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BCG growth Matrix

BCG growth Matrix

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Published by Prashant Rampuria
Boston Consultancy Growth Matrix
Boston Consultancy Growth Matrix

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Published by: Prashant Rampuria on Jun 21, 2010
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 No strategic management or marketing text appears to be complete without the inclusion of the Boston Consulting Group (BCG) growth-share matrix. When used effectively, this model provides guidance for resource allocation. And despite its inherent weaknesses, is probably oneof the most widely used management instrument as far as portfolio management is concern. For instant, each SBU (strategic business unit) of large companies such as GeneralElectric, Siemens, and Centrica require different strategies to compete effectively andefficiently. It is not a question of one strategy fits all SBUs since the likelihood for each of them experiencing the same market growth rate, industry-threats and leverage is very slim. Thisis where the BCG model comes into play as a management analytical tool. The ensuingexamines the underpinnings of the model, for what it is used, how to use it and why it is used.
To begin with, BCG is the acronym for Boston Consulting Group²a general managementconsulting firm highly respected in business strategy consulting. BCG Growth-Share Matrix(see figure 1) happens to be one of many of BCG's strategic concepts the organisationdeveloped in the late 1970s, and is being taught at leading business schools and executiveeducation programmes around the world.It is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003;Cipher 2006): it can be used to classify product portfolio in four business types based on four graphic labels including Stars, Cash Cows, Question Marks and Dogs; it can be used todetermine what priorities should be given in the product portfolio of a company; to classify anorganisation¶s product portfolio according to their cash usage and generation; and offersmanagement available strategies to tackle various product lines. Consider companieslike Apple Computer, General Electric, Unilever, Siemens, Centrica and many more, engagingin diversified product lines. The BCG model therefore becomes an invaluable analytical tool toevaluate an organisation¶s diversified product lines as later seen in the ensuing sections.
The BCG Growth-Share Matrix is based on two dimensional variables: relative market shareand market growth. They often are pointers to healthiness of a business (Kotler 2003;McDonald 2003). In other words, products with greater market share or within a fast growingmarket are expected to wield relatively greater profit margins. The reverse is also true. Let¶slook at the following components of the model:Figure 1
Relative Market Share
According to the proponents of the BCG (Herndemson 1972), It captures the relative marketshare of a business unit or product. But that is not all! It allows the analysed business unit be pitted against its competitors. As earlier emphasized above, this is due to the sometimecorrelation between relative market share and the product¶s cash generation. This phenomenonis often likened to the experience curve paradigm that when an organisation enjoys lower costs,improved efficiency from conducting business operations overtime. The basic tenet of this postulation is that the more an organisation performs a task often; it tends to develop new ways
in performing those tasks better which results in lower operating cost (Cipher 2006). What thatsuggests is that the experience curve effect requires that market share is increased to be able todrive down costs in the long run and at the same time a company with a dominant market sharewill inevitably have a cost advantage over competitor companies because they have the greater share of the market. Hence, market share is correlated with experience.A case in point is Apple Computer¶s flagship product called the iPod, which occupies adominant 73% share the portable music player market (Cantrell 2006). Analysts believe it is theimpetus for Apple's financial rebirth 40% of Apple's sales is attributed to the iPod product line(Cantrell 2006). Similarly, Dell¶s PC line shares the same market dominance theory as theiPod. The PC manufacture giant occupies a worldwide market share of 18.1%, which iscommensurate to its large market revenue above its competitors (see figure 2).Figure 2

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