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Strategic Management: BCG Matrix

The document discusses the BCG matrix, which is an analytical tool used in strategic management. It classifies business units or products in a company's portfolio according to their market growth and relative market share. This results in a 2x2 matrix with four categories: cash cows, stars, question marks, and dogs. The BCG matrix is used to help identify strategic options for each category, such as investing in stars and question marks, maintaining cash cows, harvesting cash from some cows, and divesting dogs. An example of applying these strategies to a multi-product, multi-market company is provided.

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Smriti Kushwaha
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© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
96 views

Strategic Management: BCG Matrix

The document discusses the BCG matrix, which is an analytical tool used in strategic management. It classifies business units or products in a company's portfolio according to their market growth and relative market share. This results in a 2x2 matrix with four categories: cash cows, stars, question marks, and dogs. The BCG matrix is used to help identify strategic options for each category, such as investing in stars and question marks, maintaining cash cows, harvesting cash from some cows, and divesting dogs. An example of applying these strategies to a multi-product, multi-market company is provided.

Uploaded by

Smriti Kushwaha
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Strategic Management

BCG matrix

(c) Strategy Content, Process, and Roles

Analytical Framework for Strategy Formulation

Analytical Framework for Strategy Formulation

Stage 1: Input Stage

Stage 2: Matching Stage

Stage 3: Decision Stage

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Strategic Mangement

Analytical Framework for Strategy Formulation


Internal Factor Evaluation Matrix (IFEM)

Stage 1: Input Stage

External Factor Evaluation Matrix (EFEM)

Competitive Profile Matrix (CPM)

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Strategic Mangement

Analytical Framework for Strategy Formulation


SWOT Matrix

SPACE Matrix

Stage 2: Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Strategic Mangement

BCG Matrix
The process

BCG Model
Product of Boston Consultancy Group (Bruce

Henderson 1972)
Classify Firms products according to:

Market Growth (= Industry

Attractiveness) High/Low Relative Market Share (= Competitive Advantage) High / Low


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BCG Model
2 x 2 Growth-Share Matrix Basic idea: If a product (SBU) has a bigger market share, or if its market grows faster, it is better for

the Firm.
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Growth-Share Formulae

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Process
For each SBU, compute relative Market Share

(MS) and market Growth Rate (GR) Plot MS on x-axis. Generally, midpoint is 0.5 Plot GR on y-axis. Generally, midpoint is 0.0 because GR can vary from minus to plus However, different midpoints are possible X,Y point for each SBU is shown by a circle Size of circle = SBUs share of Firms revenues Pie slice in circle = SBUs share of Firms profits
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Rationale
1. Relative Market Share = Cash generation

2. Market Growth = Need to increase

capacity = Investment in assets =


Cash consumption Thus, growth-share matrix identifies SBUs / products with high or low cash generation &
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high or low cash consumption. Strategic Mangement

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Growth-Share Matrix

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Strategic Mangement

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The Four Categories

1. Cash Cow 2. Star

3. Question Mark
4. Dog

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1. Cash Cow (LGR-HMS)


$

Generates more cash. Consumes less

$ $

Most valuable to the Company Funds R&D, services debt, and

$
15

Helps convert Question Mark to


Star.
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2. Star (HGR-HMS)

Leader in high growth markets

Generate a lot of cash


But, also use a lot of cash because of high growth market conditions

Becomes cash cow when market growth rate stabilizes / declines.

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Strategic Mangement

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3. Question Mark (HGR-LMS)

Generates less cash. Consumes more

Also called Problem Child


Can enhance market share Star Subsequently, even a Cash Cow Or, a permanent drag on cash Strategy: Either invest heavily or sell off.

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Strategic Mangement

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4. Dog (LGR-LMS)

Does not generate large cash

Does not consume large cash


Resources tied up in low potential SBU Strategy: Minimize number of Dogs, avoid costly rescue plans, divest fast.

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Strategic Mangement

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BCG Model: Strategies

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Strategy Options
Build: Invest & strengthen (Star, Question

Mark with a bright future)


Hold: Maintain business (Cash Cow)

Harvest: Grab short-term cash flow (for


Cash Cows with limit-to-growth or nearexpiry-date) Divest: For Dogs & weak Question Marks.
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An Example
Multi-product, multi-market company

Harvest the CTV business Invest heavily in Cellphone SBU. Merge i-pod division with it. Buy competitors. Maintain Washing Machine SBU Divest Stereo System SBU even at cost Drop Bangladesh & Sri Lanka markets Sell off Kitchen Appliances SBU soonest.

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