DEVELOPMENT
2016
COURSE STRUCTURE
1. Management by objectives
1.1 Definition of the concept. Components
1.2 Methodology of the implementation of the management by objectives
1.3 Operationalization of the management by objectives
2. Management by projects
2.1 Definition of the system. The concept of project
2.2 Types of management by projects that are being used
2.3 Methodology of drafting and implementation of the system
3. Benchmarking
3.1. Benchmarking concept, areas of application
3.2. Unfolding of a benchmarking project
4. Dashboard
4.1 Dashboard concept, functions
4.2 Methodology of design, completion and delivery of the dashboard
5. SWOT analysis
5.1 SWOT analysis theoretical aspects
5.2 SWOT qualitative model
5.3 SWOT quantitative model
6. Break - even
6.1 Break even strategic indicator of operations flexibility
6.2 Ways to increase the operations flexibility
7. Work graph of the manager
7.1 Definition and objectives of the wor k graphs
7.2 Stages of development of a work graph
8. ORTID technique
8.1 Presentation of the technique
8.2 Methodology of application of the ORTID technique and the managerial situations
in which are recommended its use
9. Product Management
10. BCG Matrix Method used to ground the organi zation strategy
1. MANAGEMENT BY OBJECTIVES
Bibliography
Verboncu I. - How do we manage? Methodological Guide for Managers, Tehnic
Publishing House, Bucharest, 1999, pp. 178 - 188
1.2
Source: Verboncu I. How do we manage? Methodological Guide for Managers, Tehnic Publishing
House, Bucharest, 1999, p.181
III.
IV.
VI.
It is the final stage where the results are measured, the forecasted objectives are
compared and the appropriate motivational behaviour is adopted (stimulation or
sanction of the participants involved in achieving these objectives).
1.3
Sequence 1
The fundamental objectives are taken over from the strategy and the policy of
the firm. These objectives refer to one year, one semester or one month, in
accordance with the temporary span of ongoing activities.
Sequence 2
The system of objectives is outlined, by deriving fundamental objectives up to
the level of specific and individual objectives.
Also, the actual costs of products and the achieved level of the budgetary
objectives are determined.
Sequence 10
The company determines the value of the material rewards/sanctions that are
going to be granted to the employees in accordance with the degree of achievement
of the objectives.
The coordinators of the action are the BUDGETS and the FINANCIALBOOKKEEPING departments.
A new version of the budget, available both for the company, and for its
management centers, resulted from the coupling of the management by objectives
with the budget management. This involves four chapters and, what it is very
important, a new way to highlight the costs, on two articles of reckoning:
- raw material and direct materials, half-finished, cooperation
- operating costs
Budget
No.
Crt
.
Specification
0
I.
1
1
OBJECTIVES
Physical production
(piece)
Turnover (thousands
lei)
Return (thousands
lei)
Commodity
production
(thousands lei)
Total working
time(thousands of
hours)
Wage fund
Directly productive
workers (thousands
lei)
The cost of the
production per hour
(of operating) - lei
2
3
4
II.
1
COSTS
Costs with raw
material and direct
Budg Updat
eted
ed
level level
2
Achieved
level
Differences
(+/-)
Table 1.1
%
Causes
2.1.
2.2.
2.3.
2.4.
3.
4.
III.
1.
2.
3.
4.
IV.
1.
2.
materials (thousands
lei)
Operating expenses
(thousands lei), from
which:
Expenses directly
allotted on
management center
Expenses allotted
according to the
surface
Expenses allotted
according to the
value of the fixed
assets x of the
operating hours
Expenses allotted
according to the
number of employees
Expenses of the
previous period taken
over as balance
Expenses received
from settlement from
other management
centers
REVENUES
Commodity
production made
(thousands lei)
Production in
progress at end of
period (thousands lei)
Expenses settled to
other management
centers (thousands
lei)
Turnover (thousands
lei)
FINANCIAL
RESULTS
Profit (thousands lei)
Loss (thousands lei)
Source: Verboncu, I. How do we manage? Methodological Guide for Managers, Tehnic Publishing
House, Bucharest, 1999, pp. 187 - 188
Further reading:
Nicolescu, Ov. (coord.) Systems, Methods and Organization's Management
Techniques, Economic Publishing House, Bucharest, 2000, pp. 189-209
Nicolescu, Ov., Verboncu,I. Management, Third edition revised, Economic
Publishing House, Bucharest, 1999, pp. 344-348
Zorlenan, T., Burdu, E., Cprrescu, Ghe. Organizational Management,
Economic Publishing Hose, Bucharest, 1998, pp. 581-584
2. MANAGEMENT BY PROJECTS
Bibliography
Verboncu I. - How do we manage? Methodological Guide for Managers, Tehnic
Publishing House, Bucharest, 1999, pp. 199 - 209
for the specialists of the project team; choosing of the most favourable
organizational formula for the quantitative and qualitative completion of the
project; ensuring of the filling and delivery of the dashboard; drafting of the
project budget and so on);
- coordination of the project team, in order to ensure bilateral and multilateral
communication with its constituents; organizing and conducting meetings
(sessions) to launch the project, during its implementation (including
meetings of creativity) and at the project completion;
- persuasion of the participants to complete the project;
- control-assessment of the project (checking not to exceed the prices and
deadlines of the project, of the quality counter and the budgetary control;
continuous and final assessment of the project; corrections etc.).
The project members or the project team must meet some requirements
related to:
- size a total of 8-12 persons recruited from within or outside the company;
- training the members of the team project must have a mixed training
enabling them multidimensional approach to the problem represented by the
project;
- duration is established for a limited period of a few months to 1-1.5 years;
- subordination is directly subordinated to the project manager;
- operation its activities are carried out on the basis of a budget and
timetable of deadlines in which are specified intermediary and final
deadlines for the achievement of the project;
- structural and organizational settlement outside the organizational
structure (matrix structure)
The project, respectively the work, action, problem etc. very complex, of
innovative nature, it is defined from many point of view:
- specification of the main objectives;
- establishenment of the extension of the project;
- specification of the structural components involved in the completion of the
project (positions, functional and operational departments);
- specification of the duration of the project;
Project budgeting
Objectives;
Costs;
Revenues;
Results.
VI.
3. BENCHMARKING
Bibliography
Scurtu, V., Russu, C., Popescu, I. Benchmarking. Theory and applications,
Economic Publishing House, Bucharest, 2006, pp. 15-22, 25-27
Planning
Documentation of the review process;
Establishment of the purpose of the benchmarking analysis;
Settlement of the criteria for the selection of the partners;
Identification of the target partners based on the criteria determined
hereinbefore;
- Establishment of the plan of collecting the preliminary data.
II. Collecting
- Identification selection of information sources on partners' processes;
- Selection from the partners identified in the planning phase only of those
that fit best with the purpose of benchmarking;
- Development of the tools for data collecting;
- Internal assessment of the tools selected for analysis;
- Contacting of the partners identified and request for their participation in
benchmarking;
- Selection of partners according to their interest for the proposed analysis ;
- Conducting the detailed investigations.
III. Analysis
- Comparing the performance of the organization with the performance of its
partners;
- Identification of the best practice;
- Formulation of the implementation strategy;
- Development of the implementation plan.
IV. Adaptation
- Implementation of the plan;
- Monitoring and reporting of the progresses;
- Systematization and recording of the methodology and information resulted
from the research in order to be useful to other studies;
- Development of a plan of continuous improvement.
For theoretical aspects and especially for the case study we recommend in
PDF format:
Dr. Ing. Viorel Scurtu Benchmarking. Tool of the innovation manager,
EURO INNOVATION MANAGER, S.C. AGPITT INVENT S.R.L., 2007
(Benchmarking module, attached to the course).
Further reading
Nicolescu, Ov. (coord.) Systems, Methods i Management Techniques of
Organization, Economic Publishing House, Bucharest, 2000, pp. 345-357
Verboncu I. - How do we manage? Methodological Guide for Managers, Tehnic
Publishing House, Bucharest, pp. 236-240
4. THE DASHBOARD
Bibliography
Mereu, C., Decision Simulations, Course support for master, University of
Piteti, 2004
Verboncu, I., Dashboard. Theory, Methodology, Application, Tehnic
Publishing House, Bucharest, 2001, pp. 23, 28-29, 31-34, 49 - 88, 94-170
Name of UM
the
Level
Differences % Causes
Planned Accomplished
indicator
0
..
.
.
.
.
b) The charts, which help better illustrate the trend of some indicators or
indices within a certain timeframe
c) The mixed forms (tables of values associated with charts)
1.6 Design of the layouts used in the dashboard. These can be designed for
General Assembly of Shareholders, board of directors, general manager,
commercial manager, economic manager, head of operational department,
foreman etc.
1.7 Fixing of the flows and information circuits associated with the information
situation (vertical circulation of the information that supply the layouts
specific to the dashboard)
1.8 Settlement of frequency to fill and deliver the layout specific to the
dashboard. In the table below are some examples.
The frequency of tracking the information
Table no. 4.2
No
.
Type of information
Frequency
Daily
Weekly
Monthly
Yearly
ICAIFSINS and IW I s
3
*
*
*
Situation
customers
10
11
12
13
Dynamics
of
the
investments at the firm
level
14
Cash- flow
15
16
Physical production at
of
*
*
the
Consumption of labor at
the firm level
18
Electricity consumption
at the firm level
19
Environments of the
enterprises
General external
environme nt
Types of information
Specific external
environme nt
Inflation rate
Average wage
Unemployment rate
Strikes at the main suppliers
Rate of exchange lei/ EUR
Monthly instalment of the loans
interest
Changes in utilities prices
Changes in taxes
Enterprise
development
funds
provided by the EU
Monitoring of the main competitors
and their market share
Gross profit ratio of the main
competitors
Back payments of the main
competitors
Operating result of the main
competitors
Financial costs of the main
competitors
Geographical areas of interest of the
main competitors
Claims of the main competitors
Substitute products and services
launched on the market
Inte rnal
environme nt
Source: Mereu, C. Decision Simulation, Course Support for Master, University of Piteti, 2004
5. SWOT ANALYSIS
Bibliography
Bgu, C., Deac, V., Firms Strategy, Eficient Publishing House, Bucharest,
2000, pp. 76 - 96
Stncioiu, I., Militaru, G., Management. Basic Elements, Teora Publishing
House, Bucharest, 1998, pp. 240 - 245
Bcanu, B., Strategic Management Practices. Methods and Case Studies,
Polirom Publishing House, Iai, 2006, pp. 133 - 151
Russu, C., Albu, M., Diagnosis and Firms Strategy, Tribuna Economic
Publishing House, Bucharest, 2005, pp. 99 - 109
Internal
environment
Positive
Negative
Strengths
Weaknesses
External
environment
Opportunities
Threats
Source: Russu, C., Albu, M.- Diagnosis and Firms Strategy, Tribuna Economic Publishing House,
Bucharest, 2005, p. 103
Weaknesses(W )
Opportunities( O) I. ( S - O )
II. ( W - O )
Threats ( T )
IV.( W - T )
III. ( S - T )
Source: Russu, C., Albu, M.- Diagnosis and Firms Strategy, Tribuna Economic Publishing House,
Bucharest, 2005, p. 107
Quadrant III (S-T) - Determine whether it is realistic that the threat be overcome
by the forces of the organization. It is inefficient to maintain some strengths as
long as the environment does not provide any opportunity and it is adopted the
decision to withdraw from those areas.
Quadrant IV (W-T) - In an area of this type you have a serious and urgent issue
that can jeopardize the company's operation. Pay special attention to seeking
solutions to remove the threat.
The qualitative model allows a faster and more intuitive use, specific to the
small firms or organizations with unique individual decision maker.
Depending on the PGIF level, its potential is evaluated using the following rating
scale:
Rating scale of the internal potential
Firms potential
Between 1 and 2
low
very low
small
Between 2 and 3
medium
tendency to small
tendency to big
Between 3 and 4
high
big
very big
Source: Bgu, C., Deac, V., Firms Strategy, Eficient Publishing House, Bucharest, 2000, p. 81
SWOT
quadra
nts
Generic
strategies
Name
Application
directions
- a market
segment
Focus on
I
Growth
Propulsive
- a product
Fusions and
acquisitions of
companies
- Peacefully
Horizontal
diversification
- In-branch
- Forcibly
- Conglomerate
II
in
hazardous
conditions
- Peacefully
Fusions and
acquisitions of
companies
- Forcibly
- Reconversion
Reorganization
III
- Sale of assets
- Closure of
factories
Constraints
Bankruptcy
- Temporary
close for
reorganization
Forced
liquidation
- Nationally
Joint Venture
- Internationally
IV
Overcomin
g of
weaknesses
Vertical
integration
- Upstream
- Downstream
Horizontal
diversification
Conglomeration
Fusion with
other firms
Peaceful
consolidation
with
similar
firms
Source: Stncioiu. I., Militaru, G.- Management. Basic Elements, Teora Publishing House, Bucharest,
1998, p. 241
Choosing the strategy related to that quadrant is a capital issue that is settled
by a group decision-making. The quantitative model is recommended in the case of
a group decision-making process specific to the large organizations.
Further reading:
Nicolescu, Ov. (coord.) Systems, Methods and Organization's Management
Techniques, Economic Publishing House, Bucharest, 2000, pp. 389-403
Russu, C. Strategic Management, All Beck Publishing House, Bucharest, 1999,
pp. 77-85
6. BREAK - EVEN
Bibliography
Mereu, C., Decision Simulations, Course support for master, University of
Piteti, 2004
under the names of operational dead spot or critical turnover. The calculation of
the critical turnover takes into account the following set of ratios:
CA cr Ch ex
CA cr ChV ChF
RV
ChV
CA ref
CA cr R V CA cr ChF
CA cr
CAcr
ChF
where:
1 R V
- critical turnover;
- fixed expenses;
RV
CA cr
CA ref
[1]
0 F 1
The values close to 1 correspond to the maximum flexibility and the values
close to 0 correspond to the minimum flexibility. The higher the flexibility, the
easier the company can endure the variations in the external environment (market,
inflation, rate of exchange). It is clear that to increase flexibility, the value of CAcr
should be as low as possible.
CA ref c CA max
where
c level of the utilization of the maximum turnover, the relation [1] becomes
F 1
CA cr
c CA max
[2]
and represents the broad definition of flexibility. It can be said that flexibility of
exploitation is an essential condition for the firms to maintain on the market.
Name
Turnover of reference
Case A
Case B
100.000
100.000
Fixed expenses
50.000
40.000
Variable expenses
40.000
40.000
Operating profit
10.000
20.000
RV
0,4
0,4
CAcr
83.333
66.667
0,6
0,6
0,167
0,334
Source: Mereu, C. Decision Simulations, Course support for master, University of Piteti, 2004
CAmax = 166.667
It turns out that a reduction in fixed costs by 20% leads to an increase of the
indicator of flexibilitytwice. In other words, if in the first case the firm cannot
survive without going into loss, than to a decrease in turnover by 16.7%, in the
second case, the same firm can support a market negative shock of 33.4% of the
turnover.
6.2.2 The increase of labor productivity and the reduction of materials and
energy consumption, effected by the reduction of the variable expenses by
20%. We analyze the influence separated on the reference case A.
Name
Turnover of reference
Fixed expenses
Variable expenses
Operating profit
Rv
CAcr
c
F
Case A
100.000
50.000
40.000
10.000
0,40
83.333
0,6
0,167
Case B
100.000
50.000
32.000
18.000
0,32
73.529
0,6
0,265
Source: Mereu, C. Decision Simulations, Course support for master, University of Piteti, 2004
Name
Turnover of reference
Fixed expenses
Variable expenses
Operating profit
RV
CAcr
c
F
Case A
100.00
50.0000
40.000
10.000
0,40
83.333
0,6
0,167
Case B
120.00
50.0000
48.000
22.000
0,40
83.333
0,72
0,305
Source: Mereu, C. Decision Simulations, Course support for master, University of Piteti, 2004
Name
Turnover of reference
Fixed
expenses
referin
Variable expenses
Operating profit
RV
CAcr
c
F
Case A
100.000
50.000
40.000
10.000
0,40
83.333
0,60
0,167
Case B
120.000
40.000
38.400
41.600
0,32
58.824
0,72
0,510
Source: Mereu, C. Decision Simulations, Course support for master, University of Piteti, 2004
Flexibility increased from 0.167 to 0.510. In the case study presented hereinbefore,
the simultaneous reduction of fixed and variable costs by 20% and the rise of the
turnover by 20% lead to the increase of the flexibility of operation of 3.05 times!
Simple changes of the relation [1] lead to
F 1
ChF
(1 R V )c CA max
The basic structural condition at the level of the firm to increase the flexibility
of operation is:
ChF
minim
(1 R V )c CA max
The programs for the reduction of the fixed expenses are drawn up by the
department of strategic plan as coordinator with the contribution of the
investments, mechanoenergentic and finance-bookkeeping departments.
The programs for the reduction of the variable expenses are drawn up by the
department of organization and standardization of production with the contribution
of the technological departments. The programs for the increase of turnover are
drawn up by the marketing departments with the contribution of the prices
department.
Further reading:
Nicolescu, Ov. (coord.) Systems, Methods and Organization's Management
Techniques, Economic Publishing House, Bucharest, 2000, pp. 403-419
Stnescu, C., Ifnescu, A., Bicui, A. Financial and Economic Analysis,
Economic Publishing House, Bucharest, 1996, pp. 214-215
Day 1
Activities
7,00
7,30
8,00
8,30
9,00
.
.
.
24,00
The estimation of the time available for study
Source: Nicolescu Ov.- Systems, Methods and Organizations Management Techniques, Economic
Publishing House, Bucharest, 2000, p. 450
Analyzing the results obtained from the previous graph, the weekly
programs can be made, for example for study, as well as for other types of
activities that give a perspective of the essential concerns of the managers, as the
one below:
Table 7.2
Day
In the morning
In the afternoon
In the evening
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Source: Nicolescu Ov. - Systems, Methods and Organizations Management Techniques, Economic
Publishing House, Bucharest, 2000, p. 450
But it is useful to underline that, above all, the work graphs are needed by
the senior managers, because at this level the diversity, heterogeneity, significance,
complexity and importance of the tasks require a more rigorous organization of the
management activity. Furthermore, because at this level are prepared and made the
most important decisions, of whose quality depends on the success or failure of the
organization.
Of course, the work graphs are also required at the level of the other leaders.
As I have emphasized before, sometimes is necessary to connect, at least partially,
the content of various work graphs.
The main advantages of the work graphs are:
- Decrease of entropy of the systems led by focusing on vectors of
organization and order in various organizations;
- Achivement of superior results, that can be measured, due to the
fulfilment on schedule, of a high quality and optimizing the use of
various resources, due to greater rigor in management activities;
- Development of the managerial capacity to focus on the essential aspects
of the activity of the organizations.
8. ORTID TECHNIQUE
Bibliography
Nicolescu, Ov. (coord.) Systems, Methods and Organizations Management
techniques, Economic Publishing House, Bucharest, 2000, pp. 379 - 386
No.
Crt.
0
1
2
3
4
5
Source: Nicolescu Ov. - Systems, Methods and Organizations Management Techniques, Economic
Publishing House, Bucharest, 2000, p. 380
All the problems that must be solved will be put on the horizontal line, while
the evaluation criteria will be placed on the vertical line. To each problem, for each
evaluation criteria, is given a number of points, the maximum number being, for
example 100, in terms of the importance of the problem from the point of view of
that criterion, according to the following rule: the score varies directly proportional
to the value of the objectives, the possibilities of integration and the contribution to
development, and inversely proportional to the consumption of resources and the
necessary transformations. Summing up the points associated with each criterion,
the score for each problem is obtained and the problems will be solved in
decreasing order of this score.
The top-level manager is recommended to regularly use the ORTID
technique, at different intervals of time (as a rule three months, six months). As the
problems which represent priorities have been partially or entirely solved, it is
possible that the next problems noticed as important to advance becoming
priorities, or other problems, that were not noticed at the beginning or that have
become to manifest with great intensity in the stage that passed from the previous
use of the technique, to become priorities, their solving requiring the attention of
the management.
8.2 Methodology of application of the ORTID technique and the managerial situations in
which are recommended its use
The use of the ORTID technique requires the passing through the following stages:
1. Identification (of all) the problems that might affect the objectives established by the management of the
organization through its strategy and of the issues that could appear in the process of the optimization of the
use of the organizations resources. These problems turn into elements that can have a negative influence
on the capacity of the firm to achieve its objectives or to use efficiently the disposable resources.
2. The repartition of the identified problems in more categories: technical problems, economic problems,
management problems. As the case may be, these three categories can be subdivided, in order to group as
accurately as possible the problems that were noticed.
3. Establishment of the criteria depending on which the problems that must be solved will be assessed. The
criteria used by the ORTID technique are:
3.1 The objectives, namely quantitative and/or qualitative expressions of the purpose for which the firm was
founded and it functions. The establishment of the objectives represents the starting point of the activity of
each company. Depending on the coverage domain and importance, these can be: fundamental objectives,
objectives derived of first degree, objectives derived of second degree, specific objectives and individual
objectives.
3.2 Resources human, information, material and financial.
3.3Transformations namely the changes that must be made in the technological processes, products, work
procedures and organization management.
3.4 Possibilities of integration, namely of implementation of the transformations that were decided, based on a
set of methods and appropriate management techniques.
3.5 Development of the firm the execution of the changes through the integration of the the measures that had
been planned aims at amplifying the results by the superior use of the existing resources, namely the
development of the company.
4. The elaboration of The evaluation grid of the importance of problems.Pursuant to the previous stages,
this stage aims at building the Evaluation Grid that will have, on the horizontal line, grouped in categories,
all the problems that must be solved, and on the horizontal line, the criteria (as the case may be, even the
subcriteria) of assessment.The model of the grid is presented in the table 8.2.
No.
Crt.
0
Crite rion
1
Subcriterion
2
Fundamental objectives
Derived objectives 1
Objectives
Derived objectives 2
Specific objectives
Individual objectives
TOTAL
Human
Information
Resources
Material
Financial
Tehnological
Products/Services
TOTAL
Work procedures
Transformations Management
TOTAL
Application possibilities
Integration
Phasing of application
TOTAL
Experimentation of
Development
application
Application of results
TOTAL
TOTAL SCORE
Techniques
1 2 3
...n
3
Economic
2 3
...n
Managerial
1 2 3 ...n
11 12 13 14
10
TOTAL
15
100
100
100
100
100
500
Source: Nicolescu Ov. - Systems, Methods and Organizations Management Techniques, Economic Publishing House, Bucharest, 2000, p. 382
5. Allotment of the score for each problem and for each criterion, based on
the rules set (directly proportional to the relevance of the objectives, the
possibilities of integration and the contribution to the development of
organization, and inversely proportional to the resources consumption and
the necessary transformations) and summing up of the score on problems
(on columns).
6. Ordering the problems according to the decreasing values of the score
obtained in the previous stage, to start start their settlement. These
problems can turn into ways to accomplish the objectives of the strategy
or of other nature of the organization. On this occasion, there can be found
out the weight of the technical, economic and managerial problems on the
whole and which of these categories of problems take the first place in the
firm that is analyzed.
Simple and easy to use, if the organization has specialists in economic and
managerial problems, co-workers or assistants of the managers, the ORTID
technique is currently recommended in more managerial situations.
The ORTID technique can be used either for the settlement of the
priorities of the organization on the whole, although, in this case, given the
great variety of the problems, the allotment of the scores is difficult to achieve,
being necessary a very careful and detailed analysis of each problem in
correlation with each criterion and subcriterion, or for the settlement of the
priorities for a subunit of the firm analyzed, a situation in which both the
determination of the criteria and the allotment of the score and ordering of the
problems can be achieved easier, even by the qualified personnel from that
organizational subdivision (compartment, section etc.).
The ORTID technique is recommended to be used both on the occasion
of the drafting of the firms strategy and whenever appear various
problems that influence the activity of the organization and is necessary to
prioritize those issues, so that the appropriate distribution of the resources could
be made.
9. PRODUCT MANAGEMENT
Bibliography
Zorlenan, T., Burdu, E., Cprrescu, Ghe. Organizational Management,
Economic Publishing House, Bucharest, 1998, pp. 395-397
Nicolescu, Ov. (coord.) Systems, Methods and Organizations Management
techniques, Economic Publishing House, Bucharest, 2000, pp. 247 - 258
Basically, this method represents a version of the management by
projects, exclusively focused on the enhancement of the competitiveness of
some products or group of products of the organization.
The product management is defined as the set of processes and activities
carried on in order to maintain or enhance competitiveness of a product or group
of products by a manager whose is given, for this purpose, suitable tasks,
attributions and responsibilities (Zorlenan, T., Burdu, E., Cprrescu, G.,1998,
pp. 395-397).
The main stages in the implementation of the product management
method are:
1. Selection of the product or group of products that will be the
object of the product management. The decision for selection
belongs to the top management and aims at choosing the
significant products as regards the turnover, profit, rate of return.
The selection is based on the following criteria:
- serial number and the weight of the product (group of products) in the
total of production
- degree of complexity
- speed of obsolescence
- date of manufacture and the place in the life curve
- appearance, packing and distribution.
The analyses and, respectively, the selection are made taking into account
the products similar to those entering competition on the internal and external
markets. Product management will be applied only for the products fabricated in
large quantities, which have significant shares in the turnover and are highly
competitive.
Bibliography
Zorlenan, T., Burdu, E., Cprrescu, G., Organizational Management,
Economic Publishing House, Bucharest, 1998, pp. 280-281
Stncioiu, I., Militaru, Gh., Management. Basic Elements, Teora Publishing
House, Bucharest, 1998, pp. 245-248
The BCG Matrix (Boston Consulting Group) organizes various business
segments of the firm according to the criterion of the potential to generate
income and, through this criterion, can identify the segments with development
perspectives and those that must be eliminated or transformed. (Stncioiu, I.,
Militaru, Gh., 1998, pp. 245-248).
The division of the firm into domains is made by group of products or
activities. Mostly, is used the division into groups of products (that employ the
same raw material; manufactured with the same technology; traded through the
same distribution network etc.) of type SBU (Strategic Business Units). A
Strategic Business Unit is a significant segment of the organization which is
analyzed to set up the strategies of the organization to generate new business or
income.
The BCG matrix is developed based on two variables:
- Market growth rate (the growth rate of the analyzed business segment),
according to the relation:
Market growth rate =
QUESTION MARKS
Low profitability
Need liquidity
Contribute to increase
STARS
DOGS
Low profitability
Do not contribute either
increase, or to profit
High profitability
Need liquidity bigger than
what they produce, to be able
to increase rapidly
Contribute to increase
CASH COWS
High profitability
Supply liquidity
Do not contribute to increase
The stars are the products that have high demand in the market and for
which the enterprise has a high market share. These are productive, that is they
bring benefits, but they do not always provide the necessary liquidity to finance
the investments that support their development. They need large expenses with
the advertisement, and the manufacturing costs stand high, because of the lack of
an extended experience in their production. When the demand starts to decrease,
the financial needs of the investments diminish and the products become sources
of liquidity and will be included in the products considered as Cash cows.
The quadrant Cash cows includes business segments in slow growth, mature
or in decline, which entail few new investments both in production capacity and
in the financing of the need of working capital. These are very lucrative
activities if the firm has a dominant position. They release a very important
financial flux that will have to be reinvested intelligently.
The Question Marks are represented by the products that are sold in
small quantities and, therefore, generate low income. The manufacturing costs of
these products are, generally, high, because they are produced in a small series,
so the fixed costs per unit are higher.
The profit generated by these products is low, so it is necessary for them
to be supported with returns from other products.
The Question Marks can evolve in two ways: either turning into Stars as
a result of capital injections, or entering the category Dogs and then leaving
the arena.
The Dogs are the products that can barely maintain in the race and most
often consume resources of liquidity generated by other products. The
businesses subjected to limitation or elimination are recruited from these
products.
Basically, an activity during its life cycle goes successively through the
four quadrants: at the beginning it is a question mark (launch phase), then
becomes a star (growth phase), continues its life as the cash cow (maturity
phase) that, in the end, to end lifecycle as a burden activity (decline phase). It is
important that any activity follow this path, with an extension of the state cash
cows, if it is possible, this being a successful way. Opposed to it, there is a path
to failure, when an activity goes directly from the question mark stage to the
dogs stage. The liquidity generated by the cash cows acivities will be initially
used to maintain and strengthen the position of the stars. The surplus will be
used to increase the market share of few question marks, carefully selected, to
transform them into stars. For dogs it is adopted a strategy of piece segmentation
to find the last subsegment that could be exploited and from where might result
substantial liquidity. If this strategy proves to be impossible, the idea of
investing in these products is tempting and, consequently, their reconversion into
cash cows. However, in the case of an activity in the decline phase, there is the
risk of not recovering the investments made and, as a result, a single strategy is
possibly more often strategy of abandonment. The development of these
strategies is strongly connected to the life cycle of product and business.
In consequently, the BCG strategy consists in maintaining a balance
between different activities that generate sufficient liquidity to provide the
financing of the development of the stars activity and the selected question
marks. It is about the necessity of the existence of a balanced portfolio of
activities.
Fig. 4
a) Old portfolio
b) Young portfolio
c) Balanced portfolio
With all its deficiencies, the obvious usefulness of the BCG matrix is that
it offers a clear enough picture regarding the way in which the internal flows of
the firm with diversified portfolio of businesses must be directed, in order to
improve the competitive position of the firm by increasing its economic and
financial performance of the whole portfolio. But the inability of management to
use matrix may generate errors as the overinvestment in cash cows business, the
underinvestment in question marks (which impedes them to become stars and
and push them to blind spots), the dispersal of resources among too many
businesses and question marks instead of focusing them towards some with real
chances of becoming stars.