BCG Growth-Share Matrix
Who designed it?
Boston Consulting Group (BCG) Consultant Bruce Henderson developed
this model in early 1970’s.
What is it used for?
The analysis helps to understand which brands or Strategic
Business Units (SBUs) should the firm invest in and which ones should be
divested.
Visual representation
of the tool
It portrays the firm’s portfolio on a quadrant along the
relative market share (horizontal axis) and speed of market growth (Vertical
axis).
Industry attractiveness = Growth rate of that industry
Competitive position = Relative market share
These two dimensions reveal the likely profitability of the
business portfolio in terms of cash needed to support that unit and cash
generated by it.
Explanation & how to use it?
1. Dog:
SBUs that have low market share and low growth rate are classified as dogs. This implies that
Cash consumed – Low
Cash generated – Low
Decision: Divestiture or selling off such units.
2. Question Marks:
SBUs that are growing rapidly but have a low market share are classified as Question marks. This implies
Cash consumed: High (as they are rapidly growing)
Cash generated: Low (as they have low market share)
Decision: A careful analysis of such SBUs should be undertaken as there are two possibilities that can arise.
a. Possibility that they get converted to Stars and eventually Cash Cows (Favourable): This can be done by investing more money in them so they gain market share.
b. Possibility that they get converted to dogs (Dangerous): This can happen if the market growth declines and they are not able to capture the market share. As they have already consumed a lot of cash, it might result into losses if such a situation occurs.
3. Stars
SBUs that have high market share and high growth rate are classified as Stars. This implies
Cash consumed – High (as they are growing)
Cash generated – High (as they have a high market share)
Decision: The net of cash generated and cash consumed does not significantly contribute to the profitability of the business. If the Star can maintain the high market share as the market growth declines then these Stars can be converted to Cash Cows. Organizations should have many Stars that get converted to Cash Cows as Cash Cows ensure future cash generation.
4. Cash Cows
SBUs that have high market share (Market leaders) in a mature market are classified as Cash Cows. This implies:
Cash consumed: Low (as they operate in a mature market)
Cash generated: High (as they are the market leaders)
Decision: They are the profitable segments of the business. The profits are used to cover the costs and also invested back in business to convert Question marks to Stars.
SBUs that have low market share and low growth rate are classified as dogs. This implies that
Cash consumed – Low
Cash generated – Low
Decision: Divestiture or selling off such units.
2. Question Marks:
SBUs that are growing rapidly but have a low market share are classified as Question marks. This implies
Cash consumed: High (as they are rapidly growing)
Cash generated: Low (as they have low market share)
Decision: A careful analysis of such SBUs should be undertaken as there are two possibilities that can arise.
a. Possibility that they get converted to Stars and eventually Cash Cows (Favourable): This can be done by investing more money in them so they gain market share.
b. Possibility that they get converted to dogs (Dangerous): This can happen if the market growth declines and they are not able to capture the market share. As they have already consumed a lot of cash, it might result into losses if such a situation occurs.
3. Stars
SBUs that have high market share and high growth rate are classified as Stars. This implies
Cash consumed – High (as they are growing)
Cash generated – High (as they have a high market share)
Decision: The net of cash generated and cash consumed does not significantly contribute to the profitability of the business. If the Star can maintain the high market share as the market growth declines then these Stars can be converted to Cash Cows. Organizations should have many Stars that get converted to Cash Cows as Cash Cows ensure future cash generation.
4. Cash Cows
SBUs that have high market share (Market leaders) in a mature market are classified as Cash Cows. This implies:
Cash consumed: Low (as they operate in a mature market)
Cash generated: High (as they are the market leaders)
Decision: They are the profitable segments of the business. The profits are used to cover the costs and also invested back in business to convert Question marks to Stars.
Limitations
1.
It ignores factors other market share and growth
rate that contribute to the profitability of the business.
2.
It assumes that each business unit is
independent of others.
3.
The definition of market can make a huge
difference as a SBU’s serving a niche can be classified as Cash cow or Dog
depending upon what is considered as market (only niche segment or the entire
industry).
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