Page 92 - DMGT522_SERVICES MANAGEMENT

Unit 4: Service Strategies

Stars are those SBUs (or service products) which are in a high growth rate industry (like for Notes
example, BPOs) and whose relative market share is also high (like Delhi based IBM-
Daksh). They would require a lot of support from the service firm in terms of resources to
remain competitive and gain market share.

Cash Cows are SBUs (or service products) that are in low growth or mature industries but
have relatively high market shares. This could be due to their early presence in the market.
Whenever any industry has a decline, stars transform into cash cows, are able to retain
their customers and their loyalty, and effectively have very low marketing costs. Thus
cash cows rarely invite additional investment and are only “milked”.

Problem Child (also called question marks) is those SBUs which have doubtful future.
The manager can neither predict a rosy future for them nor a definite death. The SBUs
have low relative market share but the industry in which they are is doing very well and
has high growth rate. It seems that while their competitors are doing well, they
themselves are not doing so well overall. It speaks of their non-competitiveness presently.
The management has a choice in its decision: it can give more support by way of resources
and hope for a revival of its fortunes or withdraw support and kill the SBU, cutting
losses while it can. The danger lies in the fact that at a future date, both the decisions
could be proved wrong: the first could make the firm suffer opportunity costs, while the
second, opportunity lost.

Cash Crunch (also called Dogs) is the category applicable to those SBUs who are neither
doing well themselves vis-à-vis their competitors (reflected in very low market shares),
nor is their industry growing (reflected in very low growth rate).

Example: The south based NEPC group of Khemkas had started an airline with the same
name. The SBU started functioning in the mid 90s, when the travel boom was a ‘forever’ promise
that ended with a whimper. Neither was the air travel industry – especially inland traffic –
growing nor was NEPC performing well. It resulted in a lot of bankruptcy and closures (Damania
Airways, East West Airlines, Span Airways, etc.) including NEPC Airlines.
Uses: Service firms can use the BCG matrix to build and develop market share for their SBUs. It
is mostly used to allocate and reallocate limited resources to the different SBUs at the corporate
level strategic planning. The service firm should go in for a balanced portfolio of SBUs (or
products) and it is imperative to include stars and problem children as a part of its portfolio-mix,
exclude cash crunch (by divesting) and harvest Cash cows.
Limitations: BCG matrix is a useful strategic tool but is overtly simple and the limitation is due
to the dependence on just two factors to determine whether an SBU deserves allocation of
resources or not. Secondly, it was developed in US and is useful for service firms functioning in
a mature, market-oriented environment. It may not be so suitable for mixed economies like
those of the newly liberalised East Bloc countries, and others, including India, Sweden, etc. The
Hungarian economist, Magdolna Csath has modified the BCG matrix by using two different
parameters: environmental opportunities and a service firm’s competitive strength instead of
industry growth rate and market share respectively. The model is recommended for assessing a
service firm’s present as well as desired SBUs or product portfolio.

4.1.2 General Electric Business Screen

This model is also used for allocating limited resources amongst a service firm’s SBUs or service
products, and then developing marketing and corporate level strategies for them. General
Electric developed the business screen with the help of consulting firm McKinsey & Co. which
builds on the limitations and drawbacks of the BCG matrix.

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