bcg-business-model

BCG Business Model In A Nutshell

It all started back in 1963 when Bruce D. Henderson founded the Boston Consulting Group (BCG) as part of The Boston Safe Deposit and Trust Company. The BCG became independent by the end of the 1970s, and it started an expansion process. In 2019, BCG made over $8.5 billion in revenues.

The Product Portfolio (the BCG trademark)

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

BCG has been able to expand globally also thanks to its recognized brand, and the ability of its founder (Bruce Henderson) to leverage on a model where ownership was distributed, thus enabling a fast expansion. At the same time, the BCG trademarks and ideas shaped the consulting world for decades.

Among its most recognized trademark ideas and one of those concepts that you find persistently at business school, there is the BCG Matrix.

bcg-matrix-success-sequence

According to that success is achieved when a company is able to divert part of its cash and resources toward products that can turn into cash cows in the long-run.

bcg-matrix-disaster-sequence

While failure is guaranteed when the cash generated from cash cows or star product is diverted into products, that over time will become dogs.

Origin and evolution of BCG

Bruce Henderson, the founder of BCG, was an innovator that back in the 1960s, proposed alternative business ideas that also became part of its trademark. Ideas like The Product Portfolio (aka BCG Matrix or growth-share matrix) and time-based compensation, would become sort of the main trademarks of its brand.

In the 1960s, BCG established itself as a consulting firm that was proposing alternative ideas compared to companies that were applying best practices and acting according to the strategy rules of the previous era.

It helped the fact that post-war European and Japanese markets were recovering, thus enabling BCG to expand globally. By 1968, BCG counted 68 consultants between New York and Tokyo, and its growth-share_matrix”>BCG Matrix would have become its trademark.

By the 1970s, BCG now a prominent consulting firm, would start its expansion in Europe, gaining an important share of the consulting market. The company had tripled by the 1970s, with 277 consultants, and seven offices across the world.

Bruce Henderson would compare strategy with a “bucketful of marbles:”

By the 1980s, BCG had reached 524 consultants and 14 total offices across the world. In those years and decades, BCG started helping companies optimize their processes, which would become its trademark in the 1990s.

By the 1990s, all the big brands and companies were relying on BCG to execute complex projects, from post-merger integrations, process optimization, and the restructuring of IT systems.

By the 2000s, change management becomes the most requested service. As the dot-com bubble bust, by 2001, BCG helped companies restructure their operations.

How does BCG make money today?

By 2019, BCG reached $8.5 billion in revenues. To gain a bit of context, Accenture and Deloitte would reach $43.2 and $46.2 billion, while smaller management consulting firms like Bain and Company and Kearney reached $4.5 billion and $1.3 billion respectively.

As reported by BCG, “from 2009 to 2019, global sales grew from $2.75 billion to $8.5 billion” and from 6,900 to 21,000 employees worldwide. Therefore tripling in size in a decade.

While revenues kept growing, the question on whether BCG’s approach is still relevant in today’s world, is still open, which forced the iconic consulting firm to rush a set of acquisitions to stay on top of its game.

The rushed acquisitions to stay relevant in a new world

What drove growth throughout this decade? CEO Rich Lesser noted that “more than ever before, clients turn to BCG for new solutions to the challenges of our times” while its focus  on “digitizing and embedding AI in core processes, building “bionic” organizations, and supporting large-scale change efforts to accelerate performance, even in challenging environments.”

As of 2020, the BCG management consulting services are broken down in a few main areas.

There used to be a time when management consulting firms were seen by large corporations like the ones to call to help them solve important problems, related to innovation.

That time though was gone, when the web took over, those management consulting firms also lost some of their relevance and while their bottom lines have still grown, as those companies still have major corporate clients.

Innovation consultancy acquisitions by year
Source: sifted.eu

Management consulting firms, BCG as well, have been rushing to acquire small innovative management consulting firms, in an attempt to stay relevant in a market that has completely shifted.

Therefore, now BCG has been integrating those consulting firms within the BCG global team, which now offer a few “innovative” services, as part of this acquisition process:

  • BCG Digital Ventures: helping companies to research, design, and launch new products and services.
  • BCG GAMMA: data science, AI, and analytics arm.
  • BCG Platinion primarily about IT processes focused on digital transformation.
  • BCG Omnia: offering strategy and data solutions.
  • BrightHouse: a global creative consultancy firm.
  • Expand: offering research and syndicated benchmarking for the world’s leading financial institutions.
  • INVERTO: an international supply chain and procurement consultancy side.

How will BCG stay relevant in the coming decade?

In this new era, where data is available anywhere, the primary job of companies like BCG will be in helping, especially larger brands to figure what to do with that data, in the first place.

For instance, in 2019, BCG acquired Kernel Analytics and it integrated it within its BCG Gamma services. As BCG CEO, Rich Lesser said at the time “BCG GAMMA is one of the most exciting parts of our business, and we expect the market for tailored AI solutions to continue growing rapidly. As we further expand our capabilities, this acquisition will help us to continue enabling our clients to deliver on their ambitions,”

The GAMMA team comprises profiles such as Analytics Software Engineers, Machine Learning Engineers, Analytics Architects, and many other profiles able to handle and interpret a large amount of data.

In fact, most of GAMMA’s team are people on the engineering side, rather than sales or marketing. Therefore, those are more Ph.D. rather than MBA and as pointed out by a GAMMA engineer, back in 2018, they “deliver custom data science-based solutions (machine learning, numerical optimization…) to clients to allow them to take advantage of the huge impact data analytics and AI are having on the business world: pricing optimization, personalized marketing, more dynamic logistic, etc.. they create the data science models, program the software (in Python or R essentially) and deliver working solutions, not only advices and slide decks. To build those solutions we need to understand both data science and business.”

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here