Boston matrix analysis for BHP Billiton Group
The paper provides an analysis of BHP Billiton Group based on the Boston matrix. It is indicated that this matrix is a solid marketing tool to determine the financial performance of organisations. It focuses on companies’ market share and market growth. As a result of the implementation of the Boston matrix analysis to BHP Billiton Group, it is concluded that the company is at the position of a cash cow on the matrix. This finding has significant practical implications, and thus recommendations to use certain strategies are provided.
The Boston Matrix represents a marketing tool, which is commonly used to conduct product portfolio analysis and management. This instrument was introduced by the Boston Consulting Group in the 1970s (Stern and Deimler, 2006). The Boston Matrix mainly focuses on the dimensions of market share and market growth, as these aspects are considered important to identify the areas in which companies need to utilise resources in order to optimise their profit generation capacity (Kotler, 2006). The matrix indicates a focus on a product management perspective as an integral part of the analytical process. Market share refers to the percentage of the total market, which is attained by organisations. This value can be measured by considering the percentage of revenue or unit volume. It is usually assumed that a high market share suggests significant financial benefits to a company. Market growth relates to the attractive parameters identified in a particular market (Schermerhorn, 2013).
Businesses are usually grouped into four major categories: dogs, cash cows, question marks and stars. Dogs are companies that encounter the challenges of low market share and low market growth, while cash cows tend to have a high market share in low growing markets (Kotler, 2006). Question marks have a low market share in high growing markets. Stars represent the ideal situation for organisations because they tend to have a high market share in a rapidly growing industry (Stern and Deimler, 2006). These elements are reported by Stern and Deimler (2006) to generate sufficient cash and extensive opportunities for development.
By applying the Boston matrix analysis to the performance of BHP Billiton Groups, it appears that specific information and trends from the company’s segments should be considered. The iron ore segment of the organisation has been following a star strategy by focusing sales in Australia due to its intention to decrease production costs, which would help the corporation obtain a bigger share of the market. This may happen even though growth in Chinese steel output significantly decreases (BHP Billiton Ltd., 2013). BHP Billiton Groups has a high market share in the Chinese location but low growth, which reflected in the price drops. This in turn decreased the revenues from the company’s associated segments. According to this dimension, the corporation has been following a cash cow strategy. The iron ore segment of the organisation is facing persistent challenges related to the decline of iron price, workers strike as well as strengthening Australian dollar (BHP Billiton Ltd., 2013).
The copper segment is also affected by copper prices. As a result, the organisation has been following a question mark strategy by indicating a low market share in China due to the overall decline in copper revenues. Yet, the strategy of the company is to maintain a high market growth because of its positive production outlook in the respective segment. Similarly, the coal segment is negatively affected by low coal prices and rising cost. However, the corporation’s coals continue to be recognised as the most highly valued, supporting strong long-term margins, implying that BHP Billiton Groups has been following a star strategy in the Chinese and Australian locations (BHP Billiton Ltd., 2013). Future supply growth in the coal segment indicates that it is predominantly Australian, which directly sets the organisation at the position of a star on the Boston matrix.
The fact that the outlook for the petroleum segment looks good is important to predict that the company may return to its position as a star on the Boston matrix. One of the expectations in this context is that total shale production is most likely to rise in the future (Stern and Deimler, 2006). In terms of the company’s geographical locations, it seems that geographic factors limit competition for the organisation. The company operates in more than 100 geographical locations across the world. The company’s market share is high due to its diversified portfolio of services. Moreover, its market growth is relatively high (Grant, 2013). Therefore, BHP Billion is pursuing a star marketing strategy considering the mentioned aspects.
With regards to the company’s aluminium segment, it can be argued that BHP Billiton is pursuing a star marketing strategy, considering its both high market share and high market growth. For instance, the corporation’s total aluminium production for the fiscal year of 2013 is approximately 1.2 Mt (BHP Billiton Ltd., 2013). This means that the company’s market share is extremely high in this segment, which along with its high market growth in markets of Western Europe and Asia makes the corporation in a winning star position on the Boston matrix. The manganese segment of the company shows its adoption of a star strategy because approximately 80% of its production is sold directly in countries, such as China, India and South Korea (Grant, 2013). This aspect implies that BHP Billiton has both high market share in the mentioned markets and high market growth.
It can be argued that BHP Billiton Group’s share prices were relatively low in 2012. This aspect prompted the company to follow a question mark strategy because despite its low market share, the provision of various natural resources took place in a high growing market (Schemerhorn, 2013). However, at the end of 2012, the corporation gradually started expanding its share prices by representing an adequate price-to-earnings (P/E) ratio. This means that the group has focused on following a star strategy in its main segments. Yet, it is challenging to estimate the market price for each product due to the extensive diversity of the company’s products (Grant, 2013). Another challenge associated with the quantification of returns is the categorisation of returns in different currencies.
As previously indicated, BHP Billiton Group placed importance on location when it comes to making investments. In the United States, the corporation has been extensively concerned to adhere to a star strategy on the Boston matrix by distributing crude petroleum (BHP Billiton Ltd., 2013). It is essential to note that the company relies on its current strength of occupying a leading position in global commodities prices that are related to the health of the international economy. This suggests the potential of the corporation to predominantly follow a star strategy, which would guarantee it a better position compared to other organisations operating in the same industry sector (Grant, 2013). Nonetheless, the company is unable to predict currency assessments, which may lead to the adoption of a cash cow or a question mark strategy according to the Boston matrix. It has been indicated that certain flaws in the global economy negatively affect the performance of the corporation in the sense of decreasing its market share in certain segments. For instance, such flaws may lead to a reduced demand for commodities, which may directly reflect in lower prices and reduced profitability of the company.
The diverse portfolio of assets provided by BHP Billiton Group has assumed a solid market position of the company in its major segments. It is important to note that the corporation occupies a leading position in the trade of uranium in Australia after Olympic Dam Mine as well as of other natural assets, such as silver and copper (BHP Billiton Ltd., 2013). This places the company at a quite favourable position regarding its trade activities and thus it is more likely to adopt a star strategy in its home country. The fact that the corporation is a leading producer of nickel globally is indicative of the high market share it has in different segments and in different locations across the world (Stern and Deimler, 2006). As a result of the application of the Boston matrix analysis to the performance of BHP Billiton Group, it can be suggested that the company has the potential to make a substantial impact on the global delivery of natural assets. Its position as a star in most of its segments and in most locations shows solid management and leadership practices present at the organisation.
It is important to note that the major purpose of the Boston matrix analysis is to help BHP Billiton Group decide which of its business units should be kept as well as in which areas it can invest further (Grant, 2013). There are different strategies to be applied considering that the organisation is in the position of a cash cow on the Boston matrix. One of these strategies is to hold in order to maintain its sales or market share (Schermerhorn, 2013). Another strategy that can be utilised is to defend its position regardless of the challenges the company faces with regards to its market share and projected market growth (Kotler, 2006).
BHP Billiton Group can also implement a strategy, which is identified as ‘milk’, implying that the company is expected to use the cash it generated in the fiscal year to return to its position as a star on the matrix from the period of 2011 to 2012 (BHP Billiton Ltd., 2013). The fact that the company is at the position of a cash cow means that its profitability ratios have significantly declined. For instance, the organisation’s net profit margin, operating profit margin, ROE and ROA deteriorated in the period from 2011 to 2012 and from 2012 to 2013. It can be suggested that the company should seriously rethink its position in the market so as to try its best to restore its star position from the past (Schermerhorn, 2013). The application of the Boston matrix analysis to BHP Billiton Group’s performance yields significant conclusions about the company’s challenges and opportunities that can be addressed.
This paper has provided an analysis of BHP Billiton Group’s financial performance based on the Boston matrix. It has been indicated that the organisation is currently at the position of a cash cow on the matrix considering its high market share and low growing market (Kotler, 2006). Certain strategies have been provided so that the organisation can implement them in order to improve its position and return to the status of a star, which represents an ideal combination of a high market share and fast growing market (Grant, 2013).
BHP Billiton Ltd. (2013). Stock Analysis on Net [online]. Available at: http://www.stock-analysis-on.net/NYSE/Company/BHP-Billiton-Ltd/Financial-Statement/Income-Statement [Accessed: 14 August 2014].
Grant, R. M. (2013). Contemporary Strategy Analysis. New York: Wiley.
Kotler, P. (2006). Marketing Management. New York: Pearson Education.
Schermerhorn, J. R. (2013). Exploring Management. New York: Wiley.
Stern, C. W. and Deimler, M. S. (2006). The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives. New York: Wiley.