Presentation On Boston Consulting Group Matrix

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.