The BCG Matrix

The matrix measures a company’s relative market share on the horizontal axis and
its growth rate on the vertical axis.
Uses two scales
Horizontal – Relative Market Share = Log scale
Vertical – Market Growth Rate

BCG axes
Market growth rate on the vertical axis indicates the annual growth rate of the market in
which the business operates.
A market growth rate above 10 percent is considered high.
Relative market share, refers to the SBU’s market share relative to that of its largest
competitor in the segment.
A RMS of 0.1 means that the company’s sales volume is only 10 percent of the leader’s;
a RMS of 10 means that the company’s SBU is the leader and has 10 times the sales of
the next-strongest competitor in the market.

Question Mark (Problem Child)

Businesses that operate in high-growth markets but have low relative market shares.
A question mark requires a lot of cash because the company has to spend money on plant,
equipment and personnel to keep up with the fast-growing market, and because it wants
to overtake the market leader.
The company has to decide whether to keep pouring money into the business or not.
 STARS
The market leaders in the high growth market. A star does not necessarily produce a
positive cash flow for the company.
The company must spend substantial funds to keep up with the high market growth and
to fight off competitors’ attacks

Cash Cows
Stars with a falling growth rate that still have the largest relative market share and
produce a lot of cash for the company.
The company does not have to finance expansion because the market’s growth rate has
slowed.
Because the business is the market leader, it enjoys economies of scale and higher profit
margins.
The company uses its cash cows to pay bills and support other businesses.
If the cash cow starts losing relative market share, the company will have to pump money
back into it to maintain market leadership.

DOGS
Businesses that have weak market share in low growth markets.
A dog may not require substantial cash, but it ties up capital that could be better deployed
elsewhere.
The company should consider whether it is holding on to these businesses for good
reasons or not.

HOW DOES IT HELP?

After plotting its various businesses in the growth-share matrix, a company must
determine whether its portfolio is healthy.
An unbalanced portfolio would have too many dogs or question marks and too few stars
and cash cows

STRATEGIC BUSINESS UNITS STRATEGIES

STRATEGIC BUSINESS UNITS STRATEGIES

1) Build – this strategy is appropriate for question marks whose market shares must grow
if they are to become stars.
As they are in a growing market, an inflow of resources would work wonders for them.
But if the company is doubtful about its growth even in a growing market then it
divesting it would be a better decision.
An early decision to divest is likely to produce fairly good bids if the business is in
relatively good shape now.

2) Hold – this strategy is appropriate for stars.

As they are the market leaders with highest relative market share and in a rapidly
growing market, it is important for the firm to hold on to its current position for long.
In this stage the firm would be required to pump in resources in order to maintain its
position as a star.
In order to reap the benefits from this star the firm would be required to continuously
support it with resources.

3) Harvest – this strategy is appropriate for cash cows. The objective of harvest strategy
is to increase short term cash flow regardless of long term effect.
In other words it involves ‘milking the business’.
In this position the firm does not spend money on R&D activities, reduces advertising
expenditure and undertakes other cost cutting measures for the concerned SBU.
Harvesting can be also used for weak cows, question marks and dogs which show some
promise for future potential.

4) Divest – the objective is to sell or liquidate the business because resources can be
better used elsewhere.
This strategy is appropriate for dogs and question marks that are acting as a drag on the
company’s profits.
In this strategy the firm does not plough resources into the business but just try to sell it
off at a good price.

The General Electric Model

It holds that a company can appropriately rate its different businesses for the purpose of
strategic planning on the basis of two main parameters – Market Attractiveness and
Business Strength.
The above two factors make excellent marketing sense for rating a business.
Companies are successful to the extent that they enter attractive markets and possess the
required business strengths to succeed in those markets.
If one of these factors is missing, the business will not produce outstanding results.
Neither a strong company operating in an unattractive market nor a weak company
operating in an attractive market will do very well.

FACTORS UNDERLYING GE PORTFOLIO MODEL

1. MARKET ATTRACTIVENESS
Overall market size
Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
Environmental impact
Social-political legal
2. BUSINESS STRENGTH WEIGHT RATING VALUE
Market share (FROM 1) (1-5) WXR
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive capacity
Productive efficiency
Unit costs
Material supplies
R & D performance
Managerial personnel

The axes