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Boston Consulting Group Matrix

Prepared By..

Rupi Anyonya Varsha Lubna Bhupesh

INTRODUCTION
The Boston Consulting Group Matrix is a portfolio planning model developed by Bruce Henderson of Boston Consulting Group in the early 1970s.

It is a simple tool to assess a companys position in terms of its product range.

According to this technique, businesses or products are classified as low or high performers depending upon their market share and market growth rate.

RELATIVE MARKET SHARE AND MARKET GROWTH

To Understand the BOSTON MATRIX you need to understand how market share and market growth interrelate

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. The higher your market share, the higher the proportion of the market you control. The Boston Matrix assumes that if you enjoy a high market share you will be making money. Relative Mkt Share=Business unit sales this year Rival sales this year

MARKET GROWTH RATE


Market growth is used as a measure of a market's attractiveness. MGR= Individual sale Individual sale this year last year

Individual sales last year . Markets experiencing high growth are ones where the total market is expanding, meaning that its relatively easy for businesses to grow their profits, even if their market share remains stable.

BCG GROWTH-SHARE MATRIX


It is a portfolio planning model which is based on the observation that a companys business units can be classified into four categories based on combination of market growth and share : Stars

Question Marks
Cash cows Dogs.

BCG MATRIX

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.

STARS
(HIGH GROWTH, HIGH MARKET SHARE)

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 growth 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.

SEQUENCES IN BCG MATRIX


Success Sequence in BCG Matrix

Disaster sequence in BCG Matrix

STRATEGIES BASED ON THE MATRIX

There are four strategies possible for any product / SBU and these are the strategies which are used after the BCG analysis. These strategies are..

Build By increasing investment, the product is given an impetus such that the product increases its market share. Hold The company cannot invest or it has other investment commitments due to which it holds the product in the same quadrant Harvest Best observed in the Cash cow scenario, wherein the company reduces the amount of investment and tries to take out maximum cash flow from the said product which increases the overall profitability Divest Best observed in case of Dog quadrant products which are generally divested to release the amount of money already stuck in the business

STEPS OF BCG MATRIX


Identifying and dividing a company into a SBU

Comparing the prospects of each SBU according to 2 criteria:1. SBUs market share

2. SBUs growth rate


Classifying SBUs on basis of BCG Matrix Developing objectives for each SBU

NEED FOR BCG MATRIX


To assess cash demands for the product
To assess profiles of the Company as whole and its products

To assess development cycles of products


Helps in Resource allocation and investment decisions

BENEFITS

Simple and easy to understand Screens opportunities open to you and helps in thinking how you can make most out of them Used to identify how corporate cash resources can best be used to maximize companys future growth and profitability

Provides a base for management to decide and prepare for future actions

LIMITATIONS

Uses only 2 dimensions market share & market growth Problem in getting data regarding market share and market growth High market share does not always mean high profits

Market growth is not the only indicator for attractiveness of a market

CONCLUSION
Though BCG Matrix has its own limitations it is one of the most famous and simple portfolio planning matrix, used by many large companies having multi-products. It helps the companies to think about their products and services and make decisions about which it should keep, which to let it go and which to invest in further.