Product Management Using Boston Matrix Tool with Product Life Cycle

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ProductManagement Using Boston Matrix Tool with Product LifeCycle Management

Executivesummary

Oiland gas theftis a majorchallengein nearlyalloiland gas producingcountries.However,there are five countriesthat recordthehighestlossesas a resultof oiland gas theft,which includeNigeria, Mexico, Iraq, Russia, andIndonesia. TheBoston Matrix can a playa significantrolein enhancingthestrategicplanthat Abuja Energy Surveillance Ltd setto marketits newlydevelopedpipeline monitoring system.TheBoston Matrix indicatesthattheAES’s systemis in thequestionmarkquadrant, which meansthatithas alowmarketshare,butitis in a rapidlygrowingmarket.ThismeansthatAES’s systemcan latermoveto thestarandcashcowquadrants. TheproductcycleanalysisindicatesthatAES’s systemis in theintroductionstage.Someof therecommendationsthat will helpthecompanymoveits systemto otherstagesof its cycleincludean increasein marketingfundandan increasein researchanddevelopmentefforts.

Keywords:Technological advances,Boston Matrix, productcycle,oiland gas theft.

ProductManagement Using Boston Matrix Tool with Product LifeCycle Management

Oiland gas are amongthe&nbspnaturalresourcesthat havesupportedeconomiesof manycountries.However,oiland gas theftis a majorchallengethat thesecountriescannot avoid.Theincreasein incidentsof oilgas thefthas necessitatedtheuseof moreefficientandtechnological systemsthat can helpoilgas companiesin monitoringtheir oiland gas pipelines. Thispaperwill analyzethemanagementof a pipeline monitoring systemdevelopedby Abuja Energy Surveillance Ltd, which utilizesdronesandtheGeographical Information System. Thiswill be accomplishedusingdata that will beobtainedfrom both theprimaryandsecondarysources.Thesesourceswill includeprintedbooksandjournalsas wellas articlesthat are availableonline.

Reviewof literature

Thetheftof oilgas from theoiland gas pipelines is a criticalchallengethat has threatenedthegoingconcernof manyoiland gas companiesin themodernworld.Currently, there are five countrieswith thehighestlossesthat resultfrom thetheftof oiland gas.Nigeriarecordsan annuallossof 400,000 barrels,Mexico records5,000-10,000 barrelsper day,Iraq losesabout $ 21.3 billion annuallyRussian companies’losesabout $ 63 million, andIndonesia losses2,000-3,000 barrelsper day[1].Somecountriesandoiland gas companieshaveidentifiedmodernsystemsthat can helpthem in monitoringtheir oiland gas pipelines. Countriesthat usetheGIS extensivelyincludeRussia [2], Canada [3], Nigeria [4], andGhana [5]. Someof thecountriesthat havebeenusingdronesto monitortheir oiland gas pipelines includeAustralia [6], Iraq [7], Liberia [8], U.S. [9], andMexico [10].Trendsshowthattheoiland gas companiesare shiftingawayfrom theuseof oldmethodsto newersystems(suchas drones)with theobjectiveof enhancingtheir efficiencyin monitoringtheoiland gas pipelines.

Strategicimplicationof theBoston Matrix

TheBoston Matrix is a portfolioplanningora portfolioanalysismodelthat helpsorganizationsin analyzingtheir productlinesorbusinessunits.In thecaseof AES, Boston Matrix can be usedto classifythepipeline surveillancesysteminto one of thefour quadrants, namely,thecashcow,star,questionmark,ordogs.Theassignmentof theproductinto thesequadrants will helpAES makedecisionsregardingtheallocation of resources,portfolioanalysis,andstrategicmanagement[11]. ForAES’s systemto beclassifiedas a cashcow,ithas to generatea returnon assets higherthan therateof marketgrowth.In casethesystemisclassifiedas a cashcow,AES can maintainits strongpositionthrough productdevelopmentorconcentric diversification.

Classificationof thesystemas a dogwould implythatthesystemhas a lowmarketgrowthrateanda lowmarketshare.Productsin thisquadrant are in a matureandan industrythat is growingslowly[12]. Althoughsuchproductsbreak-even, theygeneratecashthat is barelysufficientto maintaintheenterprise.Themostappropriatestrategicoptionfora dogsystemwould be liquidation, divestment, orliquidation.

Classificationof theAES’s systemas a questionmarkwould implythatthesystemis sellingin a rapidlygrowingmarket,butithas alowmarketshare.Thismeansthatthemaintenanceof themarketwill requirelargesumsof money,butitwill not generatean equivalentamount[13]. However,a productin thisquadrant has thepotential to acquirea highermarketshareandbecomea star,andeventuallybecomea cashcowonce its marketgrowthratestartsslowingdown. Thesystemcould alsofailto becomea marketleaderandturninto a dogin casethemarketsharedeclines.Strategicoptionsavailablefora questionmarksurveillancesystemincludemarketdevelopment,marketpenetration,andproductdevelopment.

Astarproducthas a highmarketshareandsellsin a rapidlygrowingindustry.Maintainingsuch a systemin themarketwould requiresomeextracash,butthiswill be worthwhilein casethecompanywill be ableto preservethesystem’smarketleadership[14]. Thestarproductbecomesa cashcowwhentherateof growthin themarketshareslows,andbecomesa dogifmaintainingthemarketsharebecomesdifficult.Thekeystrategicoptionsfora starsurveillancesystemwould includeintegration(horizontal,backward,orforward),marketpenetration,jointventures,orproductdevelopment.

Figure1: Boston matrix

Eachquadrant representsthevalueof thesalesof theproduct.Thematrixis a usefultoolthat givesa mapof theproduct’sweaknessesandstrengthsin termsof its currentprofitability andpotentialcashflows.Thematrixwill contributetowards theAES’s strategicplanby positioningthepipeline surveillancesystemin one of thequadrants depending on its marketshareandtherateof marketgrowth.Thiswill makeitpossibleforthemanyto predictthepossiblequadrants thatthesystemmight moveduring its lifecycleorwithin theten yearscoveredby thestrategicplan.

Analysisanddescriptionof theapplicationof Boston Matrix

Theapplicationof theBoston Matrix requiresthedeterminationof themarketgrowthrateandtherelativemarketshareof theproduct.In thiscase,themarketshareandthemarketgrowthrateof thesurveillancesystemthat havebeendevelopedby Abuja Energy Surveillance Ltd, will be determinedas shownbelow.

Marketshare:

Theliteraturereviewsectionshowsthatsurveillancesystemsthat are similarto Abuja’s systemhavebeendevelopedforaboutnine countries(includingtheGhana, Australia, United States, Iraq, Liberia, Russia, Nigeria,India, andCanada) with higherratesof oiland gas theft.AssumingthattheAES has soldits systemto single oiland gas companythenits marketsharecan be computedas follows

Marketshare= [Number of unitssoldby AES / totalnumberof unitssoldin theentiremarket]* 100

Therefore,themarketshareof AES’s system= (1 / 9 * 100)

=11.11 %

Marketgrowthrate:

Marketgrowthraterefersto thepercentagechangein thesizeof themarketfora givenproduct.In thepresentcase,themarketgrowthrateforpipeline surveillancesystemswill be determinedby subtractingthemarketsize(revenuein $) foryear2013 andyear2014. TheAnnual revenueof theGIS systemforpipeline surveillance= $ 17,936 [15]. An oiland gas pipeline surveillancedronecosts$ 85,000 [16]. Thismeansthatthesurveillancesystemthat combinesthedronesandGIS could helpthecompanyearn(17,936 + 85,000) $ 102,936. In 2013, two pipeline surveillancesystemswereinstalledandthree of them wereinstalledin 2014. Annualrevenuefrom thenewsystems= (102,936 * 2) $ 205,872 in 2013 and(102,936 * 3) $ 308,808 in 2014.

Therefore,market growth rate = [(308,808 – 205,872) / 205,872] * 100

=50 %

Table:Classification of AES system in Boston model

Product name

STBU

Market growth rate

Market share

Drones and Geographic Information System

Question mark

50 %

11.11 %

Therefore,AES’s surveillancesystemis categorizedas a questionmarkbecauseithas alowmarketshare,butitsellsin a fast-growthmarket.

Recommendations:Lifecycle management technique

Introductionstage:

Fromthecase,thepipeline monitoring systemhas justbeendeveloped,which impliesthatitis at theintroductionstage.Thisstageischaracterizedby smallmarketsize,lowsales,andhighcostof researchanddevelopmentas wellas consumertesting[17]. Thereare tworecommendationsthat can&nbsphelpAES sustaintheproductat thisstage.First,thefinancedepartmentshould increasethelevel of liquidcashin orderto helpAES meetanyexpenses(suchas customertestingandlaunching of thesystem)that might ariseduring thisstage.Secondly,themarketingdepartmentshould createa salesplanthat will AES defineexactlywhatitis sellingandhowto presentitto potentialcustomers.Sellingdirectlyto thetargetconsumers(oiland gas companies)will be themostappropriatemarketinganddistributionchannel.

Growthstage:

Thisphaseis characterizedby a rapidgrowthin salesandprofitmargins[18]. Itwould beexpectedthattheAES’s systemwill soonreachthegrowthstageifthetwo recommendationsstatedaboveare implemented.At thisstagethefinancedepartmentshould allocatemorefundsforpromotional activities.Thiswill helpAES maximize thepotential of thegrowthstage.

Maturitystage:

Inthisstage(maturity),themonitoring systemwill beestablishedandthemainchallengewill be themaintenanceof themarketshare.Thisis among&nbspthemostcompetitivephasein theproductcycle[19]. To maintainthemarketshare,AES will needto two things.First,thefinancedepartmentsshould furtherincreasetheamountof fundsallocatedformarketingactivities.Secondly,AES should considerthepossibleimprovementsandmodificationsof its systemin orderto ensurethatithasthecapacitytoaddressemergingchallengesthattheoiland gas companiesarefacedwith.Thiswill forcethecompanyto enhancethestrengthof its humanresourcedepartmentby hiringmoreexperiencedmembersof staff,which havethecapacitytobringin thenecessaryinnovations.

Declinestage:

Duringthedeclinestage,themarketshareof themonitoring systemwill startreducing.Thepossiblecausesof thisdeclineincludethemarketsaturationandcustomers’switching to otherproducts[20]. To avoidgettingout of business,AES should considertwo viable actions.First,AES should uselessexpensivemethodsof productionormanufacturingin orderto maximize its revenueamidst thechallengesassociatedwith thedeclinein themarketshare.Secondly,AES should divestresourcesearnedfrom thecurrentsystemto a newmonitoring systemthat will be morerelevantandattractiveto customers.

Conclusion

Thepipeline monitoring systemdevelopedby AES is in theintroductionstage,buttheincreasein incidentsof oiland gas theftgivesan opportunityto reachtheotherstagesof theproductcycle.However,AES has to keeptrackof thetechnological advancesin orderto continueimprovingthesystemandreducetheriskof gettingobsolete.AES should consideran alternativeandup-to-datesystemwhenthecurrentonereachesthedeclining stage.

Listof references

[1]

Author:Dalby Chris

Articletitle: These are the 5 countries most plagued by oil and gas theft.

Dateof publication: July 03, 2014.

Relevantpage numbers: 1

Reasonfor selecting the source: The article describe the top five countrieswith the highest losses incurred as a result of oil and gas theft

[2]

Author:Kirsanov Alexander

Articletitle: Monitoring of oil and gas pipelines by integrated GIS,International Archive of Photogrammetry and Remote Sensing.

Dateof publication: 2000

Relevantpage numbers: 686

Reasonfor selecting the source: The article describes how the GIS have beenused in Russia to monitor the oil and gas pipelines.

[3]

Author:Cancilla Devon

Articletitle: GIS delivers insight into pipeline construction

Dateof publication: 2012

Relevantpage numbers: 26

Reasonfor selecting the source: The article explains how Canada has managedto utilize the GIS in monitoring its oil and gas pipelines.

[4]

Author:Oyehan Tajudeen and Al-Ramada Baqer

Articletitle: A GIS approach to the management of oil spills in Nigeria,National GIS Symposium.

Dateof publication: 2014

Relevantpage numbers: 2

Reasonfor selecting the source: The article explains how the GIS system isuse to monitor oil spills in Nigeria.

[5]

Author:Quaye-Ballard Jonathan, Samuel Ru, Andam-Akorful, and Quaye-BallardNaa

Articletitle: Role of geo-information for Ghana oil and gas industry,International Journal on Recent ad Innovation Trends in Computing andCommunication.

Dateof publication: 2013

Relevantpage numbers: 539-540

Reasonfor selecting the source: The article gives a clear explanation aboutthe application of the GIS system in monitoring the oil pipeline inGhana.

[6]

Author:Unmanned System Australia

Articletitle: Application of unmanned system, Unmanned System Australia.

Dateof publication: 2015

Relevantpage numbers: 1

Reasonfor selecting the source: The article explains how drones (unmannedsystems) are used in Australia to monitor oil pipelines.

[7]

Author:Lee Eloise

Articletitle: Hear is how U.S. weapons are protected Iraq’s oil now,Business Inside.

Dateof publication: May 29, 2012.

Relevantpage numbers: 1

Reasonfor selecting the source: The article explains how the U.S. has beenmonitoring the oil pipelines in Iraq using the drones.

[8]

Author:Aero Vironment Incorporation

Articletitle: Gas and Oil

Dateof publication: 2015

Relevantpage numbers: 1

Reasonfor selecting the source: The article describes the application ofdrones in different fields, including the monitoring of the oilpipelines in about 400 ft above the ground.

[9]

Author:Krishnamurthy Krithika

Articletitle: Feature in Alaska’s oilfields, drones count down to takeoff,Reuters.

Dateof publication: June 7, 2013.

Relevantpage numbers: 1

Reasonfor selecting the source: The article explains the application ofdrones in monitoring oil fields and pipelines in Alaska, USA.

[10]

Author:Sadovnychiy Sergiy

Articletitle: Unmanned aerial vehicle system for pipeline inspection,Mexican Petroleum Institute.

Dateof publication: 2013

Relevantpage numbers: 3

Reasonfor selecting the source: The article describes how unmanned vehiclesare used to monitor oil pipelines in Mexico.

[11],12, 13, and 14

Author:Orcullo, N.

Articletitle: Fundamentals of strategic management’ 2007, Chapter 10

Dateof publication: 2008

Relevantpage numbers: 163-175

Reasonfor selecting the source: The book explains how the BCG model can beapplied in strategic planning as well as strategic management.

[15]

Author:Kelvin Lewis

Articletitle: Geographic information system: Cost / benefit assessmentreport, Montgomery County Council.

Dateof publication: 2000

Relevantpage numbers: 6

Reasonfor selecting the source: The article gives the estimate revenue thatthe company should expect from the pipeline monitoring system.

[16]

Author:Krishnamurthy Krithika

Articletitle: Alaska uses drones to inspect oil and gas pipelines at afraction of the cost, Reuters.

Dateof publication: 2015

Relevantpage numbers: 1

Reasonfor selecting the source: The article gives the estimated cost of thedrone.

[17],[18], [19], and [20]

Author:Stark John

Articletitle: Product lifecycle management: 21stcentury paradigm for product realization, Springer Science andBusiness Media.

Dateof publication: 2011

Relevantpage numbers: 1-3

Reasonfor selecting the source: The book provides a discussion of differentphases of product lifecycle.