Strategy can be defined as the decisions which represent the future of the company or in simple words the decisions which will shape the future of the company. Boston consulting group approach puts stress on three important concepts for strategy formulation, they are
1. Experience Curve – It refers to the relationship between the volume and cost. As the company become bigger and volume of products produced by company grow the cost associated with production begins to decline because of economics of scale. In other words as company gains experience it finds new and better way of producing the good which is cost effective.
2. Product Life Cycle – Every product goes through 4 stages which are beginning, growth, maturity, and decline. In the First 2 stages the sales of company rises very quickly due to novelty as well aggressive sales done by the company. But during third stage many competitors emerge and hence the sales and profits of company began to decline and hence the company which has not achieved the experience curve will find it extremely difficult to survive in the market.
3. Portfolio Balance – Since early stage of product requires substantial investments in order to penetrate into the market and in maturity stage company would require lesser amount for investment it is important that company manage the portfolio of cash as well as investment in such a way that it does not have less amount in early stages of product life and should invest excess amount during later stage of product life somewhere else which can give higher return than current product.