b c g matrix

7/31/2019 B C G MATRIX

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B C G MATRIX

MADHU.R

BE-02/32/06


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BCG MATRIX


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FOUR CATEGORIES

Dogs - Dogs have low market shareand a low growth rate and thus

neither generate nor consume alarge amount of cash. However,dogs are cash traps because of the

money tied up in a business that haslittle potential. Such businesses arecandidates for divestiture.


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Question marks - Question marks are growingrapidly and thus consume large amounts ofcash, but because they have low market sharesthey do not generate much cash. The result is alarge net cash consumption. A question mark(also known as a "problem child") has thepotential to gain market share and become a

star, and eventually a cash cow when themarket growth slows. If the question markdoes not succeed in becoming the marketleader, then after perhaps years of cash

consumption it will degenerate into a dog whenthe market growth declines. Question marksmust be analyzed carefully in order todetermine whether they are worth theinvestment required to grow market share.


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Stars - Stars generate large amounts of cashbecause of their strong relative market share,

but also consume large amounts of cashbecause of their high growth rate; therefore thecash in each direction approximately nets out.If a star can maintain its large market share, itwill become a cash cow when the marketgrowth rate declines. The portfolio of adiversified company always should have starsthat will become the next cash cows and ensurefuture cash generation.


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Cash cows - As leaders in a mature market, cashcows exhibit a return on assets that is greaterthan the market growth rate, and thus generate

more cash than they consume. Such businessunits should be "milked", extracting the profitsand investing as little cash as possible. Cash cowsprovide the cash required to turn question marks

into market leaders, to cover the administrativecosts of the company, to fund research anddevelopment, to service the corporate debt, andto pay dividends to shareholders. Because thecash cow generates a relatively stable cash flow,its value can be determined with reasonableaccuracy by calculating the present value of itscash stream using a discounted cash flowanalysis.


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SBU RMS GROWTH

RATEA 0.714 15%

B 1 18%

C 1.5 7%

D 4.75 4%

E .2 4%


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%20

1816

14

12

108

6

4

2

0

10x 4x 2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1xRELATIVE MARKET SHARE

III

IVIII

STARS Question Marks/Problem child

DogsCash Cow

C

B

E

A

D

M

A

R

K

E

T

G

R

O

W

T

H

R

A

T

E

BCG MATRIX


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Recommendation-on Strategies

StrategyRecommended

CATEGORY SBU

Divest Dog EInvest Problem

ChildA,B

Hold Star B

Harvest Cow D C


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Limitations of matrix

A Characteristic of each SBU will bedifferent in long term

B In BCG matrix, Individuality of

product is given less preference,consideration is given to StrategicBusiness unit.

C There is an assumption thathigher rates of profit are directlyrelated to high rates of marketshare.


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D Its not easy to take decision based onmatrix only.

Y-axis it has taken only annual market growthrate which doesnt represent market

attractiveness fully.

Other important considerations such as, SIZE,

PROFITABILITY, COMPETITIVEDENSITY,MARKET RESTRICTIONS, POLITICS

X-axis Relative Market Share is not a goodindicator of relative market strength.

Because it is determined by1. TECHNOLOGICAL COMPETENCE

2. MANUF. STRENGTH AT LOW COST

3. FINANCIAL STRENGTH OF RIVAL

4. DISTRIBUTION STRENGTH

5. BRADING & PEOPLE STRENGTH


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F It can cause wrong decisions like

divesting dogs, which may be corebusiness of company.

or

Investing more on dogs, eventhough it is failing continuously .


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To make a healthy recommendation,

we need additional data: Cooperation level between among

all SBUs must be specified.

Nature of product & market shouldbe specified as each SBU hasdifferent potential and requires its

own objective.


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Thank you

b c g matrix

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