Student Discussion Activity Introduction

In the following mini-case study, you are required to categorize the corporations business portfolio into the four boxes of the BCG (Boston Consulting Group) model. You then need to decide how the management should allocate $250 million funds available across their strategic business units (SBUs), using the BCG matrix as your guide.

Mini-case Study

The AHI Group is a hypothetical diversified firm operating in Australia. Created less than 20 years ago, AHI has clear goals of strong growth and achieving dominance in all the markets that it chooses to compete in. The corporation now has four SBUs, as follows:

A chain of fast food restaurants (General Manager = Clive)

A manufacturer of smart TVs (General Manager = Kristi)

A branding marketing consulting firm (General Manager = Therese)

A bus travel company (General Manager = Jamie)

It is strategic planning time at AHI and each of the General Managers are outlining their resource requirements with the founders. (Note: There is $250m available to reinvest into the business.)

The following are some excerpts from the minutes of the meeting:

Clive: My fast-food division is the only one that is making any real profits over $500m last year. Its clearly obvious that we need to reinvest in THIS business. Lets expand and grow the profits. As usual, were facing significant challenges from new competitors, so we really need the investment.

Kristi: Thats fine, but youve got limited growth potential. OK, were not making much money now, but this market is too big to not pursue it properly. So we need the $250m to help catch up to the leaders, as theyve got a big start. That way we can generate potential huge future profits.

Therese: Kristi, youre too far behind the market leaders. I dont see the sense in throwing money into something where we will probably end up in a weak position anyway. Whereas our branding marketing

consulting business is growing really well. Were consulting throughout the world and are considered to be one of the market leaders with our innovative practices. Sure, weve got lots of infrastructure costs, but this is going to be a future goldmine. Well make more than the fast food chain in five years time.

Jamie: Were in a tough market thats pretty flat at the moment. I know we only make a few million dollars a year, which is small time for the rest of you. But its a big market, and we could use the investment to somehow improve our position.

Student Discussion Questions

How would you classify each of AHIs business portfolios using the BCG matrix? How would you allocate the $250m investment across the SBUs?

How useful did you find the BCG matrix in helping allocate the $250m investment?

Are there circumstances where the BCG matrix could be misleading (that is, suggest an investment in a low potential SBU for instance)?