Thursday, March 30, 2006

BCG Matrix


The Boston Consulting Group (BCG) was the inventor of this portfolio management matrix. Using this growth-share approach, a company classifies all its Strategic Business Units (SBUs).

On the vertical axis, market growth rate provides a measure of market attractiveness.
On the horizontal axis, relative market share gives an indication of the company strength in the market.

The matrix is divided into four quadrants:
1. Stars: High growth products that need heavy investment. Over time, their growth slows down turning them to cash cows.
2. Cash Cows: These are low growth, high market share products. They require less investment to hold onto their market share. For instance, products from reputed companies like J&J, P&G, etc. Cash Cows support other SBUs because of their goodwill and market share.
3. Question Marks: Low market share business units in high growth markets. Investment is needed to hold their share, building them into stars.
4. Dogs: Low growth and low market share businesses and products. They generate just enough cash to maintain themselves. They are generally on their way out.

Four strategies to determine what role each SBU will play in the future:
1. Invest in one or more SBUs to build a share.
2. Invest just enough to maintain a share in the market.
3. Harvest the SBU just to generate profits.
4. Finally it can sell the SBU.

SBUs can change their positions in the matrix. For instance, question marks turn to stars, becoming cash cows if the market growth falls, leading to dogs towards the end of the cycle. It is also not necessary that the SBUs have to follow this order. A star may turn into a dog, or a question mark into a dog, or even a cash cow back into a star with a change in the marketplace.

Sources:
http://www.netmba.com/strategy/matrix/bcg/
themanagementor.com

4 Comments:

At 3:21 AM, Blogger Katie said...

Thanks for the blog.

It's a great intro to BCG matrix. There are a lot of limitations that you didn't mention, though.

This article lists them:

http://www.coursework4you.co.uk/bcg.htm

The case study overviews are good, too.

 
At 3:27 AM, Blogger Mabs said...

I was looking at http://www.coursework4you.co.uk/bcg.htm and saw that there were some limitations to the BCG Growth-Share Matrix. What can you say about those?

 
At 10:01 AM, Blogger http://www.study-aids.co.uk said...

How is BCG used in the UK?

http://www.study-aids.co.uk

 
At 8:50 AM, Blogger shikender said...

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