategic Business Units (SBUs). These could be a division, a product, a product line, a brand…
The unit’s position is plotted within the matrix according to two variables: its strength in its market and the attractiveness of that market. These two variables were chosen because of their implications for cash generation and consumption of resources.
Each Strategic Business Units will occupy one of four quarters of the matrix. As you can see from the graph below, the vertical axis indicates market growth, while the horizontal axis shows market share.
The first category is named Cash Cows: It’s a mature market. Here we have low growth with a high market share. They should generate more cash than they consume. Then, we should use the cash generated to build up question marks and fund existing stars.
The second one is called Dogs and it’s the worst category. There isn’t growth and we don’t have too much presence in the market. We must leave this business unit as soon as possible.
When we have a strong position in a high growth market, we are in the next category which is known as Stars. Here we generate lots of cash but we consume lots of it too.
If we are in a growth market with a low share, we will have Question Marks, the last category. We must turn them into stars.
Thanks to this tool, the corporate analysts can decide which of their business units to fund, and which units must be sold.
A diversified company with a balanced portfolio will be able to use its strengths to capitalize on its growth opportunities. And we will know how to diversify and how to identify our strengths and the market opportunities thanks to the Boston matrix.