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BCG Matrix

The document provides an overview of the Boston Consulting Group (BCG) Matrix, which is a framework used by senior management to evaluate strategic business units (SBUs) and allocate limited resources. The BCG Matrix classifies SBUs into four categories - Stars, Cash Cows, Question Marks, and Dogs - based on their market share and market growth rate. SBUs in different quadrants require different investment levels and strategies. The document outlines the key dimensions and assumptions of the BCG Matrix, as well as strategic perspectives and implications for SBUs in each category. It also discusses three paths to success and three paths to failure when using the BCG Matrix framework.

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Azaan Kaul
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570 views18 pages

BCG Matrix

The document provides an overview of the Boston Consulting Group (BCG) Matrix, which is a framework used by senior management to evaluate strategic business units (SBUs) and allocate limited resources. The BCG Matrix classifies SBUs into four categories - Stars, Cash Cows, Question Marks, and Dogs - based on their market share and market growth rate. SBUs in different quadrants require different investment levels and strategies. The document outlines the key dimensions and assumptions of the BCG Matrix, as well as strategic perspectives and implications for SBUs in each category. It also discusses three paths to success and three paths to failure when using the BCG Matrix framework.

Uploaded by

Azaan Kaul
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Outline BCG

Introduction BCG (Boston Consulting Group) Matrix

Introduction
The creation of SBUs enables the setting of SBU s mission and objectives and the allocation of resources across SBUs in the organization Senior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysis

BCG (Boston Consulting Group) Matrix


Provides a framework for senior management in allocating resources across business units in a diversified firm by
Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC)

BCG Product Portfolio Matrix Dimensions

Product Sales Growth Rate

Relative Market Share (Log Scale)

BCG Matrix (cont d)


The horizontal axis is the Relative Market Share shown in a log scale Vertical line is usually set as 1.0 Relative Market Share An SBU to the left of this line means it is the market leader in the industry or segment in which it operates Conversely, an SBU to the right of this line (1.o RMS) means it is not the leader

BCG Matrix (cont d)


The vertical axis is the growth rate
5 levels may be used: product, product lines, market segment, SBU and business growth rate Horizontal line is usually set as 10% Growth Rate SBUs above the set value (10% line) represents high growth rates Conversely, SBUs below this value depicts slower growth rate

Matrix Quadrants
Relative Market Share High Low High Product Sales Growth Rate Low

Key Assumptions of BCG Matrix


Stable cost/price relationship
Not valid if the firm is pricing on projected lower average unit costs in the future

Market leader influences the average costs Profit margin is a function of market share
This ignores profitable niches

Strategic Perspectives of Products in Different Quadrants


Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications

Question Marks
(Problem Children) Investment heavy initial capacity expenditures and high R&D costs Earnings negative to low Cash-flow negative (net cash user) Strategy Implications
If possible to dominate segment, go after share. If not, redefine the business or withdraw

Stars
Investment continue to invest for capacity expansion Earnings Low to high earnings Cash-flow Negative (net cash user) Strategy Implications
Continue to increase market share even at the expense of short-term earnings

Cows
Investment Capacity maintenance Earnings High Cash-flow Positive (net cash contributor) Strategy Implications
Maintain market share and cost leadership until further investment becomes marginal

Dogs
Investment
Gradually reduce capacity

Earnings High to low Cash-flow


Positive (net cash contributor) if deliberately reducing capacity

Strategy Implications
Plan an orderly withdrawal to maximize cash flow

Example of a BCG Matrix for a Fastener Supplier in South East Asia


Relative Market Share High Low High Product Sales Growth Rate Low Powder Actuated Tools Anchoring Systems Cable Tray Systems Electric Power Tools

Concrete Lifting Systems

Note that the Anchoring System SBU is forecasted to move to new position

BCG Matrix (Three Paths to Success)


Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not selfsustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash

Three Paths to Success (cont d)


Relative Market Share High Low High Market Growth Rate Low

BCG Matrix (Three Paths to Failure)


Over invest in cash cows and under invest in question marks
Trade further opportunities for present cash flow

Under invest in the stars


Allow competitors to gain share in a high growth market

Over milked the cash cows

Three Paths to Failure (cont d)


Relative Market Share High Low High Market Growth Rate Low

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