BCG MATRIX

J.K.OKE

BCG MATRIX

• THE BCG (BOSTON CONSULTING GROUP) GROWTH SHARE MATRIX,

• ALONGWITH THE GE BUSINESS SCREEN, • IS ONE OF THE MOST POPULAR AIDS • IN DEVELOPING CORPORATE STRATEGY • IN A MULTI-BUSINESS CORPORATION

USING PORTFOLIO ANALYSIS. • WHILE IN 1970S & 1980S, IT WAS VERY

POPULAR, EVEN TODAY IT IS USED BY ABOUT 30% OF THE FORTUNE 500 COMPANIES

BCG MATRIX

• BCG MATRIX IS THE SIMPLEST WAY TO PORTRAY A CORPORATION’S PORTFOLIO OF INVESTMENTS

• IT CAN ALSO BE USED TO DEVELOP STRATEGIES FOR INTERNATIONAL MARKETS

• EACH OF THE CORPORATION’S PRODUCT LINES OR BUSINESS UNITS IS PLOTTED ON THE MATRIX ACCORDING TO BOTH:

• THE GROWTH RATE OF THE INDUSTRY IN WHICH IT COMPETES & ITS RELATIVE MARKET SHARE

BCG MATRIX

• THE KEY TO SUCCESS IS ASSUMED TO BE THE MARKET SHARE. AS SUCH, A UNIT’S RELATIVE COMPETITIVE POSITION IS DEFINED AS ITS MARKET SHARE IN THE INDUSTRY DIVIDED BY THAT OF THE LARGEST OTHER COMPETITOR.

• BY THIS CALCULATION, A RELATIVE MARKET SHARE ABOVE 1.0 BELONGS TO THE MARKET LEADER THE BUSINESS GROWTH RATE IS THE PERCENTAGE OF MARKET GROWTH, I.E., THE PERCENTAGE BY WHICH SALES OF A PARTICULAR BUSINESS UNIT CLASSIFICATION OF PRODUCT HAS INCREASED.

BCG MATRIX

• THE LINE SEPARATING AREAS OF HIGH & LOW RELATIVE COMPETITIVE POSITION IS SET AT 1.5 TIMES A PRODUCT LINE OR BUSINESS UNIT MUST HAVE RELATIVE STRENGTHS OF THIS MAGNITUDE ( 1.5) TO ENSURE THAT IT WILL HAVE THE DOMINANT POSITION NEEDED

• TO BE A ‘STAR’ OR ‘CASH COW’. ON THE OTHER HAND, A PRODUCT LINE OR UNIT HAVING A RELATIVE COMPETITIVE POSITION LESS THAN 1.0 HAS ‘DOG’ STATUS.

BCG MATRIX

• BCG MATRIX CONSISTS OF FOUR QUADRANTS AS FOLLOWS:

QUESTION MARK STAR CASH COW DOG

BCG MATRIX

STAR QUESTION

MARK

CASH

COW

DOG

BCG MATRIX: QUESTION MARKS

• COMPANIES UNDER THIS CATEGORY • ARE ALSO KNOWN AS “PROBLEM CHILD” OR

“WILD CAT” • QUESTION MARKS ARE FIRMS WHICH HAVE

POTENTIAL FOR SUCCESS • BUT NEED A LOT OF CASH FOR

DEVELOPMENT TO BECOME STAR• QUESTION MARKS UNABLE TO EMERGE

“STARS” SLOWLY BECOME ‘DOGS’

BCG MATRIX: STAR

• MARKET LEADERS • TYPICALLY AT THE PEAK OF THEIR

PRODUCT LIFE CYCLE • ARE USUALLY ABLE TO GENERATE

ENOUGH CASH• TO MAINTAIN THEIR HIGH SHARE OF

THE MARKET.• WHEN THEIR MARKET GROWTH

SLOWS, STARS BECOME CASH COWS

BCG MATRIX: CASH COWS

• TYPICALLY BRING IN MORE MONEY

• THAN IS REQUIRED

• TO MAINTAIN THEIR MARKET SHARE.

• THESE PRODUCTS ARE ‘MILKED’

• FOR CASH

• THAT WILL BE INVESTED IN

• NEW “QUESTION MARKS”

BCG MATRIX: DOGS

• HAVE LOW MARKET SHARE & DO NOT HAVE THE POTENTIAL TO BRING IN MUCH CASH AS THEY ARE IN AN UNATTRACTIVE INDUSTRY .

• ‘QUESTION MARKS’ UNABLE TO OBTAIN A DOMINANT MARKET SHARE, & THUS BECOME STARS, BECOME ‘DOGS’

• ACCORDING TO THE BCG MATRIX, • DOGS SHOULD BE EITHER SOLD OFF OR

MANAGED CAREFULLY FOR THE SMALL AMOUNT OF CASH THEY GENERATE

BCG MATRIX

• THE TYPICALMANAGERIAL / DECISION-MAKING IMPLICATIONS OF BCG MATRIX ARE:

• INVEST (QUESTION MARK / STAR)

• HARVEST (CASH COW)

• DIVEST (DOGS)

NEW BCG MATRIXSIZE OF COMPETITIVE ADVANTAGE

MANY FRAGMENTED SPECIALI-SATION

FEW STALEMATE VOLUME

NEW BCG MATRIX

• THE NEW BCG MATRIX WAS UNVEILED IN 1989

• IT TOO IS A 2 X 2 MATRIX SHOWING THE SIZE OF THE COMPETITIVE ADVANTAGE & THE NUMBER OF APPROACHES TO ACHIEVE ADVANTAGES

NEW BCG MATRIX

• IT HAS FOUR QUADRANRS AS FOLLOWS:

• FRAGMENTED

• SPECIALISATION

• STALEMATE

• VOLUME

NEW BCG MATRIX:FRAGMENTED

• FRAGMENTED BUSINESS ARE SMALL & CONFINED TO SPECIFIC AREA / REGION

• THERE IS NO PREMIUM ON GROWTH & PROFITABILITY IS NOT RELATED TO SIZE

• EXAMPLES:• MTR IN BANGALORE / NIRULAS IN

NEW DELHI / BOUTIQUES

NEW BCG MATRIXSPECIALISATION

• SPECIALISED BUSINESS HAS FOCUSSED SEGMENT & ARE CHARACTERISED BY STEEP LEARNING CURVES

• THE FIRMS MUST LEARN TO PROTECT THEIR FOCUS

• EXAMPLES:• BIOCON / CRAY RESEARCH (SUPER

COMPUTERS)

NEW BCG MATRIXSTALEMATE

• STALEMATED BUSINESS ARE THOSE WHERE IT IS DIFFICULT TO GAIN ANY ADVANTAGE

• IT IS THEIR SHEER SUSTAINING POWER WHICH GIVES THEM COMPETITIVE ADVANTAGE

• EXAMPLES:

• KELLOGS IN INDIA / P&G /

NEW BCG MATRIXVOLUME

• VOLUME BUSINESSES ARE THOSE WHERE ECONOMIES OF SCALE & INCREASING RETURNS OPERATE

• THEY ARE CONSTRAINED BY MARKET SEGMENTATION & DIFFERENTIATION

• EXAMPLES:

• CAR INDUSTRY IN INDIA

BCG MATRIX : ADVANTAGES

• IT IS QUANTIFIABLE

• IT IS EASY TO USE

• CASH COWS, DOGS & STARS ARE AN EASY TO REMEMBER WAY TO REFER TO A CORPORATION’S BUSINESS UNITS OR PRODUCTS

BCG MATRIX : LIMITATIONS

• THE USE OF HIGHS & LOWS TO FORM 4 CATEGORIES IS TOO SIMPLISTIC

• THE LINK BETWEEN MARKET SHARE & PROFITABILITY IS QUESTIONABLE

• LOW SHARE BUSINESSES CAN ALSO BE PROFITABLE (‘NICHE’ PRODUCTS)

• MARKET SHARE / GROWTH IS ONLY ONE, NOT THE ONLY, ASPECT OF INDUSTRY ATTRACTIVENESS

BCG MATRIX : LIMITATIONS

• ONLY THE MARKET LEADER IS CONSIDERED.

• THERE COULD/ARE ALSO THE SMALL COMPETITORS WITH FAST-GROWING MARKET SHARE.

• SUCH PLAYERS ARE IGNORED• MARKET SHARE IS ONLY ONE, NOT

THE ONLY, ASPECT OF COMPETITIVE POSITION

GE MATRIX

• THE GE MATRIX WAS DEVELOPED BY GE WITH ASSISTANCE FROM McKINSEY COMPANY

• IT IS ALSO KNOWN AS

• GE MULTI-FACTOR PORTFOLIO MATRIX, OR

• GE BUSINESS ATTRACTIVENESS SCREEN

GE MATRIX

HIGH WINNERS WINNERS QUESTION MARKS

MEDIUM WINNERS AVERAGE BUSINESS

LOSERS

LOW PROFIT PRODU-CERS

LOSERS LOSERS

STRONG AVERAGE WEAK

GE MATRIX

• IN CONTRAST TO BCG MATRIX, THE GE MATRIX INCLUDES MORE DATA AS REGARDS

a) INDUSTRY ATTRACTIVENESS

b) BUSINESS STRENGTH /

COMPETITIVE POSITION

GE MATRIX

INDUSTRY ATTRACTIVENESS INCLUDES MARKET GROWTH RATE MARKET SIZE PRICING PRACTICES INDUSTRY PROFITABILITY,

AMOMG OTHER OPPORTUNITIES & THREATS

GE MATRIX

BUSINESS STRENGTH / COMPETITIVE

POSITION INCLUDE: MARKET SHARE TECHNOLOGICAL POSITION SIZE & PROFITABILITY

AMONG OTHER POSSIBLE STRENGTHS & WEAKNESSES

GE MATRIX:LIMITATIONS

GE MATRIX

GE MATRIX