Bcg matrix analysis

It is the most renowned corporate portfolio analysis tool. In other words, it is a comparative analysis of business potential and the evaluation of environment. According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share. The analysis requires that both measures be calculated for each SBU.

Bcg matrix analysis

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 Bcg matrix analysis. 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.

Bcg matrix analysis

This is because a firm that produces more, benefits from higher Bcg matrix analysis 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.

BCG Matrix - Meaning and its Limitations

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.

Bcg matrix analysis

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.

Vertical integration, horizontal integration, market penetration, market development, product development Question marks. Question marks are the brands that require much closer consideration.

BCG Matrix: Definition and Examples

They hold low market share in fast growing markets consuming large amount of cash and incurring losses. It has potential to gain market share and become a star, which would later become cash cow.

Question marks do not always succeed and even after large amount of investments they struggle to gain market share and eventually become dogs.BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market growth (vertical axis) axis.

BCG Matrix is mainly used for Multi Category / Multi Product companies. BCG analysis is done when all categories & products are analysed as a portfolio. Success Sequence in BCG Matrix – The Success sequence of BCG matrix happens when a question mark becomes a Star and finally it becomes a cash cow.

This is the best sequence which really give a boost to the companies profits and growth. The growth–share matrix (aka the product portfolio matrix, Boston Box, BCG-matrix, Boston matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that was created by Bruce D.

Henderson for the Boston Consulting Group in to help corporations to analyze their business units. 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). Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA.

It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related.

BCG Matrix explained | SMI