Boston Consulting Group's Advantage Matrix

After its well known ‘growth-share matrix the Boston Consulting Group subsequently developed another, much less widely reported, matrix which approached the `economies of scale' decision rather more directly. This is their `Advantage Matrix' [http://futureobservatory.dyndns.org/9435.htm] , also in the form of a quadrant (four boxes) but which takes as its `axes' the two contrasting `alternatives', `economies of scale' (described by them as `potential size of advantage') against `differentiation' (shown as `number of approaches to achieving advantage'). In essence, the former category covers the approach described in the more popular (Boston) growth-share matrix, while the latter represents the approach (described by Michael Porter) of `differentiating' products so that they do not compete head-on with their competitors.

*Volume business. In this case there are considerable economies of scale, but few opportunities for differentiation. This is the classic situation in which organizations strive for economies of scale by becoming the volume, and hence cost, leader. Examples are volume cars and consumer electronics.

*Stalemated business. Here there is neither the opportunity for differentiation nor economies of scale; examples are textiles and shipbuilding. The main means of competition, therefore, has been reducing the `factor costs' (mainly those of labour) by moving to locations where these costs are lower, even to different countries in the developing world.

*Specialized business. These businesses gain benefits from both economies of scale and differentiation (often characterized by experience effects in their own, differentiated, segment); examples being branded foods and cosmetics. The main strategies are focus and segment leadership.

*Fragmented business. These organizations also gain benefit from differentiation, particularly in the services sector, but little from economies of scale; examples being restaurants and job-shop engineering. Competition may be minimized by innovatory differentiation.

Apart from the fact that it has not suffered as badly at the hands of later popularizers, the particular advantage of this matrix is that it highlights the assumptions that are hidden in the Boston Matrix. It may also give a better feel for the optimum strategy and the likely profits, but it does not give any feel for the cashflow, which was the main feature of the original matrix.

References

M. E. Porter, 'Competitive Strategy' (Free Press, 1980)