BCG Growth-Share Matrix:
The Boston Consulting Group, a leading consulting firm, developed and popularized a portfoilo analysis tools that helps managers develop organizational strategy based on market share of businesses and the growth of markets in which businesses exist.
The 1st step in using this model is identifying the organization’s strategic business units (SBUs). A Strategic business Unit is a significant organization segment that is analysed to develop organizational strategy aimed at generating future business or revenue.
Exactly what constitutes as SBU varies from company to company. In bigger organizations, and SBU could be a company division, a single product or a complete Product Line.
In smaller organizations, it might be the entire company.
Eventhough they vary drastically in form each SBU has the following characteristics:
- It is a single business or collection of related businesses.
- It has its own competitors.
- It has a manager who is accountable for its operation.
- It is an area that can be independently planned for within the organization.
After identifying the SBUs, the next step is to categorize each SBU within one of the 4 Matrix Quadrants:
- STARS – Star SBUs have a high share of a high growth market and typically need large amounts of cash to support their rapid and significant growth. Stars also generate large amounts of cash for the organization and are usually segments in which management can make additional investments and earn attractive returns.
- CASH COWS: SBUs that are Cash Cows have a large share of a market that is growing only slightly. Naturally, these SBUs provide the organization with large amounts of Cash, but since their market is not growing significantly, the cash is generally used to meet the financial demands of the organization in other areas, such as the expansion of a STAR SBU.
- QUESTION MARKS: These category of SBUs have a small share of a high growth market. These are “question marks” because it is uncertain whether management should invest more cash in them to gain a larger share of the market or deemphasize or eliminate them. Management will choose the 1st option when it believes it can turn the question mark into a star, and the 2nd option when it thinks that future investments would be fruitless.
- DOGS : SBUs that are dogs have a relatively small share of a low-growth market. They may barely support themselves; in some cases, they actually drain off cash resources generated by other SBUs. These are the SBUs which are likely to be shortlisted for deemphasize or elimination.
PITFALLS of the BCG Growth Matrix Model:
The matrix does not consider factors like:
- Various types of Risk associated with product development
- Threats that inflation and other economic conditions can create in the future.
- Social,Political and Ecological Pressures.
2 thoughts on “Strategy Formulation: BCG Growth-Share Matrix Model”
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List of strategies that ‘stars’ can choose from to ensure they sustain their competitive advantage?