BCG matrix by gamal arafa

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A Tool for Analyzing Opportunities & Ability to Compete

Gamal A. ArafaMonday Class - Sheraton

BCG GROWTH / SHARE MATRIX

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OUTLINES

History of BCG

Market share & market growth

Portfolio analysis

Product life cycle

The BCG matrix

The case

Conclusion

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HISTORY OF BCG

• BCG is founded by Bruce D. Henderson in 1963

• A global management consulting firm with offices in 42 countries.

• One of only three companies to appear in the top 15 of Fortune's "Best Companies to Work For" report for seven consecutive years.

• In the 2011 and 2012 Fortune lists, BCG is listed as the second best company to work for

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BCG MATRIX

• 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.

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RELATIVE MARKET SHARE AND MARKET

GROWTH

• To understand the Boston Matrix we need to understand how market share and market growth interrelate

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MARKET SHARE

• Market share is the percentage of the business unit sales to the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. It indicates the business unit strength.

• MS = Business unit sales this year Total market size

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RELATIVE MARKET SHARE

• Relative market share is the percentage of the business unit sales to the highest competitor's sales, measured either in revenue terms or unit volume terms. It indicates the business unit strength.

• RMS = Business unit sales this year Leading competitor sales this year

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MARKET GROWTH RATE

• Market growth is used as a measure of a market’s attractiveness.

• MGR = total market sales this year - total market sales last year

total market sales last year

• Markets experiencing high growth are ones where the total market share available is

expanding, and there’s plenty of opportunity for everyone to make money.

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PORTFOLIO ANALYSIS

• Product Portfolio – the range of products a company has in development or available for consumers at any one time

• Managing product portfolio is important for cash flow

• Strategic Business Unit (SBU) Definition

• Single independent operation of a company

• Has its own competitors

• One manager responsible for performance

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PRODUCT LIFE CYCLE

Shows the stages that products go through from development to withdrawal from the market

• Each product may have a different life cycle

• Contributes to strategic marketing planning

• Helps to identify when a product needs support, redesign, withdrawal, etc.

• Helps in new product development planning

• Helps in forecasting and managing cash flow

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STAGES OF THE PRODUCT LIFE CYCLE:

• Development

• Introduction / Launch

• Growth

• Maturity

• Decline

• Withdrawal

Time

Profit

Development

Introduction

Growth

maturity

Decline

Withdrawal

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PRODUCT LIFE CYCLE AND BCG MATRIX

Time

Introductory Phase “?”

Growth Phase “Star”

Sales V

olume

Mature Phase “Cash Cow”

Decline Phase “Dog”

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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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THE BCG MATRIX

High Low

High

Low

Prod

uct S

ales

G

row

th R

ate

Relative Market Share

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STARS

HIGH GROWTH, HIGH MARKET SHARE

• Stars are leaders in business by having high market share in a growing market..

• They also require heavy investment, to maintain its large market share.

• It leads to large amount of cash consumption and cash generation.

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STRATEGY RECOMMENDATIONS

• Investment

• Further Growth

• Maintain Market Position

• Cash flow

• Self-sustaining: Fund their own growth

• Require funds from other SBUs (Cash Cows)

• Assure the future of the company

• Grow into Cash Cows

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QUESTION MARKS

HIGH GROWTH , LOW MARKET SHARE

• Question marks are essentially new products where buyers have yet to discover them.Most businesses start of as question marks in growing markets but have low market share..

• Question marks have high demands and low returns due to low market share.Investments should be high for question marks.

• They will absorb great amounts of cash if the market share remains unchanged, (low).

• Question marks have potential to become stars and eventually cash cow but can also become a dog.

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STRATEGY RECOMMENDATIONS

• Investment

• Increase market share

• Selectively develop into Stars

• Cash Flow

• Require funds from other SBUs (Cash Cows)

• Unrealized future opportunities

• The marketing strategy is to get markets to adopt these products.

• These products need to increase their market share quickly or they become dogs.

• The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them.

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CASH COWS

LOW GROWTH , HIGH MARKET SHARE

• They are foundation of the company and often the stars of yesterday.

• They generate more cash than required.

• They extract the profits by investing as little cash as possible

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

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STRATEGY RECOMMENDATIONS

• Investment

• Maintain market share

• Maintain capacity

• Cash Flow

• Positive cash flow

• Provides funding to support Stars and “?”

• No potential for profit growth

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DOGS

LOW 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 be minimized.

• Business is situated at a declining stage.

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STRATEGY RECOMMENDATIONS

• Investment

• Divestiture strategy

• Reduce capacity to free up resources

• Cash Flow

• Goal of Positive Cash Flow

• Negative Cash Flow = Divestment

• No real growth opportunities

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EVALUATION OF BCG MATRIX: CONS

• Oversimplifies complex decisions

• BCG MATRIX uses only two dimensions, Relative market share and market growth rate.

• Only considers current businesses no dynamics

• Does not recognize possible synergies between SBUs

• High market share does not mean profits all the time.

• Business with low market share can be profitable too.

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EVALUATION OF BCG MATRIX: PROS

• 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.

• Good measurability of market share and growth

• Provides information about efficient resource allocation within the organization

• Generator for strategic options

• It is used to identify how corporate cash resources can best be used to maximize a company’s future

growth and profitability.

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MAIN STEPS OF BCG MATRIX

• Identifying and dividing a company into SBU.

• Assessing and comparing the prospects of each SBU according to two criteria :

1. SBU’S relative market share.

2. Growth rate OF SBU’S industry.

• Classifying the SBU’S on the basis of BCG matrix.

• Developing strategic objectives for each SBU.

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BCG MATRIX WITH CASH FLOWPr

oduc

t Sal

es G

row

th R

ate

Relative Market Share

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THE CASE

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CONCLUSION

Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies

having multi-products.

As long as management understands that the BCG Growth/Share Matrix generates options which require further analysis and validation, this tool can

greatly enhance strategic decision making

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THANK YOU