Portfolio Analysis and BCG Matrix: The Growth Share Matrix

Portfolio Analysis
And
BCG Matrix
The Growth Share Matrix

It evaluates the strength of a firm from the
portfolio of businesses or products the firm has
in different stages of PLC, which are required
for future growth.
It analyses the impact of investing resources in

different SBUs on the corporate’s future
earnings and cash flow.
Growth Share Matrix
Most Businesses will

have cash generating,
cash neutral
and
cash consuming
businesses.
1
Businesses are evaluated on
two parameters
Market growth
(Industry attractiveness)
and
Relative market share

(Competitive strength)

A Matrix is created considering the
market growth and relative market share
of all the businesses in their respective
industries
and
businesses are placed in that matrix for
analysis and evaluation.
The Boston Consulting Group’s

Growth-Share Matrix
20%-
Market Growth Rate
18%-
16%-
14%-
12%-
10%-
8%-
6%-
4%-
2%-
0
10x 4x 2x 1.5x 1x .5x .4x .3x .2x .1x
Relative Market Share
2
The market growth rate on the vertical

axis is the proxy measure for the
industry Attractiveness.
The relative market share is proxy foits

competitive Business strength in the
industry.
BCG model uses two Independent

Dimensions
The future rate of growth of the market
And
The relative market share of the market
Each of these dimension is surrogate for

another underlying variable
The future rate of growth of the market is

assumed to be a surrogate of the need for cash
And
The relative market share is assumed to a

measure of the ability to generate cash
3
BCG Growth - Share Matrix
In BCG approach, the company classifies all
its SBUs into 4 types as
“star”,
“cash cow”,
“question mark”
and
“dog”
according to their market growth and relative
market share.
BCG Matrix
Stars Problem Child

?
market growth rate
Market growth rate
$
Cash Cows Dogs
Relative market
Relative marketshare
share
The BCG Matrix

High
Market growth rate
Stars Question
marks
Cash cows Dogs
Low
High Relative market share Low
Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.
4
BCG Matrix
Stars Problem Child

Market growth rate
Revenue ++++ Revenue +

Expenses _ _ _ Expenses _ _ _ _
Net + Net ___
Revenue + + + + + Revenue + +
Expenses _ Expenses _ _ _ _
Net ++++ Net ___
Cash Cows Dogs

Relative market share
5
BCG Market Share/Market Growth Matrix
BCG Matrix
(Three Paths to Success)
• Continuously generate cash cows and use the
cash throw-up by the cash cows to invest in the
question marks that are not self-sustaining
• Stars need a lot of reinvestments and as the

market matures, stars will degenerate into cash
cows and the process will be repeated.
• As for dogs, segment the markets and nurse the

dogs to health or manage for cash
6
Paths to Success (cont’d)
High Low
High
Market
Growth
Rate
Low
BCG Matrix
(Three Paths to Failure)
• Over invest in cash cows and under

invest in question marks
• Under invest in the stars
• Over milked the cash cows
Three Paths to Failure (cont’d)

High Low
High
Market
Growth Rate
Low
7
BCG Matrix
• Dogs are businesses that have a very small

share of a market that is not expected to grow.
• Cash cows are businesses that have a large
share of a market that is not expected to grow
substantially.
• Question marks are businesses that have only a
small share of a quickly growing market.
• Stars are businesses that have the largest share
of a rapidly growing market.
Stars
• are high-growth, high-share businesses or
products.
• They often need heavy investment to finance
their rapid growth.
• Therefore, they may not be producing a positive
cash flow.
• The business strategy will generally be for growth
fueled by externally acquired capital.
• Eventually, their growth will slow, and they will
turn into cash cows.
Cash cows
• are low-growth, high-share businesses or
products.
• These established and successful SBUs
need less investment to keep their market
share.
• They produce a lot of cash to be used for
other business units of the company.
• They are either milked for investment in
stars or question marks or harvested if
there is little optimism for a stable futur
8
Question marks
sometimes called problem children, are low-

share business units in high-growth markets.
They need a lot of cash to keep and increase
their share; they can not generate enough
cash themselves. Management must decide
which question mark it should build into stars
and which should phase out.
Dogs
are low-growth, low-share businesses

and products. They often have poor
profitability. Therefore, the business
strategy for a dog is most often to
divest, but occasionally to hold for
possible strategic repositioning as a
question mark or cash cow.
Portfolio Strategies
BUILD
Does the SBU have the potential to be a star?
HOLD
Can you maintain and preserve market share?
HARVEST
.
Increase the short-term return without
Four impacting long-run prospects.
Portfolio
Strategies DIVEST
Is it appropriate to dump SBU’s
with low-growth potential?
9
Limitations of the BCG Matrix
1. Market Growth rate is an inadequate descriptor of
overall industry attractiveness.
2. Relative market share is inadequate as a descriptor of

overall competitive strength.
3. The analysis is highly sensitive to how growth and

share are measured.
4. It provide little guidance on how best to implement the

investment strategies.
5. The model implicitly assumes that business units are

independent or one another except for the flow of
cash.
How to Identify SBUs?

• It is the basic competitive unit of a
company.
• It has a specific and identifiable group of
customers.
• It has specific and identifiable competitors.
• It can be measured as an independent
entity in terms of profit and loss.
• Therefore, it may require a separate
marketing strategy.
Industry
An industry is a group of firms that

offer a product or a class of product
that are similar
and
are close substitute for one another.
10
Market
A Market is being comprised of
individuals or organizations
who are interested and are willing
to buy a good or service to obtain
benefits that will satisfy a particular
need or want and
who have the resources to engage in
such a transaction
11

Portfolio Analysis and BCG Matrix: The Growth Share Matrix

Uploaded by

Copyright:

Available Formats

Portfolio Analysis and BCG Matrix: The Growth Share Matrix

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Portfolio Analysis and BCG Matrix: The Growth Share Matrix

Uploaded by

Copyright:

Available Formats

Portfolio Analysis

The Growth Share Matrix

It analyses the impact of investing resources in

Growth Share Matrix

Most Businesses will

Relative market share

The Growth Share Matrix

The Boston Consulting Group’s

The market growth rate on the vertical

The relative market share is proxy foits

BCG model uses two Independent

The future rate of growth of the market

The relative market share of the market

Each of these dimension is surrogate for

The future rate of growth of the market is

The relative market share is assumed to a

Stars Problem Child

Market growth rate

The BCG Matrix

Cash cows Dogs

Stars Problem Child

Revenue ++++ Revenue +

Cash Cows Dogs

• Stars need a lot of reinvestments and as the

• As for dogs, segment the markets and nurse the

• Over invest in cash cows and under

• Under invest in the stars

• Over milked the cash cows

Three Paths to Failure (cont’d)

• Dogs are businesses that have a very small

sometimes called problem children, are low-

are low-growth, low-share businesses

2. Relative market share is inadequate as a descriptor of

3. The analysis is highly sensitive to how growth and

4. It provide little guidance on how best to implement the

5. The model implicitly assumes that business units are

How to Identify SBUs?

An industry is a group of firms that

You might also like