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BCG Growth/Share Matrix

BCG Growth/Share Matrix. History of the BCG Matrix. 1960’s – diversification of businesses Need for universal management tool First implementation in 1969 by Boston Consulting Group. Portfolio Analysis. Strategic Business Unit (SBU) Definition Single independent operation of a company

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BCG Growth/Share Matrix

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  1. BCG Growth/Share Matrix

  2. History of the BCG Matrix • 1960’s – diversification of businesses • Need for universal management tool • First implementation in 1969 by Boston Consulting Group

  3. Portfolio Analysis • Strategic Business Unit (SBU) Definition • Single independent operation of a company • Has its own competitors • One manager responsible for performance • Has a different set of requirements of resources • Allocation of resources over all SBUs

  4. Mature Phase “Cash Cow” Sales Volume Growth Phase “Star” Decline Phase “Dog” Introductory Phase “?” Time Basis of the BCG Portfolio Matrix

  5. BCG Matrix Construction • Internal measure: Relative market share • Firm’s sales of the SBU .Total market’s average sales • Firm’s Sales of the SBU .Strongest Competitor’s Sales • External measure: Market growth • Match strategy with market stage

  6. BCG Matrix Format • Vertical Axis = Relative Market Growth • Split at 10% by a horizontal line • Horizontal Axis = Relative Market Share • Split at 1x by a vertical line • Creates four quadrants in which individual SBUs are positioned as bubbles • Bubble size = SBU’s total revenue

  7. Relative Market Share High Low High Product Sales Growth Rate Low The BCG Matrix

  8. BCG Market Share/Market Growth Matrix

  9. Strategy Recommendations Investment Increase market share Selectively develop into Stars Cash Flow Require funds from other SBUs (Cash Cows) Unrealized future opportunities

  10. Strategy Recommendations • Investment • Further Growth • Maintain Market Position • Cash flow • Self-sustaining: Fund their own growth • Require funds from other SBUs (Cash Cows) • Assure the future of the company • Grow into Cash Cows

  11. Strategy Recommendations • Investment • Maintain market share • Maintain capacity • Cash Flow • Positive cash flow • Provides funding to support Stars and “?” • No potential for profit growth

  12. Strategy Recommendations • Investment • Divestiture strategy • Reduce capacity to free up resources • Cash Flow • Goal of Positive Cash Flow • Negative Cash Flow = Divestment • No real growth opportunities

  13. Evaluation of BCG Matrix: Cons • Oversimplifies complex decisions • Only 2 factors considered = creates risk • Uncertainty in market and SBU definition • Only considers current businesses no dynamics • Does not recognize possible synergies between SBUs

  14. Evaluation of BCG Matrix: Pros • Simple and rapid • Solid basis for decision-making • Good measurability of market share and growth • Provides information about efficient resource allocation within the organization • Generator for strategic options

  15. Conclusion • As long as management understands that the BCG Growth/Share Matrix generates options which require further analysis and validation, this tool can greatly enhance strategic decision making

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