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BCG MATRIX

Deekshi Sharma B-20 Vasudha Solanki B-43 Angelique Thakur B-52 Amita Thapliyal B-53 Satish Tiwari B-55

SBUs
SBU SALES (million rupees) A B C D E 0.5 1.6 1.8 3.2 0.5 No. of SALES competitor A 8 22 14 5 10 0.7 1.6 1.8 3.2 2.5 OF TOP B 0.7 1.6 1.2 0.8 1.8 3 Players C 0.5 1.0 1.0 0.7 1.7 MRKT GROWTH RATE 15% 18% 7% 4% 4%

RELATIVE MARKET SHARE AND MARKET GROWTH RATE OF SBUS

RMS
YEAR

BUSINESS UNIT SALES THIS YEAR LEADING RIVAL UNIT SALES THIS

RMS FOR EACH SBU A = 0.5/0.7 B = 1.6/1.6 C = 1.8/1.2 D = 3.2/0.8 E = 0.5/2.5

= = = = =

0.714 1 1.5 4.75 0.2

MARKET GROWTH RATE AND RELATIVE MARKET SHARE ARE THE TWO FACTORS USED IN BCG MATRIX FOR POSITIONING OF EACH SBUS.

BCG MATRIX

FOUR CATEGORIES
Dogs n low market share and a low growth rate and thus neither generate nor consume a large amount of cash. n cash traps because of the money tied up in a business that has little potential. n Such businesses are candidates for divestiture.

Problem Child (Question mark) n growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. n large net cash consumption. n has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. n If it does not succeed in becoming the market leader, then after years of cash consumption it will degenerate into a dog when the market growth declines. n must be analyzed carefully in order to determine whether they are worth the investment required to grow in market share.

Stars
n

Stars generate large amounts of cash because of their strong relative market share also consumes large amounts of cash because of their high growth rate; star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.

Cash cows n As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. n Extract the profits and invest as little cash as possible. n provide the cash required to turn Problem child into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. n generates a relatively stable cash flow,& its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.

SBU A B C D E

RMS 0.714 1 1.5 4.75 .2

GROWTH RATE 15% 18% 7% 4% 4%

M A R K E T

BCG MATRIX
% 20 18 16 14 12 10 STARS

II
B A

I
Question Marks/ Problem child

G R O W T H

C D E

8
R A T E

6 4

Cash Cow

Dogs

III
10x 4x 2x 1.5x 1x RELATIVE MARKET 0.5x 0.4x SHARE 0.3x

IV
0.2x 0.1x

Strategy CATEGORY Recommended

Recommendation-on Strategies

SBU

Divest Invest Hold Harvest

Dog Problem Child Star Cow

E A,B B D C

Limitations of matrix
n

Characteristic of each SBU will be different in long term In BCG matrix, Individuality of product is given less preference, consideration is given to Strategic Business unit. There is an assumption that higher rates of profit are directly related to high rates of market share. Its not easy to take decision based on matrix only.

Y-axis it has taken only annual market growth rate which doesnt represent market attractiveness fully.

Other important considerations such as, SIZE, PROFITABILITY, COMPETITIVE DENSITY,MARKET RESTRICTIONS, POLITICS

X-axis Relative Market Share is not a good indicator of relative market strength.
TECHNOLOGICAL COMPETENCE MANUF. STRENGTH AT LOW COST FINANCIAL STRENGTH OF RIVAL DISTRIBUTION STRENGTH BRADING & PEOPLE STRENGTH

Because it is determined by
1. 2. 3. 4. 5.

BCG is a QUALITATIVE MODEL & we

need a quantitative model i.e. Facts & Figures n It can cause wrong decisions like divesting dogs, which may be core business of company. or Investing more on dogs, even though it is failing continuously .

To make a healthy recommendation,

we need additional data:


n

Cooperation level among all SBUs must be specified. Nature of product & market should be specified as each SBU has different potential and requires its own objective.

CONCLUSION
Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products.

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