BCG MATRIX

AND

General Electric (GE) Matrix

ASHIKA SRIPATHI
LECTURER-MBA DEPARTMENT

CMRIT
 Roadmap

ROADMAP

STRATEGIC PLANNING

BCG & GE MATRIX

ABOUT GE

CLASSIFICATION

STRATEGIES

BCG v/s GE

CASE STUDY
 Strategic Planning

 It is the management task

concerned with the growth
and future of business
enterprise.

 It provides the route map for

the firm and helps to take
decision in the future with a
greater awareness
 BCG & GE Matrix
Relative Position
(Market Share) Business Strength

Market Attractiveness
Market Growth
BCG MATRIX
• The BCG matrix ( B.C.G. analysis, BCG-matrix, Boston
Box, Boston Matrix, Boston Consulting Group analysis)
is a chart that had been created by Bruce Henderson for
the Boston Consulting Group in 1970 to help
corporations with analyzing their business units or
product lines. This helps the company allocate resources
and is used as an analytical tool in brand marketing,
product management, strategic management, and
portfolio analysis
• To use the chart, analysts plot a scatter
graph to rank the business units (or
products) on the basis of their relative
market shares and growth rates.
• Cash cows are units with high market share in a
slow-growing industry. These units typically
generate cash in excess of the amount of cash
needed to maintain the business. They are
regarded as staid and boring, in a "mature"
market, and every corporation would be thrilled
to own as many as possible. They are to be
"milked" continuously with as little investment as
possible, since such investment would be
wasted in an industry with low growth.
• Dogs, or more charitably called pets, are units with low
market share in a mature, slow-growing industry. These
units typically "break even", generating barely enough
cash to maintain the business's market share. Though
owning a break-even unit provides the social benefit of
providing jobs and possible synergies that assist other
business units, from an accounting point of view such a
unit is worthless, not generating cash for the company.
They depress a profitable company's return on assets
ratio, used by many investors to judge how well a
company is being managed. Dogs, it is thought, should
be sold off.
• Question marks (also known as problem child) are growing rapidly
and thus consume large amounts of cash, but because they have
low market shares they do not generate much cash. The result is
a large net cash consumption. A question mark has the potential to
gain market share and become a star, and eventually a cash cow
when the market growth slows. If the question mark does not
succeed in becoming the market leader, then after perhaps years of
cash consumption it will degenerate into a dog when the market
growth declines. Question marks must be analyzed carefully in
order to determine whether they are worth the investment required
to grow market share
• Stars are units with a high market share in a
fast-growing industry. The hope is that stars
become the next cash cows. Sustaining the
business unit's market leadership may require
extra cash, but this is worthwhile if that's what it
takes for the unit to remain a leader. When
growth slows, stars become cash cows if they
have been able to maintain their category
leadership, or they move from brief stardom to
dogdom.[
• As a particular industry matures and its growth
slows, all business units become either cash
cows or dogs. The natural cycle for most
business units is that they start as question
marks, then turn into stars. Eventually the
market stops growing thus the business unit
becomes a cash cow. At the end of the cycle the
cash cow turns into a dog.
• The overall goal of this ranking was to help
corporate analysts decide which of their
business units to fund, and how much; and
which units to sell. Managers were supposed to
gain perspective from this analysis that allowed
them to plan with confidence to use money
generated by the cash cows to fund the stars
and, possibly, the question marks. As the BCG
stated in 1970:
• Only a diversified company with a balanced
portfolio can use its strengths to truly capitalize
on its growth opportunities. The balanced
portfolio has: stars whose high share and high
growth assure the future;
• cash cows that supply funds for that future
growth; and
• question marks to be converted into stars with
the added funds.
• For each product or service, the 'area' of
the circle represents the value of its sales.
• The BCG Matrix thus offers a very useful
'map' of the organization's product (or
service) strengths and weaknesses, at
least in terms of current profitability, as
well as the likely cashflows
 Relative market share
• This indicates likely cash generation, because the higher the share
the more cash will be generated.
• As a result of 'economies of scale' (a basic assumption of the BCG
Matrix), it is assumed that these earnings will grow faster the higher
the share.
• The exact measure is the brand's share relative to its largest
competitor. Thus, if the brand had a share of 20 percent, and the
largest competitor had the same, the ratio would be 1:1. If the largest
competitor had a share of 60 percent; however, the ratio would be
1:3, implying that the organization's brand was in a relatively weak
position. If the largest competitor only had a share of 5 percent, the
ratio would be 4:1, implying that the brand owned was in a relatively
strong position, which might be reflected in profits and cash flows. If
this technique is used in practice, this scale is logarithmic, not linear
 Market growth rate
• Rapidly growing in rapidly growing markets, are what
organizations strive for
• the penalty is that they are usually net cash users - they
require investment.
• The reason for this is often because the growth is being
'bought' by the high investment, in the reasonable
expectation that a high market share will eventually turn
into a sound investment in future profits.
• The theory behind the matrix assumes, therefore, that a
higher growth rate is indicative of accompanying
demands on investment.
 Major problems
• 'Minority applicability'. The cashflow techniques are only applicable to a very
limited number of markets (where growth is relatively high, and a definite pattern
of product life-cycles can be observed, such as that of ethical pharmaceuticals).
In the majority of markets, use may give misleading results.
• Market growth rate is only one factor in industry attractiveness, and relative
market share is only one factor in competitive advantage. The growth-share
matrix overlooks many other factors in these two important determinants of
profitability.
• The framework assumes that each business unit is independent of the others. In
some cases, a business unit that is a "dog" may be helping other business units
gain a competitive advantage.
• The matrix depends heavily upon the breadth of the definition of the market. A
business unit may dominate its small niche, but have very low market share in
the overall industry. In such a case, the definition of the market can make the
difference between a dog and a cash cow.
•
 About GE Matrix

 Developed by McKinsey & Company in

1970’s.
 GE is a model to perform business
portfolio analysis on the SBU’s.
 GE is rated in terms of ‘Market
Attractiveness & Business Strength’
 It is an Enlarged & Sophisticated version
of BCG.
 Classification
Business Strength
Strong Medium Weak
5.00
High
Market Attractiveness

3.67
Medium

2.33
Low

5.00 3.67 2.33 1.00

 Market Attractiveness

 Annual market growth rate

 Overall market size
 Historical profit margin
 Current size of market
 Market structure
 Market rivalry
 Demand variability
 Global opportunities
 Business Strength

 Current market share

 Brand image
 Brand equity
 Production capacity
 Corporate image
 Profit margins relative to competitors
 R & D performance
 Managerial personal
 Promotional effectiveness
 Strategies
 Protect Position
• Invest to grow
• Effort on maintaining strength

 Invest to Build
• Challenge for leadership
• Build selectively on strength

 Build Selectively
• Invest in most attractive segment
• Build up ability to counter competition
• Emphasize profitability by raising productivity
 Strategies
 Protect & Refocus
• Manage for current earning
• Defend strength
 Selectivity for Earning
• Protect existing program
• Investments in profitable segments
 Build Selectively
• Specialize around limited strength
• Seek ways to overcome weaknesses
• Withdraw if indication of sustainable
growth are lacking
 Strategies
 Limited Expansion for Harvest
• Look for ways to expand

withoutfor
 Manage high risk
Earnings
• Protect position in profitable segment
• Upgrade product line
• Minimize investment
 Harvest
• Sell at time that will maximize cash value
• Cut fixed costs and avoid investment
meanwhile
 Factors Underlying Market
Attractiveness
Factors Weight Rating Value =
(1 –5) (Weight * Rating)
Resource availability 0.20 2.5 0.5
Overall market size 0.15 3 0.45

Annual Market growth rate 0.20 3 0.6

Profitability 0.15 3 0.45

Competitive intensity 0.10 2.5 0.25

Technological requirements 0.20 2.5 0.5

Total 1.0 2.75

 Each factor is assigned a weighting that is
appropriate for the industry. The industry
attractiveness then is calculated as follows:
• Industry attractiveness    =  
 
•  factor value1   x   factor weighting1
 
•  + 
•  factor value2   x   factor weighting2
 
• .
.
.
 

•  + 
•  factor valueN   x   factor weightingN
• Plotting the Information
• Each business unit can be portrayed as a circle
plotted on the matrix, with the information
conveyed as follows:
• Market size is represented by the size of the
circle.
• Market share is shown by using the circle as a
pie chart.
• The expected future position of the circle is
portrayed by means of an arrow.
• The following is an example of such a
representation:
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction ind
• The shading of the above circle indicates a 38%
market share for the strategic business unit. The
arrow in the upward left direction indicates that
the business unit is projected to gain strength
relative to competitors, and that the business
unit is in an industry that is projected to become
more attractive. The tip of the arrow indicates
the future position of the center point of the
circle.
 Factors Underlying Market
Strength
Factors Weight Rating Value =
(1 –5) (Weight * Rating)

Market share 0.15 5 0.75

New product development 0.10 3.5 0.35

Brand Image 0.10 4 0.40

Sales force 0.15 3 0.45

Pricing 0.15 3 0.45

Distribution capacity 0.10 4.5 0.45

Product quality 0.10 4.5 0.45

R&D Performance 0.15 3 0.45

Total 1.0 3.75

 Classification
Business Strength
Strong Medium Weak
5.00
High
Market Attractiveness

3.67
Medium

2.33
Low

5.00 3.67 2.33 1.00

Case Study
 Overview
High Business Strengths Low

High

Attractive
Market Attractiveness

Moderate
Attractive

Unattractive

Low
 Case Study of TATA

 TATA

• IT (Information Technology) : TCS

• Consumer Durable : Automobiles,
Titan etc.
•Textiles : Tata Fabrics, West Sides etc
 GE Matrix For TATA
High Business Strengths Low
High
IT
Market Attractiveness

Consumer
Durables

Low Textiles
 BCG v/s GE
BCG GE
Market
Market Growth
Attractiveness
Market share Market strength

4 cell 9 cell
Multi Business
Multi Products
Units
Primary tools Secondary tools