BOSTON CONSULTING GROUP MATRIX ( BCG

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This technique is particularly useful for multi-divisional or multiproduct companies. The divisions or products compromise the organisations “business portfolio”. The composition of the portfolio can be critical to the growth and success of the company. The BCG matrix considers two variables, namely.. N MARKET GROWTH RATE N RELATIVE MARKET SHARE The market growth rate is shown on the vertical (y) axis and is expressed as a %. The range is set somewhat arbitrarily. The overhead shows a range of 0 to 20% with division between low and high growth at 10% (the original work by B Headley “Strategy and the business portfolio”, Long Range Planning, Feb 1977 used these criteria). Inflation and/or Gross National Product have some impact on the range and thus the vertical axis can be modified to represent an index where the dividing line between low and high growth is at 1.0. Industries expanding faster than inflation or GNP would show above the line and those growing at less than inflation or GNP would be classed as low growth and show below the line. The horizontal (x) axis shows relative market share. The share is calculated by reference to the largest competitor in the market. Again the range and division between high and low shares is arbitrary. The original work used a scale of 0.1, i.e. market leadership occurs when the relative market share exceeds 1.0. The BCG growth/share matrix is divided into four cells or quadrants, each of which represent a particular type of business. Divisions or products are represented by circles. The size of the circle reflects the relative significance of the division/product to group sales. A development of the matrix is to reflect the relative profit contribution of each division and this is shown as a piesegment within the circle.

The Boston Consulting Group’s Growth Share Matrix

Stars 20% 18% 16%

Question Marks

Market Growth Rate

Cash consumer Cash neutral

14% 12% 10% Cash Cow 8% 6% 4% 2% 0 10x 4x 2x 1.5x 1x
Large positive cash flow Optimum Cash Flow

Large negative cash flow

Dogs

Cash consumer Modest cash flow

0.5x 0.4x 0.3x 0.2x

Relative Market Share

SOURCE: Adapted from Hedley (1977), p12

0.1x

Success and Disaster Sequences in the Product Portfolio High Stars Question Marks Market Growth Rate Cash Cow Dogs Low High Low Relative Market Share Disaster sequences Success sequences .

Because of the high growth environment.e.. Strategic options for question marks include. Stars are frequently only marginally profitable but as they reach a more mature status in their life cycle and growth slows. market leaders in high growth industries. N STARS Successful question marks become stars. Strategic options for stars include.N QUESTION MARKS These are products or businesses. returns become more attractive. The stars provide the basis for long term growth and profitability. Market penetration Market development Product development Which are all intensive strategies or divestment. A new product launched into a high growth market and with an existing market leader would normally be considered as a question mark. i.. that compete in high growth markets but where the market share is relatively low. they can be a “cash sink”. backward and horizontal Market penetration Market development Product development Joint ventures . However. Integration – forward. investment is normally still required to maintain growth and to defend the leadership position.

Cash Cows are the most profitable products in the portfolio. .N CASH COWS These are characterised by high relative market share in low growth industries. They may well have been Cash Cows. It is desirable to maintain the strong position as long as possible and strategic options include.. Retrenchment (or even divestment) N DOGS These describe businesses that have low market shares in slow growth markets. Retrenchment (if it is believed that it could be revitalised) Liquidation Divestment (if you can find someone to buy!) Successful products may well move from question mark though star to Cash Cow and finally to Dog. Profitability is.. marginal. As the market matures the need for investment reduces. Often they enjoy misguided loyalty from management although some Dogs can be revitalised.. Product development Concentric diversification If the position weakens as a result of loss of market share or market contraction then options would include. at best. The situation is frequently boosted by economies of scale that may be present with market leaders. Cash Cows may be used to fund the businesses in the other three quadrants. Strategic options would include. Less successful products that never gain market position will move straight from question mark to Dog.

. Too many stars may lead to a cash crisis Too many Cash Cows puts future profitability at risk And too many question marks may affect current profitability. It focuses on cash flow and is useful for investment and marketing decisions. Has the company a balanced portfolio? From the BCG what do you see as strengths and why? Propose generic strategies for each division or product. The use of high and low to form four categories is too simplistic. It ignores interdependence and synergy. Growth rate is only one aspect of industry attractiveness and high growth markets are not always the most profitable. Definition (qualitative and quantitative) of the market is sometimes difficult.The BCG is simple and useful technique for strategic analysis. It ignores the impact of small competitors whose market share is rising fast. Using the data provided construct a BCG and answer the following questions.. Companies will frequently search for a balanced portfolio. Group exercise. ignore the limitations of the technique. Market share is only one aspect of overall competitive position. It assumes that market share and profitability are directly related. It considers the product or business in relation to the largest player only. It is convenient for multi-product or multi-divisional companies. One should not however. since. .

0. 0.BCG Exercise Consider a multi-divisional / product organisation Using the following data construct a BCG matrix Division / Product Sales £ million No.2.2 6 3 1. of Competitors 1 0.8.1.7 16 1.4 Market Growth (%) Total Market £ million Industry/Product Profitability % sales 16 2.3 8 Is the company balanced? Identify strengths and weaknesses of company Propose strategies for each division/product . 0.1.6 8 2.4 6 2 1.0.7.0.2 18 12.0.3 6 GE BUSINESS SCREEN (GEBS) Sales of Market leaders £ million 0.3.1.5 2 7.5.8.3 5 5 0.7.8.9 8 8.8.5 3 3.4 9 4 3.1.1.8 5 5.8 20 1.

(a) Industry attractiveness (b) Business strength / competitive postion In contrast to the BCG. As with the BCG it comprises a matrix of 2 dimensions. 1.0 and total with equal 1. Industry attractiveness will include such factors as Market growth rate Industry profitability Industry size Pricing practices Business strength may include such factors as Profitability Technological position Size Individual products or business units (SBU) are plotted as circles. the GEBS includes much more input than simply industry growth rate and relative market share to assess the attractiveness of the industry and the competitive position of the business unit. In both cases it involves four steps. The shaded pie represents the market share for each product or SBU.The nine-cell matrix was developed by General Electric with the assistance of McKinsey. Industry attractiveness (a) Select key attractiveness criteria (b) Weigh each criterion in terms of relative importance in achieving corporate objectives.0) (c) Rate the industry on these criteria 1 = very unattractive 5 = very attractive (d) Calculate weighted score (see table 1) . The area of the circles is proportional to the industry size (in term of sales). The procedure for assessing industry attractiveness and business strength / competitive position is similar to that of IFE/EFE/CPM computations. (0 – 1.

Hofer Product / Market Evolution Matrix One of the shortcomings of the GE Screen is that it does not effectively display the impact of new products or SBU’s in developing industries.2.. The Hofer matrix has axes of (a) competitive position (b) stage of product / market evolution . The fifteen-cell matrix developed by Hofer goes someway to addressing this limitation. scenario projections) and the new portfolio examined to determine whether it is improving or deteriorating. Plot current or SBU portfolio 4. Business strength / competitive position (a) Identify key factors for success in the industry (b) Weigh each success factor in terms of its relative importance to profitability (or some other measure of success such as achieving corporate objectives) (c) Rate the product / SBU on each factor 1 = very weak competitive position 5 = very strong competitive position (d) Calculate weighted score (see table 2) 3. Shell Directional Policy Matrix Very similar to the GE Business screen and was developed independently by Shell and is used extensively by European firms. Plot the firms future portfolio Future attractiveness and competitive position should be assessed (of forecasting. Is there a “performance gap” between the projected and desired portfolios ……. the strategic gap.

60 0.15 0.32 0.15 0.50 0.15 0.36 0. many firms probably would decide not to invest in industries that are viewed negatively by our society. For example.05 0.20 0.05 1.Table 1 An example of an Industry Attractiveness Assessment Matrix ATTRACTIVENESS CRITERIA WEIGHT* RATING ** WEIGHTED SCORE 0.05 0. even if it were both legal and very profitable to do so.05 0.12 0.20 3.08 GO GO GO 0.05 0.05 0.00 4 3 3 2 3 3 4 2 2 5 4 4 4 4 4 * Some criteria may be of a GO/NO GO type.10 0.60 0.38 Size Growth Pricing Market diversity Competitive structure Industry profitability Technical role Inflation vulnerability Cyclicality Customer financials Energy impact Social Environmental Legal Human 0.10 0. ** 1 (very unattractive ) through 5 (highly attractive) .05 0.10 0.20 0. such as gambling.10 0.

05 1.20 0.15 0.30 Market share SBU growth rate Breadth of product line Sales distribution effectiveness Propriety and key account advantages Price competitiveness Advertising and promotion effectiveness Facilities location and newness Capacity and productivity Experience curve effects Raw materials cost Value added Relative product quality R&D advantages/position Cash throw-off Calibre of personnel General image 0.Table 2 An example of a Business Strength / Competitive Position Assessment Matrix for an SBU KEY SUCCESS FACTORS WEIGHT* RATING ** WEIGHTED SCORE 0.20 0.20 0. will have little or no effect on the relative competitive position of firms within that industry.20 X X 0.10 X 0.80 0.10 X 0.15 0. It is usually better to drop such factors from the analysis than to assign them very low weights.05 X 0.25 4.50 0. there will be some factors that.05 0.20 0. ** 1 (very weak competitive position) through 5 (very strong competitive position) .60 0.25 0.60 0.05 X 0. while important in general.50 0.05 0.05 0.00 5 3 4 4 3 4 4 5 3 4 4 4 4 4 5 4 5 * For any particular industry.

0 . ‘Business Screen’ Matrix (a.grow and build AVERAGE LOSER -hold and maintain -harvest or divest LOSER QUESTION MARK -hold and maintain INDUSTRY ATTRACTIVENESS (External factor evaluation total weighted scores) 3.PORTFOLIO ANALYSIS 2 The General Electric/McKinsey & Co.a. The ‘Internal – External’ Matrix) BUSINESS STRENGTH / COMPETITIVE POSITION (Internal factor evaluation total weighted scores) STRONG AVERAGE WEAK 4.0 WINNER HIGH .0  LOSER 4.0 3.grow and build PROFIT PRODUCER LOW -hold and maintain -harvest or divest -harvest or divest WINNER .0 2.grow and build WINNER MEDIUM .k.0 1.

99) Medium (2.0 – 1. INTERNAL STRENGTH (as measured by IFE) And INDUSTRY ATTRACTIVENESS (as measured by EFE) The individual products / divisions are represented as circles.0 – 2. The horizontal axis reflecting internal strength is divided into Weak (1.99) Average (2. As with the BCG the size of the circles and the pie slices therein reflect the relative significance of each business in terms of sales and profit.0 – 3.99) The vertical axis reflecting industry attractiveness is divided similarly Low (1. It is an improvement on the BCG and is similar to the GE Business Screen.99) .0 – 3.0 – 2. As with the BCG it uses two criteria to determine position.THE INTERNAL – EXTERNAL (IE) MATRIX The IE matrix positions the company’s businesses in a nine cell matrix.0 – 1.99) Strong (3.99) High (3.

Three broad groupings of cells can be made. construct an IE matrix for your organisation and derive some strategic proposals for your products / divisions) . which are characterised by a relatively weak competitive position in a hostile environment. 2 and 4 where the appropriate strategies might be “GROW AND BUILD”. 5 and 7 is likely to be “HOLD AND MAINTAIN” and might include Market penetration And Product development Finally. In generic terms such strategies would include INTENSIVE Market penetration Market development INTEGRATIVE Backward integration Forward integration Horizontal integration The prescription for cells 3. Product development (Individual exercise: Using IFE and EFE scores.The IE Matrix requires more information than the BCG and is felt to be a more rigorous technique although it is much more dependant on value judgements of the strategist(s) in the preparation of the IFE and EFE. Successful companies will endeavour to build a portfolio of businesses in or around cell 1 in the IE matrix. would suggest the appropriate strategies are either HARVEST or DIVEST. namely 1. cells 6. 8 and 9.

0 Low 1.0 to 1.0 to 4.99 1.99 2 Weak 1.0 THE EFE TOTAL WEIGHTED SCORES Medium 2.An Example of an IE Matrix THE IFE TOTAL WEIGHTED SCORES Strong 3.0 4.99 2.0 High 3.0 to 4.0 3.0 3 20% 4 5% Average 2.99 1.0 to 2.0 to 1.0 2.0 to 2.0 .0 1 25% 50% 3.

99 2.99 3.0 to 1.0 I II III IV V VI VII VIII IX Hold and maintain Harvest or divest .0 to 2.0 to 2.0 THE EFE TOTAL WEIGHTED SCORES Medium 2.0 THE IFE TOTAL WEIGHTED SCORES Average 2.0 to 4.99 1.99 1.The Internal – Ex te rnal Mat rIx Grow and build Strong 3.0 3.0 Low 1.0 High 3.0 4.0 2.0 Weak 1.0 to 4.0 to 1.

Shell) matrices.g.g.SWOT/TOWS Matrix The analysis brings together the key elements of the internal auditing. (individual exercise …. The matrix construction involves the listing of key threats. WO. N WO aimed at improving internal weaknesses by exploiting external opportunities. N Where are the major opportunities and threats? N How can we capitalise on our strengths and reduce our weaknesses? The first question relates to the environment and the second to resources. N SO where internal strength(s) are matched to external opportunities. N ST where the organisation uses its strengths to avoid or reduce the impact of external threats. BCG) or directional (e. Unlike the portfolio (e. it is suggested that specific rather than generic strategies are generated from the exercise. namely …. The analysis involves answering two questions. N WT where defensive strategies are adopted to reduce internal weaknesses and avoid external threats. weaknesses and strengths (IFE. Construct a TOWS matrix and generate SO. ST and WO strategies for your organisation) . opportunities. EFE) and then matching the factors to generate four different groups of strategic options.

SWOT Evaluation (Current) STRENGTHS WEAKNESSES Current Aims and Objectives OPPORTUNITIES SO Decisions WO Decisions THREATS ST Decisions WT Decisions .

1982 .TOWS Analysis FUTURE OPPORTUNITIES THREATS Aims. objectives and policies as developed from TOWS analysis STRENGTHS As identified by scenario projection techniques STRATEGY As identified by scenario projection techniques STRATEGY Calculated as necessary to future performance WEAKNESSES To grasp the future opportunity To fend off the future threat STRATEGY STRATEGY To be eradicated or to be prevented To ensure that future opportunities are not lost To avoid or pre-empt the future threat Developed from ideas of H Weihrich.

Utilise excess resources (physical. e. If the organisation is unable to find the competitive advantage to exploit the market growth DIVESTMENT or even LIQUIDATION are options. QUADRANT 2 (WO) Opportunities exist for growth in Quadrant 2 but the organisations in this quadrant are ineffective (Resources?. It would seem logical for such organisations to concentrate on their current markets and products. The matrix shows “appropriate” strategies for the organisation or business unit in order of attractiveness. The matrix can be used for both organisations or SBU’s. GEBS and IE matrices) Competitive position could be measured by an IFE.Grand Strategy Mix (GSM) The Grand Strategy Mix (GSM) would appear to be growing in popularity as a tool for formulating strategic alternatives. Strong competitive position in a high growth market. e. MARKET DEVELOPMENT MARKET PENETRATION PRODUCT DEVELOPMENT There may be reasons why an organisation or business unit would wish to change. QUADRANT 1 (SO) Strong strategic position. Management? etc).g. Products?. namely N COMPETITIVE POSITION N MARKET GROWTH (cf BCG. . human) by INTEGRATION Limited product portfolio may suggest CONCENTRIC DIVERSIFICATION for future security.g. The first option must surely be an INTENSIVE strategy bur other options include HORIZONTAL integration. The matrix considers two parameters. financial.

Preferred option is to move into a more attractive industry by CONCENTRIC. QUADRANT 4 (ST) Organisations with competitive strength but operate in low growth industries. . The options are obviously DIVESTMENT or LIQUIDATION but RETRENCHMENT or even DIVERSIFICATION could be considered if exit costs were unacceptable.QUADRANT 3 (WT) Organisations in this quadrant have a weak competitive position and compete in slow growth industries. HORIZONTAL or CONGLOMERATE DIVERSIFICATION.

6. Divestment  Liquidation -6 QUADRANT IV 1. 3.  WEAK COMPETITIVE POSITION QUADRANT I 1. 4. 2. 3. 5. 4. Concentric diversification 2. 2. 3.The Grand Strategy matrix RAPID MARKET GROWTH 20% QUADRANT II 1. 4.  Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric Diversification Market development Market penetration Product development Horizontal integration Divestment Liquidation 10% QUADRANT III 1. Horizontal diversification 3. Conglomerate diversification  Joint ventures STRONG COMPETITIVE POSITION 0% -3 SLOW MARKET GROWTH 0 . Retrenchment Concentric diversification Horizontal diversification Conglomerate diversification 5. 2. 5.

ES) d. ES and CA will be between –1 and –6 where –1 is the best situation and –6 the worst. Select a set of variables that reflect the internal and external dimensions (see David P 214) b. Plot the average scores for each dimension on the relevant axes e. Finally.. Add the scores on the x axis and plot the result Add the scores on the y axis and plot the result f.. CA.1 SPACE (After Fred David) The Strategic Position and Action Matrix was developed by Rowe. Compute the average score for each dimension (ie FS. Assign a rating to each variable FS and IS will be between +1 and +6 where +1 is the worst situation and +6 the best. draw a directional vector from the origin through the intersection point. . Addison Wesley 1982). It is a matching tool that indicates what general type of strategy and organisation should follow. c. IS.Some Matching Tools in Strategy Formulation 7. a. AGGRESSIVE CONSERVATIVE DEFENSIVE COMPETITIVE The technique involves the production of a vector on a matrix where the axes represent… Financial strength (FS) Competitive advantage (CA) Environmental stability (ES) Industry Strength (IS) that are both internal dimensions and that are external dimensions The steps in the construction of the matrix are . Mason and Dickel (Strategic Management and Business Policy – a methodical approach.

Market penetration Market development Product development Integration Diversification CONSERVATIVE strategies that might include. Integration Market penetration Market development Product development Joint venture . Market penetration Market development Product development Concentric diversification DEFENSIVE strategies that might include… Retrenchment Divestment Concentric diversification COMPETITIVE strategies that might include....The vector will lie in one of the four quadrants AGGRESSIVE strategies that might include .

PORTFOLIO ANALYSIS: The Strategic Position and Action Evaluation (SPACE) matrix .

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