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▰ Definition ▰ Theory
Is a portfolio planning model 1st assumption : This framework
developed by Bruce Henderson assumes that increase in relative
from Boston Consulting Group in market share will result in an
early 1970. increase in the generating of cash.
Company’s business units can be 2nd assumption : A growing market
classified into 4 categories based requires investment in assets to
on combinations of market growth increase capacity. Results in
and market share (“growth-share). consumption of cash.
1
BCG MATRIX
▰ STARS
▰ CASH COWS
Generate large amount
Leader in a mature market. It
of cash because strong
exhibit a return on assets that
relative market share.
is greater than the market
If the market growth growth rate, thus, generate
decline, it can turn into more cash than consume.
cash cow.
Cash cows provide cash that
Portfolio of diversified required to turn Question
company always should Marks into market leaders.
have stars that will
become next cash cows
To cover administrative cost
of the company, to fund
and ensure future cash
research to service corporate
generation.
debt and to pay dividend to 3
shareholders.
BCG MATRIX
▰ LIMITATION
Market growth rate is only ONE factor in industrial
attractiveness, relative market share is ONLY ONE factor in
competitive advantage. The growth-share matrix overlooks
many factors.
The framework assumes that each business unit is
independent of the others. But some cases, DOG may
helping other business unit to gain competitive advantage.
▰ Footnote
BCG Matrix still can serve as a simple tool for viewing a
corporate’s business portfolio at a glance and may serve as
a starting point for discussing resource allocation among
4
strategic business units.