BOSTON CONSULTING GROUP

MATRIX

10/28/2009 Basumitra Choudhury 1

INTRODUCTION

 BOSTON CONSULTING GROUP (BCG) MATRIX is developed

by BRUCE HENDERSON of the BOSTON CONSULTING GROUP
IN THE EARLY 1970’s.

 According to this technique, businesses or

products are classified as low or high
performers depending upon their
market growth rate and
relative market share.

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 Relative Market Share & Market Growth

To understand the Boston Matrix you need to

understand how market share and market growth
interrelate.
  

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 MARKET SHARE

• Market share is the percentage of the total market that is

being serviced by your company, measured either in
revenue terms or unit volume terms.

• RELATIVE MARKET SHARE

• RMS = Business unit sales this year

Leading rival sales this year

• The higher your market share, the higher proportion of the

market you control.

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 MARKET GROWTH RATE

 Market growth is used as a measure of a market’s

attractiveness.

 MGR = Individual sales - individual sales

this year last year
Individual sales last year

 Markets experiencing high growth are ones where the total

market share available is expanding, and there’s plenty of
opportunity for everyone to make money.

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 THE BCG GROWTH-SHARE MATRIX

 It is a portfolio planning model which is based on the

observation that a company’s business units can be
classified in to four categories:
 Stars
 Question marks
 Cash cows
 Dogs

 It is based on the combination of market growth and

market share relative to the next best competitor.

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BCG Matrix

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 STARS
High growth, High market share

Stars are leaders in business.

They also require heavy investment, to maintain its
large market share.
It leads to large amount of cash consumption and
cash generation.
Attempts should be made to hold the market share
otherwise the star will become a CASH COW.

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CASH COWS
Low growth, High market share

They are foundation of the company and often the

stars of yesterday.
They generate more cash than required.
They extract the profits by investing as little cash as
possible
They are located in an industry that is mature, not
growing or declining.

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 DOGS
Low growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to bring in much cash.
Number of dogs in the company should be
minimized.
Business is situated at a declining stage.

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 QUESTION MARKS
High growth, Low market share
Most businesses start of as question marks.
They will absorb great amounts of cash if the
market share remains unchanged, (low).
Why question marks?
Question marks have potential to become star and
eventually cash cow but can also become a dog.
Investments should be high for question marks.

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 WHY BCG MATRIX ?

To assess :
 Profiles of products/businesses
 The cash demands of products
 The development cycles of products
 Resource allocation and divestment decisions

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 MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU.

Assessing and comparing the prospects of each SBU
according to two criteria :
1. SBU’S relative market share.
2. Growth rate of SBU’S industry.
Classifying the SBU’S on the basis of BCG matrix.
Developing strategic objectives for each SBU.

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BCG MATRIX WITH CASH FLOW

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BENEFITS

BCG MATRIX is simple and easy to understand.

It helps you to quickly and simply screen the
opportunities open to you, and helps you think about
how you can make the most of them.
It is used to identify how corporate cash resources
can best be used to maximize a company’s future
growth and profitability.

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LIMITATIONS
BCG MATRIX uses only two dimensions, Relative
market share and market growth rate.
Problems of getting data on market share and market
growth.
High market share does not mean profits all the
time.
Business with low market share can be profitable
too.

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BCG MATRIX
PRACTICAL USE: Mahindra & Mahindra

Scorpio

Jeep
Bolero

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 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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Portfolio analysis- Strategic Business Units
GE Model frame work

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Portfolio analysis- Strategic Business Units GE Model
frame work
A business portfolio is the collection of Strategic Business Units
(SBU) that make up a corporation.
The optimal business portfolio is one that fits perfectly to the
company’s strength and helps to exploit the most attractive
industries or markets.
A SBU can either be an entire mid sized company or a division of
a large sized corporation, that formulates its own business level
strategy & has separate objectives from the parent company.

The aim of the portfolio analysis is:

1.Analyzes a current business portfolio & decides which SBU’s
should receive more or less investment and
2.Develops growth strategies for adding new products &
business to the portfolio
3.Decides which business or products should no longer be
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 Portfolio analysis- Strategic Business Units GE Model
frame work

The BCG Matrix is the best known portfolio planning frame work. The
GE Matrix is a later & more advanced form of the BCG Matrix.
The GE model is more sophisticated than the BCG matrix in 3 aspects.
1.Market (Industry) attractiveness replaces Market growth as the
dimension of the industry attractiveness. Market attractiveness
includes a broader range of factors other than just the market growth
rate that can determine the attractiveness of the industry/ market.
2. Competitive strength replaces Market share as the dimension by
which the competitive position of each SBU assessed. Competitive
strength likewise includes a broader range of factors other than just
the market share that can determine the competitive strategy of a
SBU.
3.Finally GE Matrix works with 3*3 grid, while BCG Matrix has only
2*2. This also allows more sophistication.

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 Portfolio analysis- Strategic Business Units GE Model
frame work

A Six step approach to implementation of portfolio analysis

(using GE could look like this)
1.Specific drivers of each dimension. The corporation must
carefully determine those factors that are important to its
overall strategy.
2. Weight drivers. The corporation must assign the relative
importance, weights of the drivers.
3. Score SBU’s each driver.
4. Multiply weights times scores for each SBU
5. View resulting graph and interpret it.
6. Perform a review sensitive analysis using adjusted other
weights and scores.

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GE’s Nine-Cell Business Screen

Internal Factors
Relative market share
Profit margins
Ability to compete on price and
quality
Knowledge of customer and market
Competitive strengths and
weaknesses
Technological capability
Caliber of management

External Factors
Market size and growth rate
Industry profit margins
Competitive intensity
Seasonality
Cyclicality
Economies of scale
Technology
Social, environmental, legal, and human impacts
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Some important limitations of GE Matrix

 Valuation of the realization of various factors

 Aggregation of the indicators is different

 Core competencies are not represented

 Interactions between the SBUs are not concerned.

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