BCG Growth/Share Matrix

History of the BCG Matrix 1960’s – diversification of businesses Need for universal management tool First implementation in 1969 by Boston Consulting Group

Portfolio Analysis Strategic Business Unit (SBU) Definition Single independent operation of a company Has its own competitors One manager responsible for performance Has a different set of requirements of resources Allocation of resources over all SBUs

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 Firm’s sales of the SBU . Total market’s average sales Firm’s Sales of the SBU . Strongest Competitor’s Sales External measure: Market growth Match strategy with market stage

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

The BCG Matrix Relative Market Share High Low Product Sales Growth Rate Relative Market Share

BCG Market Share/Market Growth Matrix

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 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 Maintain market share Maintain capacity Cash Flow Positive cash flow Provides funding to support Stars and “?” No potential for profit growth

Strategy Recommendations Investment Divestiture strategy Reduce capacity to free up resources Cash Flow Goal of Positive Cash Flow Negative Cash Flow = Divestment 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

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

Conclusion As long as management understands that the BCG Growth/Share Matrix generates options which require further analysis and validation, this tool can greatly enhance strategic decision making