12 BCG Matrix

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BOSTONCONSULTING GROUP

( BCG ) MATRIX

PROF. MANOJ MEGHRAJANI-SIBACA


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INTRODUCTION

BOSTON CONSULTING GROUP (BCG)

MATRIXis developed byBRUCEHENDERSONof theBOSTON

CONSULTING GROUP IN THE EARLY1970s.

According to this technique, businesses or

products are classified as low or highperformers depending upon their marketgrowth rate and relative market share.



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Relative Market Share

and Market Growth

To understand theBoston Matrix youneed to understand how market share

and market growth interrelate.



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MARKET SHARE

Market shareis the percentage of the total marketthat is being serviced by your company, measuredeither in revenue terms or unit volume terms.

RELATIVE MARKET SHARE

RMS = Business unit sales this yearLeading rival sales this year

The higher your market share, the higher proportionof the market you control.



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MARKET GROWTH

RATE Market growthis used as a measure of a markets

attractiveness.

MGR = Individual sales - individual sales

this year last yearIndividual sales last year

Markets experiencing high growth are ones wherethe total market share available is expanding, and

theres plenty of opportunity for everyone to makemoney.



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THE BCG GROWTH-SHARE

MATRIX It is a portfolio planning modelwhich is based on

the observation that a companys business units can

be classified in to four categories:

Stars

Question marks

Cash cows

Dogs

It is based on the combination of market growth andmarket share relative to the next best competitor.



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STARSHigh growth, High market share

Stars are leaders in business.

They also require heavy investment, to

maintain its large market share. It leads to large amount of cash consumption

and cash generation.

Attempts should be made to hold the marketshare otherwise the star will become a CASHCOW.



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CASH COWSLow growth , High market share

They are foundation of the company and oftenthe stars of yesterday.

They generate more cash than required.

They extract the profits by investing as littlecash as possible

They are located in an industry that is mature,not growing or declining.



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DOGSLow growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to bring in much

cash.

Number of dogs in the company should beminimized.

Business is situated at a declining stage.



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QUESTION MARKSHigh growth , Low market share Most businesses start of as question marks.

They will absorb great amounts of cash if the

market share remains unchanged, (low). Why question marks?

Question marks have potential to become

star and eventually cash cow but can alsobecome a dog.

Investments should be high for questionmarks.



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WHY BCG MATRIX ?To assess :

Profiles of products/businesses

The cash demands of products The development cycles of products

Resource allocation and divestment

decisions



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MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU.

Assessing and comparing the prospects ofeach SBU according to two criteria :

1. SBUS relative market share.

2. Growth rate OF SBUS industry.

Classifying the SBUS on the basis of BCG

matrix. Developing strategic objectives for each SBU.



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BCG MATRIX WITH CASH FLOW



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BENEFITS

BCG MATRIX is simple and easy tounderstand.

It helps you to quickly and simply screen the

opportunities open to you, and helps youthink about how you can make the most ofthem.

It is used to identify how corporate cashresources can best be used to maximize acompanys future growth and profitability.



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LIMITATIONS BCG MATRIX uses only two dimensions,

Relative market share and market growthrate.

Problems of getting data on market share andmarket growth.

High market share does not mean profits allthe time.

Business with low market share can beprofitable too.



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PRACTICAL USE

MAHINDRA & MAHINDRA

HLL

ITC



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CONCLUSION

Though BCG MATRIX has its limitations it is one

of the most FAMOUS AND SIMPLE portfolioplanning matrix ,used by large companieshaving multi-products.


12 BCG Matrix

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