BCG GROWTH-SHARE MATRIX

BCG GROWTH-SHARE MATRIX:

The BCG Growth share matrix was developed by the boston consulting group,it is the simplest way to portray a corporation's portfolio of investments. Each of the corporation's product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share. A company's relative competitive position is defined as its market share in the industry divided by hat of the largest other competitor,so a relative market share above 1.0 belongs to the market leader. The business growth rate is the percentage by which sales of a particular business unit classification of products have increased.

A product line or business unit must have a high competitive position to ensure that it would have the dominant position needed to be a star or cash cow. A product line having a low relative competitive position of say 1.0 and below has a "dog" status.

The BCG Growth share matrix has a lot in common with the product life cycle. As a product moves through its lifecycle,it is classified into the following:

• Question marks: They are sometimes called "problem child" or "wildcats". They have a small relative market share or competitive position in a high growth market. They are mostly new products with the potential for success,but require a lot of cash for development. To enable the product step up to become a star,these products must be funded by a more mature product which usually are the cash cows.

• Stars:Stars are market leaders, they are typically at the peak of their product life cycle. Stars generate cash that contributes positively to company's profit, but because the market is growing rapidly,they require investments to maintain their lead.

• Cash cows: They bring in more money than is needed to maintain their market share. In this declining stage of their life cycle,these products are milked for cash that would be invested in new question marks.

• Dogs: It is a business unit that has a small market share in a mature industry.A dog may not require substantial cash,but it ties up capital that could be better deployed elsewhere. According to the BCG Growth share matrix, dogs should be either sold or managed carefully for the small amount of cash they can generate.

The BCG Growth-share matrix is a very well known portfolio concept with advantages such as being quantifiable,easy to use,easy to remember. It also has some negative criticisms and shortcomings,which include:

a) The link between market share and profitability is questionable,since increasing market share can be very expensive.

b) The use of highs and lows to form four categories is too simplistic

c) The approach may overemphasize high growth since it ignores the potential for a declining market.

d) Growth rate is only one aspect of industry attractiveness.

e) Product lines or business units are considered only in relation to one competitor: the market leader.

f) Market share is only one aspect of overall competitive position.