European Distance Learning College Assessment

European Distance Learning College

Assessment of Current Strategy

Recommendations for Future Strategies

The European distance learning college consists of five strategic business units (SBUs). Using the Boston Consulting Group's "Product Portfolio" method of categorizing products, each of the five SBUs will be categorized as stars, question marks, cash cows, or dogs. This implies that each SBU represents a distinct product line. Therefore no assessment of current strategy and no recommendation for future strategies will include combining multiple SBUs or dividing an existing SBU into multiple parts. The classification of the SBUs in their current condition will be compared to an ideal product portfolio mix. Recommendations for future strategies will seek to move the product portfolio mix from its current condition to the ideal mix.

SBU a fits into the question mark category. The SBU is third or at least in a tie for third out of nine companies for market share leadership. The market growth rate is high at 15%. So the SBU is not too far from a leadership position in a market with relatively few competitors and the market has a double-digit growth rate.

SBU B. fits in between the star and question mark categories. The SBU is tied with one competitor for market leadership. The market growth rate is the highest among the five SBUs at 18%. To summarize, the SBU is already a market leader in a high growth market.

SBU C. meets the criteria for a cash cow. The SBU is the market leader with a third more students than the nearest competitor. The market growth rate is moderate at 7%.

SBU D. also meets the criteria for a cash cow. The SBU is by far the market leader with four times more students than the nearest competitor and there are very few competitors. The market growth rate is slow at 4%. SBU D. is the perfect example of a cash cow.

SBU E. is the dog of the group. The SBU is not close to the top three colleges. The market growth rate is slow at 4%. Slow market growth and a weak market position mark this SBU as a dog.

To compare the product portfolio mix of the European distance learning college to an ideal mix, the definition of an ideal mix needs to be developed. The general goal is to generate cash from low growth products and invest the cash in high growth products. A healthy company achieves a balance between cash-generating and cash-requiring products. Cash-generating products supply the cash necessary to meet the cash requirements necessary to fund investment in high-growth products. In terms of the Boston Consulting Group model, the ideal mix includes stars, which will eventually become cash-generating cash cows, possibly some question marks that have the potential to become stars, and cash cows that fund the development of stars and question marks. Dogs provide no value to the product mix because they generate no excess cash. Excess cash means cash resulting from sales after deducting the cash reinvested in the product.

How close is the European distance learning college to the ideal? SBUs a and B. have the potential to be stars. They will need continuing cash investment to grow into stars. SBUs C. And D. are the cash cows necessary to fund the growth of SBUs a and B. The dog of the group, SBU E, provides no net cash flow and adds no value to the overall product mix. The European distance learning center's current product mix is relatively well balanced. There are SBUs able to generate cash and SBUs that could become stars with cash infusions from the cash cows. The college's competitive "health" is good, but the college must have a strategy to remain healthy.

To formulate future strategy, dividing the SBUs into business units that fit into clear categories and SBUs that do not fit easily into a category helps the company focus on the SBUs that need work. The ideal cash cow is SBU D. The large amount of excess cash generated by this SBU is very secure. The college has a strong leadership position. The competitor holding the second position has only one-quarter the students of SBU D. The low market growth rate of 4% discourages existing and new competitors from making any investment that would threaten the college's market leadership. The ideal dog is SBU E. The college does not have a leadership position in this market and the market growth rate is low at 4%. No cash will be generated for SBU E. And the college should not invest any more cash in this SBU.

SBU D. And E. have been identified as products not requiring additional cash. The other three SBUs do need additional cash for differing reasons. SBU C. falls into the cash cow category, but the product area still needs some cash injection to move this SBU into a strong cash cow position similar to SBU D. The college does have the largest market share, but the competitors occupying the second and third positions are not far behind. SBU C. has nearly three times more competitors than SBU D. And the market growth rate is nearly twice the rate of the SBU D's market. To increase market share the college should use a combination of buying market share, thereby reducing the number of competitors, and growing market share while the market growth rate is at least moderate. Use cash to buy business from some of the numerous competitors. Also use cash to add more courses or more sections of existing courses to grow market share.