BOSTON CONSULTING

GROUP (BCG)
and
GENERAL ELECTRIC (GE)
MATRIXES

Amie Kusumawardhani
Program Magister Manajemen UNDIP
BCG Matrix
To identify the company's position in the
market (the industry or competition)
based on the diversity of businesses
(portfolio business) owned
Meaning of Diagram (1)
Vertical axis: market growth rate is a
proxi of industry attractiveness
external variabel (business environment)
Horizontal axis: relative market share of
each strategic business unit (SBU)
it shows strenghts or weaknesses of the
business
Meaning of Diagram (2)
A growing market reflects a business
opportunity.
The BCG matrix emphasizes cash
inflows and cash outflows as indicators
of whether a company is healthy or not
 BCG ASSUMPTION

1. The company's relative market share

has a positive correlation with the
amount of cash inflows.
2. The high rate of market growth implies
the need for increased investment
which in turn means an increase in
cash outflows.
 BCG Matrix
20%-
Market growth rate

Stars Question marks

?2
4
18%-
16%-
14%-
3 ? 1
12%- 5
10%-
8%- Cash cow Dogs
6%- 8
4%-
2%- 6 7
0
10x 4x 2x 1.5x 1x .5x .4x .3x .2x .1x
Relative market share
Meaning of Each Cell (1)
1. Question Mark(?)
High market opportunities, characterized by
high market growth.
The business unit has not been able to
exploit business opportunities, so the
market share controlled is relatively small.
The additional funds required are greater
than the cash inflows.
This unit has the potential to grow as long
as sufficient cash outflows are available.
Meaning of Each Cell (2)
2. STAR ( )
It has a great business opportunity
because it operates in a growing market.
Business units are able to control a fairly
high market share.
Large cash inflows are used to finance
investments (to continue to expand the
market), as well as to prevent competitors
from entering the market.
Meaning of Each Cell (3)
3. CASH COW
Describes a successful business unit: the
market share controlled is relatively large
and operates in a market that is not
growing.
The cash inflow is relatively high, on the
other hand there is no need for investment
expenditure (there is a cash surplus).
The cash surplus is used to finance other
business units.
Meaning of Each Cell (4)
4. DOG
Operates in a market that is no longer
growing and at the same time only controls
a relatively small market share.
As long as it does not require large
investment funds, this business unit still
tends to be maintained. Otherwise, an exit
strategy is needed.
MARKET GROWTH RATE
MEASUREMENT(1)

Market Growth Rate year N =

Industry sales Vol. - Industry Sales Vol.
year N year N-1
x 100%
Industry Sales Vol. year N-1
MARKET GROWTH RATE
MEASUREMENT(2)
Weighted average :
Market Growth Rate year N =
Industry Sales - Industry Sales
Vol. year N Vol. year N-1
x 100%
Industry Sales + Industry Sales /2
Vol. year N Vol. Year N-1
RELATIVE MARKET SHARE
MEASUREMENT
Relative Market Share year N =
Firm Sales Vol. year N
Main Competitor Sales Vol. year N
STRATEGIC IMPLICATIONS (1)
1. QUESTION MARK(?)
This unit business needs to expand its market
share (growth strategy or horizontal
aquistion).
If this unit business is unhealthy
turnaround strategy
If there is no indication that the market share
expansion is successful divest
STRATEGIC IMPLICATIONS (2)
2. STAR ( )
Maintain/increase market share using price
discount, quality improvement, efficiency and
opening new market: intensive strategies,
integration strategies, joint venture
It is not advisable to seize a market share that
is already controlled by competitors, because
the costs are high
 STRATEGIC IMPLICATIONS (3)
3. CASH COW
Maintaining market dominance, through price
leadership strategies and maintaining product
quality.
It is not recommended to over-invest (invest
with caution) because the market is not growing.
Investments are usually to exploit competitors'
weaknesses.
Cash inflows are used to develop other
business units.
STRATEGIC IMPLICATIONS (4)

4. DOG
Exit strategy (harvest/divestment,
liquidation, retrenchment), because
market is not growing.
 CRITICMS OF BCG MATRIX (1)

1. The complexity of the Business Environment

– macro and industry – is measured by only
one variable: Market Growth. Likewise, the
company's strengths/weaknesses are only
measured by relative market share.

2. Firm or strategic unit business is only seen as

?, , Cashcow, and Dog. What about the
company or UBS which turns out to be in the
middle of the BCG matrix?.
 CRITICMS OF BCG MATRIX (2)

3. The assumption of a linear relationship

between the size of the relative market share
and the magnitude of cash inflows is not
always the case.
4. Likewise, the notion of the relationship
between high market growth and cash flow,
especially cash outflows required for
investment in order to seize existing business
opportunities.
CRITICMS OF BCG MATRIX (3)

5. Sometimes it is considered excessive in

putting pressure on the balance of cash
flows between strategic business units
owned. Not always a company that has
a cash flow balance is always in a safe
state (too conservative)
GE (Internal-External/IE) Matrix
Classification of SBUs/products into nine cell
matrix based on
• Market Attractiveness (vertical)
– Multiple Indicators
• Business Strength (horizontal)
– Multiple Indicators
Similar to BCG Matrix, except the GE Matrix:
– Requires more information about the divisions
– Strategic implications of each matrix are
different
Steps In Developing GE Matrix
1. Select Factors & Indicators.
2. Assign each indicator a weight (total = 1)
based on its importance.
3. Rate the industry on industry indicators and
company on business indicators on scale of
1(weak) – 5 (strong).
4. Multiply weight times rating and total for
summary measures.
Industry/Market Indicators (1)
Market Factors
• Size
• Growth Rate
• Cyclicality
• Seasonality
Competition
• Type of competitors
• Degree of Concentration
Financial & Economic
• Contribution Margins
• Barriers to Entry or Exit
Industry/Market Indicators (2)

Technological
• Patents & copyrights
• Will it become obsolete
Sociopolitical
• Social attitudes & trends
• Laws & government regulations
Business Strength Indicators (1)
Market
• Company’s Market Share
• Company’s Sales or Share Growth Rate
Competition
• Strength of product, promotion, price,
distribution, financial resources, management
relative to competition
Financial & Economic
• Company’s Margins
• Economies of scale
Business Strength Indicators (2)

Technological
• Company’s ability to cope with change
• Technological skills
• Patent Protection
Sociopolitical
• Company’s responsiveness & flexibility
Indicators of SBU Strength and Market
Attractiveness
GE Portfolio Example
Market Factor Weight Rating (1- 5) Value

Size .33 5 1.65

Growth .33 3 .99

Profit Margins .34 2 .68

3.32
Business

Market Share .33 1 .33

Product .33 5 1.65

Quality
Distribution .34 2 .68
Net 2.66
 Business
Strength
Hig Mediu Low
5

4
M
a
r
k
e
3
t

1
5 4 3 2 1
GE Portfolio Analysis
Business Strength/Position

Strong Medium Weak

High
Market (I) (II) (III)
Attractiv
Medium
eness (IV) (V) (VI)

Low (VII) (VIII) (IX)

Strategy for each quadrant

I, II, IV : Grow and build

III, V, VII: Hold and maintain
VI, VIII, IX : Harvest and divest
 Business Position

Market •Strong •Medium •Weak

Attractiveness
•Investment and Grow •Selective Growth •Selectivity
•High •Maintain Leadership •Challenge Leader •Overcome
(II) Weakness, Find
(I)
Niche or Quit
(III)
•Selective Growth •Manage for Earnings •Harvest (Gradual
•Medium •Challenge Leader •Protect existing Withdrawal) or
•In most attractive programs Limited Expansion
markets •Concentrate on •Look ways to expand
•Emphasize profitability profitable, less risky without high risk
by raising productivity segments •Or Minimize investment
(IV) (V) (VI)
•Generate Cash •Harvest •Divest
•Low •Manage for current •Minimize Investment •Sell at time that will
earnings •Protect positions in maximize cash value
•Concentrate on attractive most profitable •Cut fixed costs and
Segments segments avoid investment
•Defend Strengths (VIII) (IX)
(VII)
Some limitations of GE Model
Subjective measurements across SBUs
Business may have been evaluated with
respect to different criteria
Sensitive to how a product market defined