Harvard Business Review recently named it one of the frameworks that changed the world. The matrix is central in business school teaching on strategy. At the same time, the world has changed in ways that have a fundamental impact on the original intent of the matrix:
The four quadrants of the growth-share matrix. Growth-share matrix is a business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio and suggest further investment strategies.
Understanding the tool BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and its potential. It classifies business portfolio into four categories based on industry attractiveness growth rate of that industry and competitive position relative market share.
These two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it. The general purpose of the analysis is to help understand, which brands the firm should invest in and which ones should be divested.
One of the dimensions used to evaluate business portfolio is relative market share. This is because a firm that produces more, benefits from higher economies of scale and experience curve, which results in higher profits.
Nonetheless, it is worth to note that some firms may experience the same benefits with lower production outputs and lower market share.
High market growth rate means higher earnings and sometimes profits but it also consumes lots of cash, which is used as investment to stimulate further growth.
Therefore, business units that operate in rapid growth industries are cash users and are worth investing in only when they are expected to grow or maintain market share in the future. There are four quadrants into which firms brands are classified: Dogs hold low market share compared to competitors and operate in a slowly growing market.
In general, they are not worth investing in because they generate low or negative cash returns. But this is not always the truth. Some dogs may be profitable for long period of time, they may provide synergies for other brands or SBUs or simple act as a defense to counter competitors moves.
Therefore, it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested. Retrenchment, divestiture, liquidation Cash cows.
According to growth-share matrix, corporates should not invest into cash cows to induce growth but only to support them so they can maintain their current market share. Again, this is not always the truth.
Cash cows are usually large corporations or SBUs that are capable of innovating new products or processes, which may become new stars. If there would be no support for cash cows, they would not be capable of such innovations. Product development, diversification, divestiture, retrenchment Stars.
Stars operate in high growth industries and maintain high market share. Stars are both cash generators and cash users.
They are the primary units in which the company should invest its money, because stars are expected to become cash cows and generate positive cash flows. Yet, not all stars become cash flows. This is especially true in rapidly changing industries, where new innovative products can soon be outcompeted by new technological advancements, so a star instead of becoming a cash cow, becomes a dog.BOSTON CONSULTING GROUP MATRIX.
uring the s, the Boston Consulting Group (BCG ) developed an approach to strategic analysis that compares a firm’s market share to the antici-pated growth of its market in the next five years.
The BCG matrix, as the approach. Strategic Management > BCG Matrix. The BCG Growth-Share Matrix. The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 's. Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth-share matrix – provides a framework for analyzing products according to growth and market share.
|Understanding the tool||If you are working with a product portfolio you have a range of tools at your disposal to determine how each one or a group of the products are doing.|
|BCG Matrix explained | SMI||Dogsfound in the lower right quadrant of the grid, don't generate much cash for the company since they have low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time.|
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|BCG Matrix explained | SMI||The current moneymakers are easy to identify now, but what about the future?|
|BCG Matrix - Meaning and its Limitations||Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time.|
If you are working with a product portfolio, BCG growth-share matrix can give you a quick overview of how the products are doing and build a basis for further analysis. To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market.
The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help with long-term strategic planning, to help a business consider growth opportunities by reviewing its portfolio of products to decide where to invest, to discontinue or develop products.
The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help with long-term strategic planning, to help a business consider growth opportunities by reviewing its portfolio of products to decide where .