ASSIGNMENT ON: BCG MATRIX NAME ROLL NO. Manik Gupta 26 Sandeep Pare 46 Rishikesh Palekar 42 Sandeep Ranjan 47 Piyush Chandrakar 35 Mayank Joshi 28
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ASSIGNMENT ON:BCG MATRIX
NAME ROLL NO. Manik Gupta 26 Sandeep Pare 46 Rishikesh Palekar 42 Sandeep Ranjan 47 Piyush Chandrakar 35 Mayank Joshi 28
SBU’sSBU
SALES (million rupees)
No. of competitor
SALES
A
OF TOP
B
3 Players
C
MRKT GROWTH RATE
A 0.5 8 0.7 0.7 0.5 15%
B 1.6 22 1.6 1.6 1.0 18%
C 1.8 14 1.8 1.2 1.0 7%
D 3.2 5 3.2 0.8 0.7 4%
E 0.5 10 2.5 1.8 1.7 4%
RELATIVE MARKET SHARE AND MARKET GROWTH RATE OF SBU’S
RMS = BUSINESS UNIT SALES THIS YEAR LEADING RIVAL UNIT SALES THIS YEAR
RMS FOR EACH SBU A = 0.5/0.7 = 0.714 B = 1.6/1.6 = 1 C = 1.8/1.2 = 1.5 D = 3.2/0.8 = 4.75 E = 0.5/2.5 = 0.2
MARKET GROWTH RATE AND RELATIVE MARKET SHARE ARE THE TWO FACTORS USED IN BCG MATRIX FOR
POSITIONING OF EACH SBU’S.
BCG MATRIX
FOUR CATEGORIES
Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture.
Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark (also known as a "problem child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.
Stars - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.
Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.
SBU RMS GROWTH RATE
A 0.714 15%
B 1 18%
C 1.5 7%
D 4.75 4%
E .2 4%
%20
18
16
14
12
10
8
6
4
2
0
10x 4x 2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x RELATIVE MARKET SHARE
III
IVIII
STARSQuestion Marks/
Problem child
DogsCash Cow
C
B
E
A
D
M
A
R
K
E
T
G
R
O
W
T
H
R
A
T
E
BCG MATRIX
Recommendation-on Strategies
Strategy Recommended
CATEGORY SBU
Divest Dog E
Invest Problem Child
A,B
Hold Star B
Harvest Cow D C
Limitations of matrix
A Characteristic of each SBU will be different in long term
B In BCG matrix, Individuality of product is given less preference, consideration is given to Strategic Business unit.
C There is an assumption that higher rates of profit are directly related to high rates of market share.
D Its not easy to take decision based on matrix only.Y-axis it has taken only annual market growth rate which
doesn’t represent market attractiveness fully.Other important considerations such as, SIZE,
PROFITABILITY, COMPETITIVE DENSITY,MARKET RESTRICTIONS, POLITICS
X-axis Relative Market Share is not a good indicator of relative market strength.
Because it is determined by1. TECHNOLOGICAL COMPETENCE2. MANUF. STRENGTH AT LOW COST3. FINANCIAL STRENGTH OF RIVAL4. DISTRIBUTION STRENGTH5. BRADING & PEOPLE STRENGTH
E BCG is a QUALITITIVE MODEL & we need a quantitative model i.e. Facts & Figures
F It can cause wrong decisions like divesting dogs, which may be core business of company.
orInvesting more on dogs, even though it is
failing continuously .
To make a healthy recommendation,we need additional data:
Cooperation level between among all SBUs must be specified.
Nature of product & market should be specified as each SBU has different potential and requires it’s own objective.
Thank you
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