Bcg Matrix Class

It is the well-known portfolio management tool. Developed in the early 70s by the Boston Consulting Group.

It is based on product life cycle theory. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit which will further help us to decide which of the business units to fund, how much to fund; and which units to sell.

To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash.

Relative Market Share (Cash Generation)

High Market ShareMarket Share Low Market ShareMarket Share

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Profits and cash generation is high. Because of the low market growth, investments

which are needed is low. The more the company invests in cash cows, the

greater the return. Cash cows tend to pay the dividends, the interest

on debt and cover the corporate overhead.

Low Growth, High Market Share

Stars are leaders in the business. they generate large amounts of cash because of their strong market share, but also consume large amounts of cash because of their high growth rate

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

High Growth, High Market Share

They have high cash demands because of their growth but generate low returns, because of their low market share.

If the market share remains unchanged, Question Marks will simply absorb great amounts of cash.

Either invest heavily, or sell off, or invest nothing and generate any cash that you can.

Question marks are difficult to turn into stars because the cost of acquiring market share compounds the cash needs.

High Growth, Low Market Share

Thus neither generate nor consume a large amount of cash.

Avoid and minimize the number of Dogs in a company.

Low Growth, Low Market Share

The BCG Matrix method can help to understand a frequently made strategy mistake:

Having a one size fits all strategy approach, such as a growth target (9 percent per year) or return on capital of say 9.5% for an entire corporation.

In such a scenario: Cash Cows Business Units will reach their profit

target easily. Their management have an easy job as cash cows generate huge amount of cash.

Dogs Business Units are fighting an impossible battle and investments are made now and then in hopeless attempts to 'turn the business around‘.

As a result all Question Marks and Stars receive only small investment funds. In this way they can never become Cash Cows.

BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.

It provides a base for management to decide and

prepare for future actions.

The model is simple and easy to understand.

High market share is not the only success factor.

There is no clear definition of what constitutes a "market".

The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or to divest prematurely.

The model neglects small competitors that have fast growing market shares.

For a group activity choose a company and design a BCG Matrix for its different businesses.

Group 1 – Virgin group Group 2 – ITC group Group 3 – TATA group Group 4 – HUL group Group 5 – Godrej group Group 6 – Amul group Group 7 – LG group of products Group 8 – Nestle group of products