Why did Apple choose the iPod in 2001 and what had happened to Sony and the Walkman. Why hadn’t they made a move? These were the key questions which prompted my case study, Apple from the iPod to the iPad. The staggering revelation was that Apple had utilised classic tools of an analysis to identify the product opportunity. Better still at the launch of the iPod, Steve Jobs spoke in classic three dimensional strategic management analysis. The video clip used when presenting the case study tells all. “Why music”, says Jobs, “because it’s a huge market and no one has got the formula right”. It’s two dimensional SM with more to follow. Last week I was lecturing at Salford Business School - great fun.
In 1970, BCG the Boston Consulting Group developed the Growth Share Matrix. It was an two dimensional analytic for portfolio management which quickly became a classic in corporate strategy. Designed for conglomerates with an extensive portfolio of businesses, BCG classified businesses into dogs, cows, stars and question marks.
Businesses with high market shares in low growth markets were identified as cash “cows”. Low sector growth meant that demands for capital investment and working capital were low and the profit generated from a high market share could be “milked” within the organisation. Businesses in this quadrant threw off cash into the corporate coffers.
Businesses with high market shares in high growth markets were identified as “stars”. High growth led to demands for investment and working capital which could be met by extensive profit growth as a result of exploitation of market shares. Businesses in this quadrant produced sales and profit growth but demands for cash were high. Stars have a price and cash utilisation is the ticket.
Businesses with low market shares in low growth markets were unattractive generating little growth in sales and profits. They were classified as “dogs” and should be marked for disposal, to a home for dogs or to a milk farm for consolidation presumably.
Business with low market shares in high growth markets were slightly unknown. Growth in profits was usually present but free cash generation was low. An evaluation was required to see if the extension of market share was possible within the near term.
The Growth Share matrix was great. It offered pertinence and simplicity. It still remains valid for any portfolio analysis be it conglomerates or product group analysis. It is based on TWO DIMENSIONAL strategic management analysis, relative market share (RMS) and relative market attraction (RMA).
Two dimensional strategic management analysis captured the imagination. By adding a third dimension of relative financial strength (RFS), a fourth of time, (the economic cycle) and finally a fifth dimension of cash and debt management, (my) recent work on this subject has been able to move the agenda forward extensively.
In 2001 Apple wanted a consumer electronic product for the digital hub strategy. Many were screened in the process but the iPod and “music on the move” was the chosen strategy, it was an attractive market, competition was fragmented and Apple’s financial and brand strength could be brought into play. Three dimensional strategic management analysis evident and in action.
The Apple Case study From the iPod to the iPad can be located here as a free down load.
*In 1975, Boston Consulting Group produced the report prepared for the Secretary of State for Industry the Strategy Alternatives for the British Motorcycle Industry. Market shares produced volume which led to lower costs along the experience curve. Market share was all. PIMS. “profit improvement through market share was the mantra”. More of this in a later post.
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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University. Author of the Apple Case Study from the iPod to the iPad part of which is published in Johnson Scholes Whittington Exploring Strategy 9th edition 2010.
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