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Difference Between BCG and GE Matrices

The document discusses two matrices used for portfolio analysis: the BCG matrix and GE matrix. The BCG matrix classifies business units based on their market growth and relative market share, while the GE matrix uses business strength and industry attractiveness. Key differences are that the BCG matrix only uses two measures and has four cells, while the GE matrix uses multiple measures and has nine cells. Both models help companies analyze their portfolio and allocate resources, but the GE matrix addresses some limitations of the BCG matrix.

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447 views

Difference Between BCG and GE Matrices

The document discusses two matrices used for portfolio analysis: the BCG matrix and GE matrix. The BCG matrix classifies business units based on their market growth and relative market share, while the GE matrix uses business strength and industry attractiveness. Key differences are that the BCG matrix only uses two measures and has four cells, while the GE matrix uses multiple measures and has nine cells. Both models help companies analyze their portfolio and allocate resources, but the GE matrix addresses some limitations of the BCG matrix.

Uploaded by

mesele
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Definition of BCG Matrix

BCG Matrix or otherwise known as Boston Consulting Group growth


share matrix is used to represent the company’s investment portfolio.

Large corporations usually face problems in allocating resources


amongst various units and product lines. To cope with this problem, in
1970, Bruce Henderson designed a matrix for the Group called as BCG
matrix. It is based on two factors which are:

 The growth rate of the product-market.


 Market share held by the company in the respective market, in
comparison to its competitors.

BCG Matrix helps the corporation in analysing the product lines or


business units, for prioritizing them and allocating resources. The
model aims at identifying the problem of resource deployment, among
different business segments. In this approach, various businesses of a
company are classified on a two-dimensional grid.

BCG – Growth Share matrix

 The vertical axis shows market growth rate, which is a measure


of how attractive the market is?
 The horizontal axis indicates relative market shares, which is an
indicator of how strong the company’s position is?

With the help of this matrix, the company can ascertain four kind of
strategic business unit or products as follows:

 Stars: It represents those products which are growing at a faster


rate and requires the huge investment to maintain their position
in the market.
 Cash Cows: The products whose growth is low but holds high
market share. They reap a lot of cash for the company and do not
require finance for expansion.
 Question Marks: It indicates those products which possess a low
market share in a high-growth market and so need heavy
investment to hold their share in the market, but do not generate
cash in the same proportion.
 Dogs: Dogs represents those products, which neither have a high
growth rate nor high market share. Such products generate
enough cash to maintain themselves but will not survive in the
long term.

Definition of GE Matrix

GE matrix, alternately known as General Electric Model is a business


planning matrix. The model is inspired by traffic lights which are used
to manage traffic at crossings, wherein green light says go, yellow says
caution and Red say stop.

The matrix comprises of nine cells, with two major dimensions,


i.e. business strength and industry attractiveness. Business strength
is influenced by market share, brand image, profit margins, customer
loyalty, technological capability and so on. On the other hand, industry
attractiveness is influenced by drivers such as pricing trends,
economies of scale, market size, market growth rate, segmentation,
distribution structure, etc .
GE – Portfolio matrix

When various product lines or business units are drawn on the matrix,
strategic choices can be made, on the basis of their position in the
matrix. Product falling into green section reflects the business is in the
good position, but product lying into yellow section needs the
managerial decision for making choices and the product in the red zone,
are dangerous as they will lead the company to losses.

Definition of BCG Matrix

BCG Matrix or otherwise known as Boston Consulting Group growth


share matrix is used to represent the company’s investment portfolio.

Large corporations usually face problems in allocating resources


amongst various units and product lines. To cope with this problem, in
1970, Bruce Henderson designed a matrix for the Group called as BCG
matrix. It is based on two factors which are:

 The growth rate of the product-market.


 Market share held by the company in the respective market, in
comparison to its competitors.

BCG Matrix helps the corporation in analyzing the product lines or


business units, for prioritizing them and allocating resources. The
model aims at identifying the problem of resource deployment, among
different business segments. In this approach, various businesses of a
company are classified on a two-dimensional grid.

BCG – Growth Share matrix

 The vertical axis shows market growth rate, which is a measure


of how attractive the market is?
 The horizontal axis indicates relative market shares, which is an
indicator of how strong the company’s position is?

With the help of this matrix, the company can ascertain four kind of
strategic business unit or products as follows:

 Stars: It represents those products which are growing at a faster


rate and requires the huge investment to maintain their position
in the market.
 Cash Cows: The products whose growth is low but holds high
market share. They reap a lot of cash for the company and do not
require finance for expansion.
 Question Marks: It indicates those products which possess a low
market share in a high-growth market and so need heavy
investment to hold their share in the market, but do not generate
cash in the same proportion.
 Dogs: Dogs represents those products, which neither have a high
growth rate nor high market share. Such products generate
enough cash to maintain themselves but will not survive in the
long term.

Definition of GE Matrix

GE matrix, alternately known as General Electric Model is a business


planning matrix. The model is inspired by traffic lights which are used
to manage traffic at crossings, wherein green light says go, yellow says
caution and Red say stop.

The matrix comprises of nine cells, with two major dimensions,


i.e. business strength and industry attractiveness. Business strength
is influenced by market share, brand image, profit margins, customer
loyalty, technological capability and so on. On the other hand, industry
attractiveness is influenced by drivers such as pricing trends,
economies of scale, market size, market growth rate, segmentation,
distribution structure, etc.

GE – Portfolio matrix

When various product lines or business units are drawn on the matrix,
strategic choices can be made, on the basis of their position in the
matrix. Product falling into green section reflects the business is in the
good position, but product lying into yellow section needs the
managerial decision for making choices and the product in the red zone,
are dangerous as they will lead the company to losses.

.The points depicted below, elaborate the fundamental differences


between BCG and GE matrices:

1. BCG matrix can be understood as the growth-share model, that


reflects a growth of business and the market share possessed
by the firm. On the other hand, GE matrix is also termed as
multi-factor portfolio matrix, which businesses use in making
strategic choices for product lines or business units based on
their position in the grid.
2. BCG matrix is simpler in comparison to GE matrix, as the
former is easy to draw and consist of only four cells, while the
latter consist of nine cells.
3. The two dimensions on which BCG matrix is based are market
growth and market share. Conversely, industry attractiveness
and business strengths are two factors of GE matrix.
4. BCG matrix is used by the companies to deploy their resources
among various business units. On the contrary, firms use GE
matrix to prioritize investment among various business units.
5. In BCG matrix only a single measure is used, whereas in GE
matrix multiple measures are used.
6. BCG matrix represents two degrees of market growth and
market share, i.e. high and low. In contrast, in GE matrix there
are three degrees of business strength, i.e. strong, average and
weak, and industry attractiveness, are high, medium and low.

.Difference between BCG and GE  matrices –

BCG Matrix GE Matrix

1. BCG matrix consists of four 1. GE matrix consists of nine


cells cells

2. The business unit is rated 2. The business unit is rated


against relative market share against business strength and
and industry growth rate industry attractiveness

3. The matrix used multiple


3. The matrix uses single
measures to assess business
measure to assess growth and
strength and industry
market share
attractiveness

4. The matrix uses three types


4. The matrix uses two types of of classification i.e
classification i.e high and low high/medium/low and
strong/average/weak

5. Overcomes many limitations


5. Has many limitations of BCG and is an improvement
over it

Conclusion

To sum up, we can say that the two models are similar, but have
some differences that cannot be ignored. While BCG matrix is simpler
to plot and easier to understand, GE matrix is a bit difficult to draw
and interpret. However, it is free from certain limitations of BCG
matrix.

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