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BCG Matrix : Boston Consulting Group
Introduction
The BCG Matrix was created by the The Boston Consulting Group (BCG) and it became on of the most well-known portfolio management Decision Making Tools in the early 1970's. It is based on the product life cycle theory, and it is used to prioritize the product portfolio in a company or department. There are two dimensions - market share and market growth. According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share. *MARKET SHARE* • Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. • *RELATIVE MARKET SHARE* ( RMS) = (Business unit sales this year/ Leading rival sales this year) • The higher your market share, the higher proportion of the market you control. *MARKET GROWTH RATE* • Market growth is used as a measure of a market’s attractiveness. • MGR = (Individual sales this year- individual sales last year)/ Individual 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. It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories:
Stars : High Growth -High Share
It is based on the combination of market growth and market share relative to the *next best competitor.* Stars are leaders in business. They also require heavy investment, to maintain its large market share. It leads to large amount of cash consumption and cash generation. Attempts should be made to hold the market share otherwise the star will become a CASH COW.
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.
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
QUESTION MARKS: High growth , Low market share
Most businesses start of as question marks. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks.