Using the BCG Matrix

QUESTIONS

1. How would you classify each of AHI’s business portfolios using the

BCG matrix?

2. How would you allocate the $250m investment across the SBUs?

3. How useful did you find the BCG matrix in helping allocate the

$250m investment?

4. Are there circumstances where the BCG matrix could be misleading

(that is, suggest an investment in a low potential SBU for instance)?

Answers:

1.
Star Question
Marks

Therese Jamie

Clive Kristi

Cash Cows Dogs

Evidence:

A chain of fast food restaurants (General Manager = Clive)

Making any real profits

A manufacturer of MP3 players (General Manager = Kristi)

Not making much money

A ‘branding’ marketing consulting firm (General Manager =

Therese)

Branding marketing consulting business is growing really well.

Consulting throughout the world and are considered to be one of the

market leaders with our innovative practices.

A bus travel company (General Manager = Jamie)

In a tough market that’s pretty flat at the moment.

2.I will give Clive and Therese each $100m,because they are making

profit and can make more in the future. And $25m to Kristi and Jamie’s

business. Because I don’t think MP3 are going to be popular anymore

also it not making profit now, there is no future for this. And for Jamie,

the profit is low and do not what future will be.

3.Very useful.The BCG matrix provides a useful "map" for analyzing the

strengths and weaknesses of products or services. The two axes of the

"map" are profitability (expressed in relative market share) and projected

future cash flow (expressed in projected market growth), and in this

graph, the value of each product and service. This idea mainly comes

from the need for companies to manage cash flow. Among them, the

relative market share is a major indicator for assessing the income of

products or services; and the expected market growth rate is an important

indicator for enterprises to evaluate investment in products or services.

After I know all of this, I can make a decision on business which can

make real profit.

4. The limitation evaluation of the BCG matrix only assumes that the

company's business development relies on internal financing, without

considering external financing. Raising funds through debt and other

means is not considered in the BCG matrix.

On the other hand, the BCG matrix also assumes that these businesses are

independent, but the businesses of many companies are closely linked.

For example, if the cash cow business and the dog business are

complementary business combinations, if the dog business is abandoned,

the cash cow business will also be affected.