 It is the well-known portfolio management tool.

Developed in
the early 70s by the Boston Consulting Group.

 It is based on product life cycle theory. The BCG Matrix can

be used to determine what priorities should be given in the
product portfolio of a business unit which will further help us
to decide which of the business units to fund, how much to
fund; and which units to sell.

 To ensure long-term value creation, a company should have a

portfolio of products that contains both high-growth products
in need of cash inputs and low-growth products that generate
a lot of cash.
 Relative Market Share (Cash Generation)

Market Growth Rate (Cash Usage) High Market Share Low Market Share

High Market
Growth
Low Market
Growth
 Low Growth, High Market
Share

 Profits and cash generation is high.

 Because of the low market growth, investments
which are needed is low.
 The more the company invests in cash cows, the
greater the return.
 Cash cows tend to pay the dividends, the interest
on debt and cover the corporate overhead.
 High Growth, High Market
Share
 Stars are leaders in the business. they generate
large amounts of cash because of their strong
market share, but also consume large amounts of
cash because of their high growth rate

 If a star can maintain its large market share, it

will become a cash cow when the market growth
rate declines

 The portfolio of a diversified company always

should have stars that will become the next cash
cows and ensure future cash generation
 High Growth, Low Market
Share
 They have high cash demands because of their
growth but generate low returns, because of their
low market share.

 If the market share remains unchanged, Question

Marks will simply absorb great amounts of cash.

 Either invest heavily, or sell off, or invest nothing

and generate any cash that you can.

 Question marks are difficult to turn into stars

because the cost of acquiring market share
compounds the cash needs.
 Low Growth, Low Market
Share
 Thus neither generate nor consume a large
amount of cash.

 Avoid and minimize the number of Dogs in a

company.
 The BCG Matrix method can help to understand a
frequently made strategy mistake:
Having a one size fits all strategy
approach, such as a growth target (9 percent per
year) or return on capital of say 9.5% for an entire
corporation.

In such a scenario:
 Cash Cows Business Units will reach their profit
target easily. Their management have an easy job
as cash cows generate huge amount of cash.
 Dogs Business Units are fighting an impossible
battle and investments are made now and then in
hopeless attempts to 'turn the business around‘.
 As a result all Question Marks and Stars receive
only small investment funds. In this way they can
never become Cash Cows.
 BCG model is helpful for managers to evaluate
balance in the firm’s current portfolio of Stars, Cash
Cows, Question Marks and Dogs.

 It provides a base for management to decide and

prepare for future actions.

 The model is simple and easy to understand.

 High market share is not the only success factor.

 There is no clear definition of what constitutes a

"market".

 The model uses only two dimensions – market

share and growth rate. This may tempt
management to emphasize a particular product,
or to divest prematurely.

 The model neglects small competitors that have

fast growing market shares.
For a group activity choose a company and design a
BCG Matrix for its different businesses.
Group 1 – Virgin group
Group 2 – ITC group
Group 3 – TATA group
Group 4 – HUL group
Group 5 – Godrej group
Group 6 – Amul group
Group 7 – LG group of products
Group 8 – Nestle group of products