Introduction
Boston consulting Group (BCG) Matrix is developed by
Bruce Henderson of the Boston consulting Group in the early 1970’s.
According to this technique, businesses or products
are classified as low or high performers depending upon their market growth
rate and relative market share.
Market
Share
Market share is the percentage of the total market
that is being serviced by one company, measured either in revenue terms or unit
volume terms.
Relative Market share (RMS) =
Business unit sales this year
Leading rival sales this year
The Higher the company market share, the higher proportion
of the market the company control.
Market
Growth Rate
Market
Growth is used as a measure of a market’s attractiveness.
MGR= Individual sales -
individual sales
This year
last year
Individual sales last year
Market
experiencing high growth are ones where the total market share available is
expanding, and there’s plenty of opportunity for everyone to make money.
The
BCG Growth –Share Matrix
Stars: High Growth, High Market Share
Cash Cows: Low Growth, High Market Share
Dogs: Low Growth ,Low market Share
Question Marks: High Growth, Low Market Share
Stars: High Growth, High Market Share
•
Stars are leaders in business
•
They also require heavy investment, to
maintain its large market share.
•
It leads to a large amount of cash
consumption and cash generation.
•
Attempts should be made to hold the
market share otherwise the star will become a CASH COW.
Cash Cows: Low Growth, High Market Share
•
They are the foundation of the company
and often the stars of yesterday.
•
They generate more cash than requiring.
•
They exact the profits by investing as
little cash as possible.
•
They are located in an industry that is
mature, not growing or declining.
Dogs: Low Growth, Low market Share
•
Dogs are the cash traps.
•
Dogs do not have much potential to bring
in much cash.
•
Number of Dogs in the company should be
minimized.
•
The business is situated on a declining
stage.
Question Marks: High Growth, Low Market
Share
•
Most business start on as question
marks.
•
They will absorb a great amount of cash
if the market share remains unchanged,(low).
•
Question marks have the potential to
become a star and eventually cash cow but can also become a dog.
•
Investments should be high for question
marks.
Why BCG Matrix?
To assess:
ü Profile
of products /Businesses.
ü The
Cash demands of products.
ü The
Development cycles of products.
ü Resource
allocation and divestment decisions
Main
Steps of BCG Matrix
Identifying and dividing a company into SBU
Assessing and comparing the prospects of each SBU
according to two criteria:
Classifying the SBU’s on the basis of BCG Matrix.
Developing strategic objectives for each SBU.
Benefits
BCG Matrix is simple and easy to understand.
It helps you to quickly and simply screen the
opportunities open to you and helps you think about how you can make the most
of them.
It is used to identify how corporate cash resources
can best be used to maximize a company’s future growth and profitability.
Limitations
BCG matrix uses only two dimensions, relative market
share and market growth rate.
Problems of getting data on market share and market
growth.
High market share does not mean profits all the
time.
Business with low market share can be profitable
too.
Conclusion
Though BCG Matrix has its limitations it is one of
the most FAMOUS & SIMPLE portfolio planning matrix used by large companies
having multi-products.
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