Bcg matricx
- 2. INTRODUCTION • It was developed in early 1970. • Boston Consulting Group (BCG) Matrix is a four celled matrix (2*2 matrix) developed by BCG, USA. • It is the most renowned corporate portfolio analysis tool. • It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates. • It is a two dimensional analysis on management of SBU’s (Strategic Business Units).
- 3. • It is a comparative analysis of business potential and the evaluation of environment. • According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share. Relative Market Share = SBU Sales this year - leading competitors sales this year. Market Growth Rate = Industry sales this year - Industry Sales last year.
- 4. BCG Matrix
- 5. High market share and High market growth. Stars require huge investments to maintain their lead. If successful, a star will become a cash cow when the industry matures. Star Cash Cows High market share and Low market growth. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued.
- 6. Question Marks Low market share and High market growth. They require huge amount of cash to maintain or gain market share. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars. Dog Low market share and Low market growth. Retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms.
- 9. Limitations of BCG Matrix • BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. • Market is not clearly defined in this model. • High market share does not always leads to high profits. There are high costs also involved with high market share. • Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. • At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. • This four-celled approach is considered as to be too simplistic.