COVID-19 and its effects on the economy are forcing many businesses to make tough decisions regarding their operations. According to Chris Hitch, adjunct lecturer in management, innovation and entrepreneurship at Poole College of Management, business leaders need to carefully examine their resources and make necessary adjustments in order to come out strong on the other side.
“Peter Drucker famously said ‘Every product, every operation and every activity in a business should be put on trial for its life every two or three years,’ meaning businesses need to evaluate every part of their business regularly, especially during a pandemic,” Hitch says. “That means every product, service and operation in your business portfolio – whether its financial services or manufacturing or even professional services.”
That principal, Hitch says, was expanded upon in the late 1960s with Boston Consulting Group’s Growth-Share Matrix, also referred to as the Cash Cow Matrix.
According to Boston Consulting Group,
Each of the four quadrants represents a specific combination of relative market share and growth:
- Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest.
- High Growth, High Share. Companies should significantly invest in these “stars” as they have high future potential.
- High Growth, Low Share. Companies should invest in or discard these “question marks,” depending on their chances of becoming stars.
- Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.”
“Many individuals use a variation of this matrix, which essentially weighs today’s strategic priorities against tomorrow’s strategic priorities. Business leaders should evaluate every product or service against this sort of matrix,” Hitch says.
The key, he explains, is to ensure each member of the team is on the same page in terms of how the business’s products and services will be evaluated – before the process is underway. “It’s hard because people’s egos are intimately involved in this process. You need to ensure everyone is clear on how you’ll classify things or people will want to change the rules,” Hitch says.
High performing companies like Google have used a similar matrix above to evaluate its performance. For perspective, over the past five years, they have put 70 percent of their resources into the company’s “cash cows” 20 percent into “question marks,” 10 percent into “stars” and zero into “pets.”
For more resources, Hitch recommends organizational leaders read:
- Peter Drucker’s Managing for Results
- Rita McGrath’s The End of Competitive Advantage
- The Boston Consulting Group’s Growth-Share Matrix: Theory and Applications
This post was originally published in Poole College of Management News.