BCG MATRIX Boston Consulting Group (BCG) Matrixis a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses init’s portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is a comparative analysis of business potential and the evaluation of environment.According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.Relative Market Share= SBU Sales this year leading competitors sales this year.Market Growth Rate= Industry sales this year – Industry Sales last year.The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share isachieved due to overall cost leadership.BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is set at the growth rate for the economy.Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particulartype of business.
10 x 1 x 0.1 xFigure: BCG Matrix1.Stars-Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these business
units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.2.Cash Cows-Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investmentin other business units. These SBU’s are the corporation’s key sourceof cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued.
Created by the Boston Consulting Group, the BCG matrix-also known as the Boston or growth-share matrix – provides a framework for analyzing products according to growth and market share. The BCG matrix has been used since 1968 to help companies gain insights in whatproducts best help them capitalize on market-share growth opportunities,” (Martin, 2017). Any successful business organization understands that in order to remain successful and competitive, it must deliver products or services that attract consumers in the presence and in the future. In addition, organizations must be able to recognize which products or services are a weakness on resources without any potential to progress. This may come easy to most business with identifying the areas that bring in the most profit, but realizing how the rest of the portfolio contributes to the market share growth can be difficult. “The BCG matrix was designed as an analysis tool to help you determine the role of products on your future profit margin so you can decide where to invest,” (Martin, 2017). Nestle is one company that has successfully utilized this