Growth-share matrix

3.3. Growth-share matrix Chapter 3. Strategic Management of NBP their growth rate. Many companies would have to rely on a few star SBUs to ensure a steady cash stream. Eventually, they will turn into cash cows.

• Cash cows are low growth, high share businesses or established products and successful SBUs that require less investment to maintain market share.

Money generated at low investment should be invested for question marks or keep stars high.

• Dogs are low-growth, low-share businesses and products that can generate enough money to sustain themselves but not promise to be significant money sources. This SBU is therefore not as attractive to investors.

Before identifying the battery cooling system position of the diagram, it is fair to define the variables. Relative market-share 3.2 is the focal company’s share of its largest competitor [24]. It is calculated from the market-share formula 3.1.

Market-Share = company B.U. revenue

tot. industry revenue · 100 (3.1)

Relative Market-Share = Company B.U. market-share [%]

Largest industry market-share [%] · 100 (3.2) It isn’t easy to access the data that compose these formulas. This is one of the shortcomings of using the matrix. However, the index for the market size of the management cooling system for electric vehicles, calculated in 2020, has been found. In 2020 the market size was 2.1 billion dollars, and it is assumed that in 2027 it will reach a value between 8 and 12 billion $ [8] [11].

The second variable is the growth rate of the market. This is used to measure market attractiveness. Fast-growing markets are the most attractive to compa-nies because they promise attractive returns on investment over the long term.

The downside, however, is that companies in growth markets are likely to need investment to make growth possible. In the management cooling system industry, a CAGR (Compound Annual Growth Rate) of 22.5% from 2021 to 2028 has been estimated [8] [11]. This rate is high compared to others SBU and makes this industry highly profitable for investment.

3.3. Growth-share matrix Chapter 3. Strategic Management of NBP

Figure 3.1: Schematic representation of NBP in the BCG Matrix

From a rough analysis based on the company’s SBUs, it was possible to position the management cooling system as a "question mark". The high growth rate makes this industry very profitable. However, care must be taken, and no missteps must be made to maximise the value of these electric vehicle products and turn them into a star SBU.

The Growth-Share matrix is closely correlated with the product life cycle diagram.

It’s possible to divide the sales curve according to the four SBUs previously described. The question marks follow the part of development and design and represent the lower point of the sales when the product comes introduced in the market. On the other hand, stars represent the surge in sales when products are in their growth phase. Next, there is a maturity zone characterised by cash cows.

Finally, the Dogs are in the decline phase: the final phase of the cycle, when sales start to decline. In image 3.2, the condition of extending the product life cycle that would keep it as a star is not represented [23]. For example, this can be achieved by adding new features, optimising existing ones, creating variants, or taking it to a new market or market segment. It is commonly called restying.

3.3. Growth-share matrix Chapter 3. Strategic Management of NBP

Figure 3.2: Product life-cycle diagram

Very close to this concept, Arthur D. Little’s ADL model is a portfolio manage-ment method based on product life cycle thinking. The ADL portfolio managemanage-ment approach uses environmental assessment and business strength assessment di-mensions. The environment measure is an industry life cycle identification. The business strength measure categorises the company’s SBUs into one of five compet-itive positions: dominant, strong, favourable, tenacious, and weak. This produces a five (competitive positions) matrix by four (life cycle stages). The corporate strategy team must identify discrete businesses by finding commonalities among products and business units, using a set of available guidelines that include typical rivals, pricing, customers, quality/style, substitutability, divestiture, or liquidation.

Each firm’s industry life cycle stage is evaluated based on several parameters used as descriptors, such as growth rate, industry potential, product lines, number of participants, share distribution, customer loyalty, revenue, and technology.

3.3. Growth-share matrix Chapter 3. Strategic Management of NBP A company’s competitive position is based on an assessment of the following criteria:

• Dominance: there are few players, and rivalry is low. Power often results from a near-monopoly or highly protected technology leadership.

• Strong: leading companies can usually follow different specific strategies, following other moves from competitors

• Favourable: a situation where the industry is fragmented, and the more experienced players have an easy time standing out and becoming leaders

• Tenable: in this case, there are many leaders in the market. While generating profit, serving the industry in a secure situation may require specialising in a niche of the industry.

• Weak: weak competitors may be inherently too small to survive indepen-dently and profitably over the long term, given the competitive economics of their industry, or they may be more significant and potentially more robust competitors but suffering from costly past mistakes or a critical weakness.

Positioning in the matrix identifies an overall strategy that can be developed regarding market share, investment requirements, profitability, and cash flow.

Suppose to consider the position of Mubea with the battery cooling plate. In that case, it’s possible to place it in a growing and strong position, given the presence of few competitors and highly differentiated solutions in the competitors’

offer. For future components related to the EV industry, it’s possible to assume a favourable/strong condition at an embryonic life cycle stage. In both cases, the company’s product lines are going through a natural development phase, and there should be no issues for which to divest and exit the industry.

However, this matrix approach (BCG) can lead to problems: measuring market share and growth, an expensive and time-consuming process, not focusing on future planning but on current businesses. Because of these problems, companies have turned to a more customised approach, developed by managers who are close to the market. Another possible tool to take advantage of future opportunities is the product/market expansion grid (Ansoff Matrix). This looks at new products, existing products, new markets, and existing markets to grow the company.