BCG

The Boston Consulting Group’s Growth-Share MatrixPresented by:Dr Abdalla Sobhy

Presentation Outline History of BCG Matrix Brief explanation of portfolio analysis BCG Matrix construction Strategy recommendations Evaluation of the tool

History of the BCG Matrix created by Bruce Henderson First implementation in 1969

by Boston Consulting Group Has many names B-Box,

B.C.G. analysis, BCG-matrix, Boston Box

Basis of the BCG Portfolio Matrix

Time

Introductory Phase “?”

Growth Phase “Star”

Sales Volume

Mature Phase “Cash Cow”

Decline Phase “Dog”

BCG Matrix Construction Internal measure: Relative market

share External measure: Market growth

BCG Matrix Format Vertical Axis = Relative Market Growth

Split at 10% by a horizontal line Horizontal Axis = Relative Market Share

Split at 1x by a vertical line Creates four quadrants in which individual SBUs are

positioned as bubbles Bubble size = SBU’s total revenue

20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0M

arke

t Gro

wth

Rat

e

10x 4x 2x 1.5x 1x Relative Market Share

.5x .4x .3x .2x .1x

Dogs 87

3 ?Question marks? ?

2

1

Cash cows

6

Stars

5

4

The BCG Matrix

High Low

High

Low

Product Sales Growth Rate

Relative Market Share

Cash Cow  business units with high market share

in a slow-growing industry. generate cash in excess of the amount

of cash needed to maintain the business.

They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.

Star Strategies Business units with a high market share in

a fast-growing industry. The hope is that stars become the

next cash cows. Sustaining the business unit's market

leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader.

When growth slows, if they have been able to maintain their category leadership stars become cash cows, else they become dogs due to low relative market share.

Problem Child or ? Low market share in expanding industry Needs substantial cash to improve its position A question mark 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.

Dogs or pets Low market share in a mature or

declining industry Slow progress on experience curve

(barely enough cash to maintain the business's market share

Cost disadvantages and few growth opportunities

should be sold off. Concentrate on niches requiring

limited effort

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

Strategy Recommendations Investment Increase market share Selectively develop into Stars

Cash Flow Require funds from other SBUs (Cash Cows)

Unrealized future opportunities

Strategy Recommendations Investment Maintain market share Maintain capacity

Cash Flow Positive cash flow Provides funding to support Stars and “?”

No potential for profit growth

Strategy Recommendations Investment

Reduce capacity to free up resources Cash Flow

Goal of Positive Cash Flow Negative Cash Flow = burn

No real growth opportunities

Evaluation of BCG Matrix: Cons Oversimplifies complex decisions Only 2 factors considered = creates risk Uncertainty in market and SBU definition Only considers current businesses no dynamics Does not recognize possible synergies between

SBUs Can fall prey to the “GIGO” syndrome

Evaluation of BCG Matrix: Pros Simple and rapid Solid basis for decision-making Good measurability of market share and

growth Provides information about efficient

resource allocation within the organization

Generator for strategic options