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BCG

Meaning

The BCG Growth-Share Matrix is a portfolio planning


model developed by Bruce Henderson of the Boston
Consulting Group in the early 1970's. It is based on
the observation that a company's business units can
be classified into four categories based on
combinations of market growth and market share
relative to the largest competitor, hence the name
"growth-share". Market growth serves as a proxy for
industry attractiveness, and relative market share
serves as a proxy for competitive advantage. The
growth-share matrix thus maps the business unit
positions within these two important determinants of
profitability.

BCG Growth-Share Matrix

Assumption

This framework assumes that an


increase in relative market share will
result in an increase in the generation of
cash. This assumption often is true
because of the experience curve;
increased relative market share implies
that the firm is moving forward on the
experience curve relative to its
competitors, thus developing a cost
advantage.

A second assumption is that a growing


market requires investment in assets to
increase capacity and therefore results
in the consumption of cash. Thus the
position of a business on the growthshare matrix provides an indication of its
cash generation and its cash
consumption.

BCG Growth Share Matrix


Four Categories ; Dogs
Question marks
Stars
Cash Cows

Dogs

Dogs have low market share and a low


growth rate and thus neither generate
nor consume a large amount of cash.
However, dogs are cash traps because
of the money tied up in a business that
has little potential. Such businesses are
candidates for divestiture.

Question marks

Question marks are growing rapidly and thus


consume large amounts of cash, but because they
have low market shares they do not generate much
cash. The result is a large net cash comsumption. A
question mark (also known as a "problem child") has
the potential to gain market share and become a
star, and eventually a cash cow when the market
growth slows. If the question mark does not succeed
in becoming the market leader, then after perhaps
years of cash consumption it will degenerate into a
dog when the market growth declines. Question
marks must be analyzed carefully in order to
determine whether they are worth the investment
required to grow market share.

Stars

Stars generate large amounts of cash


because of their strong relative market
share, but also consume large amounts of
cash because of their high growth rate;
therefore the cash in each direction
approximately nets out. If a star can
maintain its large market share, it will
become a cash cow when the market
growth rate declines. The portfolio of a
diversified company always should have
stars that will become the next cash cows
and ensure future cash generation.

Cash cows

As leaders in a mature market, cash cows exhibit a


return on assets that is greater than the market
growth rate, and thus generate more cash than they
consume. Such business units should be "milked",
extracting the profits and investing as little cash as
possible. Cash cows provide the cash required to
turn question marks into market leaders, to cover the
administrative costs of the company, to fund
research and development, to service the corporate
debt, and to pay dividends to shareholders. Because
the cash cow generates a relatively stable cash flow,
its value can be determined with reasonable
accuracy by calculating the present value of its cash
stream using a discounted cash flow analysis

Limitations

Market growth rate is only one factor in


industry attractiveness, and relative
market share is only one factor in
competitive advantage. The growthshare matrix overlooks many other
factors in these two important
determinants of profitability.

The framework assumes that each


business unit is independent of the
others. In some cases, a business unit
that is a "dog" may be helping other
business units gain a competitive
advantage.

GE Nine Cell Matrix

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to


perform business portfolio analysis as a step in the strategic
planning process.

The GE/McKinsey Matrix identifies the optimum business


portfolio as one that fits perfectly to the company's strengths and
helps to explore the most attractive industry sectors or markets.

The objective of the analysis is to position each SBU on the chart


depending on the SBU's Strength and the Attractiveness of the
Industry Sector or Market on which it is focused. Each axis is
divided into Low, Medium and High, giving the nine-cell matrix as
depicted below.

GE Nine Cell Matrix

Up to 10 different factors can be used to define Industry Attractiveness.


Major factors are
Market Size, Market Growth Rate, Demand variability, Industry
Profitability, Competitive Rivalry, Global Opportunities, Entry and exit
barriers, Capital requirement, Macro environmental Factors (PEST)

Up to 10 factors can also be used to define SBU Strength.


Typical factors are
Market Share, Distribution Channel Access, Financial Resources,
R&D Capability, Brand equity, Production Capacity, Knowledge of
customer and market, Caliber of management. Relative cost position

The factors and their relative weightings are selected. The rating values
for each factor are entered for each SBU and Industry.

GE Nine Cell Matrix

Each factor can be given a different weighting in calculating the


overall attractiveness of a particular industry. The sum of weights
must be 1. Use 1-10 rating scale and assign appropriate weights to
each factor. Multiply the weights with the ratings of the respective
factor.
Typically:

Industry Attractiveness = Attractiveness Factor 1 Value by Factor 1


weighting + Attractiveness Factor 2 Value by Factor 2 weighting,
etc.

Business Unit Strength = Strength Factor 1 Value by Factor 1


weighting + Strength Factor 2 Value by Factor 2 weighting, etc.

GE Nine Cell Matrix

Market Size is represented by size of circle.


Market share is represented by using the circle as a pie chart.
The expected future position of circle is represented by an arrow

GE Nine Cell Matrix

GE Nine Cell Matrix


Industry
Attractiveness

Business Unit Strength

Strong

Average

Weak

High

Grow

Grow

Hold

Medium

Grow

Hold

Harvest

Low

Hold

Harvest

Harvest

GE Nine Cell Matrix

Grow Business units that fall under grow attract high investment.
Firms may go for product differentiation or Cost leadership. Huge cash is
generated in this phase. Market leaders exist in this phase.

Hold Business units that fall under hold phase attract moderate
investment. Market segmentation, Market penetration, imitation strategies
are adopted in this phase. Followers exist in this phase.

Harvest -

Business units that fall under this phase are unattractive. Low
priority is given in these business units. Strategies like divestment,
Diversification, mergers are adopted in this phase.

GE Nine Cell Matrix


Strength
a) It allows intermediate ratings between high and low and between
strong and week.
b) It helps in channeling the corporate resources to business and
achieving competitive advantage and superior performance.
c) It helps in better strategic decision making and better
understanding of business scope.
Weakness
a)
It tends to obscure business that are become to winners because
their industries are entering at exit stage.
b)
Assessment of business in terms of two factors is not fair.

Hoffer's life cycle matrix

Hoffer developed 15 cell matrix.


Businesses are plotted in terms of industrys stage in evolutionary
life cycle and business units competitive position.

Industrys stage in evolutionary life cycle consists following stages

Development, Growth, Shakeout, Maturity, Decline

Business units competitive position consists following positionsStrong, Average and Weak

THE HOFER LIFE-CYCLE MARKET EVOLUTION


MATRIX
TWO DIMENSIONS
Co)

(Charles Hofer & A. D. Little,

Stage of Industry / Market Evolution


EARLY DEVELOPMENT
RAPID GROWTH / TAKE-OFF
SHAKE-OUT
MATURITY / SATURATION
DECLINE / STAGNATION

Business Strength / (Competitive Position)


SAME DIMENSIONS AS USED IN THE GE BUSINESS SCREEN
ADVANTAGES
Can be used to identify and track developing winners
Illustrates how the firms businesses are distributed across the stages of
industry evolution

THE HOFER LIFE-CYCLE MARKET EVOLUTION


MATRIX
BUSINESS STRENGTH / COMPETITIVE POSITION
STRONG
EARLY

AVERAGE

WEAK

------------------------------

DEVELOPMENT
------------------------------

STAGE OF

RAPID GROWTH /
TAKE-OFF

INDUSTRY / MARKET

-----------------------------SHAKE-OUT

EVOLUTION
-----------------------------MATURITY /
SATURATION
-----------------------------DECLINE /
STAGNATION
-----------------------------ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREEN
Except for the Stage of Market Evolution, this model is identical to the GE Business Screen

Hofers Matrix

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