BCG GrowthShare Matrix History of the BCG Matrix

BCG Growth/Share Matrix

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

Portfolio Analysis n Strategic Business Unit (SBU) Definition n n 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 Sales Volume Mature Phase “Cash Cow” Growth Phase “Star” Introductory Phase “? ” Time Decline Phase “Dog”

BCG Matrix Construction n Internal measure: Relative market share n n n 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 n Match strategy with market stage

BCG Matrix Format n Vertical Axis = Relative Market Growth n n Horizontal Axis = Relative Market Share n n Split at 10% by a horizontal line Split at 1 x by a vertical line Creates four quadrants in which individual SBUs are positioned as bubbles n Bubble size = SBU’s total revenue

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

n 2 -8 BCG Market Share/Market Growth Matrix

Strategy Recommendations n Investment n n n Cash Flow n n Increase market share Selectively develop into Stars Require funds from other SBUs (Cash Cows) Unrealized future opportunities

Strategy Recommendations n Investment n n n Further Growth Maintain Market Position Cash flow n n Self-sustaining: Fund their own growth Require funds from other SBUs (Cash Cows) Assure the future of the company n Grow into Cash Cows n

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

Strategy Recommendations n Investment n n n Cash Flow n n n Divestiture strategy Reduce capacity to free up resources Goal of Positive Cash Flow Negative Cash Flow = Divestment No real growth opportunities

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

Evaluation of BCG Matrix: Pros Simple and rapid n Solid basis for decision-making n Good measurability of market share and growth n Provides information about efficient resource allocation within the organization n Generator for strategic options n

Conclusion n 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