Boston Consulting Group (BCG) Matrix

PRESENTED BY Ranjana Upadhyay

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BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970s.

It is a 2 * 2 matrix model. The BCG model proposes that for each business activity within the corporate portfolio a separate strategy must be developed depending on its location in a two by two matrix.

It provides a graphic representation 4/26/12 an organization to examine for

According to this matrix, business could be classified as high or low according to their business growth rate and relative market share. Relative Market Share = Competitive position of the firm, Market Growth Rate = Over all growth rate of the business (Industry sales this year - Industry Sales last year).
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Relative Market Share = Cash Generation

High Market Share Cash Flows Higher Profit Margin Higher

Relative market share RelativeMarket Share market share(RMS) is defined as the market Company X = business Xs RMS =by the market share share of the relevant10% divided 1/6 (10%/60%) of its largest competitor.

Company Y = 20% Company Z = 60%

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Ys RMS = 1/3 (20%/60%) Zs RMS = 3 (60%/20%)

Business Growth Rate = Cash Usage High Growth Rate plough back cash Expansion of the operations finance for Demand more cash to expansion

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Relative market share - vertical axis of the BCG Matrix - 10x, 4x, 1.5x.. The horizontal axis represents the business (industry) growth rate in sales, measured in percentage terms(4%, 6%, 8%,). The two axis are divided into low and high sector. BCG matrix divided into four segments known as Quadrant Divisions located in Quadrant I of the BCG Matrix are called Cash Cows, those located in Quadrant II are called Stars, those 4/26/12 located in Quadrant III are called Question

20 18 16 14 12 10 8 6 4 Click to edit Master subtitle style (Cash Usage)

(Cash Generation) 4/26/12 10x 4x 0.1x 1.5x 1x 0.5x

CASH COWS Low growth rate and high market share . High market share leads - higher generation of cash and profits. Low Growth rate low cash demand.

units.

Surplus cash can be utilized for investment in other business Provide financial base for the company. less future potential as business is mature with low growth rate. avoid overinvesting to maintain its competitive position.

DOGS Low business growth rate and low relative market share. Low market share low profit.

quality,

business firms have weak market share because of high costs, poor ineffective marketing, etc.

cash requirement exceeds cash generation = (-) Cash flow (for maintaining competitive position). Strategic solution - divest, liquidate. QUESTION MARK High business growth rate but low relative market share. 4/26/12 High growth rate high cash requirement.

These product are called question mark because they raise the question as to whether more money invest to improve their relative market share and profitability or they should divested and dropped from portfolio. STAR : high growth rate and high market share.

Generate large amount of cash and profit . It represent the best investment opportunities. The best strategy regarding Star is to make 4/26/12 the necessary investments and consolidate

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