BCG (Boston Consulting Group) Matrix

Provides a framework for senior

management in allocating resources across business units in a diversified firm by

Allows one to compare many business units at

a glance Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC)

BCG Product Portfolio Matrix Dimensions

 The horizontal axis is the Relative Market Share Vertical line is usually set as 1.0 Relative Market Share An SBU to the left of this line means it is the

BCG Matrix (contd)

market leader in the industry or segment in which it operates Conversely, an SBU to the right of this line means it is not the leader The vertical axis is the growth rate

Matrix Quadrants
Relative Market Share High Low High Product Sales Growth Rate Low

Strategic Perspectives of Products in Different Quadrants

Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications

Question Marks
(Problem Children)

Investmentheavy initial capacity expenditures and high R&D costs Earningsnegative to low Cash-flownegative (net cash user) Strategy Implications
share. If not, redefine the business or withdraw

If possible to dominate segment, go after

Stars

Investmentcontinue to invest for

capacity expansion EarningsLow to high earnings Cash-flowNegative (net cash user) Strategy Implications
at the expense of short-term earnings

Continue to increase market shareeven

Cows

InvestmentCapacity maintenance EarningsHigh Cash-flowPositive (net cash

contributor) Strategy Implications

Maintain market share and cost leadership

until further investment becomes marginal

Dogs

Investment Gradually reduce capacity EarningsHigh to low Cash-flow Strategy Implications

cash flow

Positive (net cash contributor) if

deliberately reducing capacity

Plan an orderly withdrawal to maximize

BCG Matrix (Three Paths to Success)

Continuously generate cash cows and use

the cash throw-up by the cash cows to invest in the question marks that are not self-sustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash

Three Paths to Success (contd)

Relative Market Share High Low High Market Growth Rate Low

BCG Matrix (Three Paths to Failure)

Over invest in cash cows and under

invest in question marks
cash flow

Trade further opportunities for present Allow competitors to gain share in a high
growth market

Under invest in the stars

Over milked the cash cows

Three Paths to Failure (contd)

Relative Market Share High Low High Market Growth Rate Low