BCG matrix:

It is an abbreviation of Boston consultant group, who developed this matrix by which they go
for the portfolio analysis; Portfolio is a multi-business corporation that has different product
lines or business units, example: Bahagat group, Fizier, Olympic group.
The objective of this matrix is to decide which business unit/ product line I need to fund and
which one to sell out the portfolio. The examination in this matrix for each business unit is
relative to the others business units in the same portfolio.

When analyzing the business units we rely on two dimensions: the relative market share of that
business unit/ product line and the market growth rate of that specific business unit/ product
line.
The BCG assumed that there is a direct relation between the market share and cash generation,
i.e. high market share leads to high cash generation and vice versa. The second dimension is the
direct relationship between Cash consumption/usage and market growth rate, i.e. highly
growing market leads to high cash usage and vice versa.
When ranking the business units, we will find the BCG locate the business units into one of the
four quadrants, x-axis stands for market share and y-axis stands for market growth rate, as
follows:

1- First quadrant is the Question mark:

It is a business unit/product line with a low relative market share competing in a highly growing
market or a fast growing market, i.e. it is a business unit/product line that generates low cash
and consumes high cash. How to deal with this situation? It is either to invest in this biz
unit/product line and convert it into stars, i.e. maximize its market share (which is a dimension
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within my control, while the market growth rate is beyond my control, i.e. cannot change the
speed of market growing), and we have only one grand strategy that would help to maximize
the market share of that business unit, which is market penetration.
The second option is instead of investing in it, because I do not have excessive funds, I will
divested it using the defensive techniques (divestitures), as it will automatically get divested
and fall into the pet/dogs quadrant if I don’t invest in it, as result of the low market share cannot
stand a fast growing market.

2- Second quadrant is the Stars:

It is a business unit/product line with a high market share competing in a highly growing
market, i.e. high cash generation and high cash consumption, this situation helps the star
business unit to be a market leadership.
Example: Fizier. Acting as a star is the best long-run opportunity for growth and profitability
for the whole portfolio. As much as I can I need to sustain that product line to act as a star,
generically speaking I have to undergo integration different strategies or intensive different
strategies.

3- Third quadrant is the cash cows:

When the market gets mature, the star business unit turns to be a cash cow, and a cash cow
means a business unit or a product line with high market share competing in a slowly growing
market, i.e. high cash generation versus low cash consumption, which results in excessive cash.
We have to invest this excessive cash, basically in Question marks in order to convert it into
Stars; also I have to undergo some strategies to stabilize myself as a cash cow, for example: all
intensive strategies, specially product development (because it needs high capacity of R&D, i.e.
high funding), also as long as generating high cash and competing in a slowly growing market, I
might go for unrelated diversification move to a fast growing market

4- Fourth quadrant is the Dogs:

When the cash cow product line or business unit starts to decline, it moves into the dog
quadrant. It is a business unit or a product line with a low market share competing in a slowly
growing market, i.e. low cash generation, and low cash consumption. The dogs' business unit
/product line just needs to breakeven (no profit and no loss), i.e. they deliver the minimum cash
to cover its expenses, in order to be able to breakeven, and once the dog fails to breakeven and
enters the loss zone then I have no option but using liquidation and then use the fund resulted in
the question marks. NB: may be I choose to keep dogs because it acts as a brand loyalty
opportunity for my portfolio or else reasons.

And that's how to create a balanced healthy portfolio that has stars "leadership", cash cows"
generating cash" and a problem Childs.

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The normal cycle of any portfolio: it has to start as a question mark, then by proper investment
it turns into star, then when the market growth reaches maturity, this will lead star to a cash
cow, and the excess cash will make me sustain my position and pushes the question marks at
the same time to the stars zone and so on, i.e. this cycle is running anti-clock wise.

Limitation of the BCG matrix:

The main objective of this matrix is to be able to define/locate the business units or the product
lines in your portfolio as a stars or cash cow or a question mark so that you may know which
product line or business unit you need to fund and which one to sell, i.e. allocation of resources,
what if a certain business unit is allocated let's say in between the question marks and the stars
quadrants, so shall I deal with it as a question mark that needs fund or as a stars and wait until it
gets mature and convert automatically into cash cow (NB: it is as a result of marketing analysis
figures). The problem here is that each quadrant has its own set of strategies to deal with and in
that situation I will not be able to decide which set of strategies are more fit. The second
limitation is that BCG matrix is based on two basic variables: the market growth rate and the
market share of each business unit and we don’t have any scientific evidence said that the
strategic decision is only based on these two variables, in fact these two variables are not the
most important variables in the strategic decision making process. Another limitation is that the

BCG matrix is based on an assumed relationship that says high market share means high cash
generation, and low market share means low cash generation and highly growing market means
high cash consumption and slowly growing market means slow cash consumption, this is an
assumed relationship and not a real relationship, I can say that not necessarily all the products
lines with high market share are generating high cash flow, because there are some businesses
that have low market share and yet are very profitable, example the products that classified as
differentiation focus, like Jaguar cars it has low market share but yet generates high cash flow.