Strategic Management

BCG matrix

(c) Strategy Content, Process, and Roles

Analytical Framework for Strategy Formulation

Analytical Framework for Strategy Formulation

Stage 1: Input Stage

Stage 2: Matching Stage

Stage 3: Decision Stage

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Analytical Framework for Strategy Formulation

Internal Factor Evaluation Matrix (IFEM)

Stage 1: Input Stage

External Factor Evaluation Matrix (EFEM)

Competitive Profile Matrix (CPM)

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Strategic Mangement

Analytical Framework for Strategy Formulation

SWOT Matrix

SPACE Matrix

Stage 2: Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

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Strategic Mangement

BCG Matrix
The process

BCG Model
Product of Boston Consultancy Group (Bruce

Henderson 1972)
Classify Firms products according to:

Market Growth (= Industry

Attractiveness) High/Low Relative Market Share (= Competitive Advantage) High / Low

Strategic Mangement December'08

BCG Model
2 x 2 Growth-Share Matrix Basic idea: If a product (SBU) has a bigger market share, or if its market grows faster, it is better for

the Firm.
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Growth-Share Formulae

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Process
For each SBU, compute relative Market Share

(MS) and market Growth Rate (GR) Plot MS on x-axis. Generally, midpoint is 0.5 Plot GR on y-axis. Generally, midpoint is 0.0 because GR can vary from minus to plus However, different midpoints are possible X,Y point for each SBU is shown by a circle Size of circle = SBUs share of Firms revenues Pie slice in circle = SBUs share of Firms profits
11 Strategic Mangement December'08

Rationale
1. Relative Market Share = Cash generation

2. Market Growth = Need to increase

capacity = Investment in assets =

Cash consumption Thus, growth-share matrix identifies SBUs / products with high or low cash generation &
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high or low cash consumption. Strategic Mangement

December'08

Growth-Share Matrix

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Strategic Mangement

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The Four Categories

1. Cash Cow 2. Star

3. Question Mark
4. Dog

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1. Cash Cow (LGR-HMS)

$

Generates more cash. Consumes less

$ $

Most valuable to the Company Funds R&D, services debt, and

$
15

Helps convert Question Mark to

Star.
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Strategic Mangement

2. Star (HGR-HMS)

Leader in high growth markets

Generate a lot of cash

But, also use a lot of cash because of high growth market conditions

Becomes cash cow when market growth rate stabilizes / declines.

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Strategic Mangement

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3. Question Mark (HGR-LMS)

Generates less cash. Consumes more

Also called Problem Child

Can enhance market share Star Subsequently, even a Cash Cow Or, a permanent drag on cash Strategy: Either invest heavily or sell off.

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Strategic Mangement

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4. Dog (LGR-LMS)

Does not generate large cash

Does not consume large cash

Resources tied up in low potential SBU Strategy: Minimize number of Dogs, avoid costly rescue plans, divest fast.

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Strategic Mangement

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BCG Model: Strategies

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Strategic Mangement

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Strategy Options
Build: Invest & strengthen (Star, Question

Mark with a bright future)

Hold: Maintain business (Cash Cow)

Harvest: Grab short-term cash flow (for

Cash Cows with limit-to-growth or nearexpiry-date) Divest: For Dogs & weak Question Marks.
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An Example
Multi-product, multi-market company

Harvest the CTV business Invest heavily in Cellphone SBU. Merge i-pod division with it. Buy competitors. Maintain Washing Machine SBU Divest Stereo System SBU even at cost Drop Bangladesh & Sri Lanka markets Sell off Kitchen Appliances SBU soonest.

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Strategic Mangement

December'08