Prepared By..
INTRODUCTION
The Boston Consulting Group Matrix is a portfolio planning model developed by Bruce Henderson of Boston Consulting Group in the early 1970s.
According to this technique, businesses or products are classified as low or high performers depending upon their market share and market growth rate.
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
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.
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)
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.
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
Comparing the prospects of each SBU according to 2 criteria:1. SBUs market share
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
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.