Supplementary Note on BCG Matrix

The BCG Growth-Share Matrix ( also known as BCG matrix, BCG analysis, or
Boston Box ) was developed by Bruce Henderson in the early 1970's for Boston
Consulting Group, world known management consulting company. The BCG
Matrix supports businesses in management of different business units or major
product lines based on their relative market share and the growth rate of the
market. The model is useful in brand marketing, strategic management and
portfolio management.

Content of the Matrix

Two matrix variables are placed along the axes:

1. Market growth

Market growth is represented by the vertical axis. The axis is divided into two
segments: more and less than 10 percent growth per year. A market growth above
10 percent is considered high Therefore, this variable symbolizes the attractiveness
of the market.

2. Relative market share

Relative market share is represented by the horizontal axis. It is company's market

share divided by the share of its biggest competitor. Relative market share serves
as a measure of the company's strength in the relevant market segment. The
limiting value is at 1: a value greater than 1 implies that a company has the largest
market share and therefore is the market leader. A relative market share of 0.1
means that the company's sales volume is only 10 percent of the leader's sales
volume; a relative share of 10 means that the company's strategic business unit
(SBU) is the leader and has 10 times the sales of the next-strongest competitor in
that market. The highest value typically is defined on the left, and the lowest on the
right.
Four types of products can be distinguished, depending on the placement of a
product-market combination in one of the four quadrants:

Stars

These are products with a high market share in a strongly growing market. The
cash resources used for and the cash resources required by these products are both
high and therefore in principle are in balance. After some time all growth slows.
This is the reason, why stars become finally Cash Cows if they keep their market
share. If they will not be able to hold the market share, they will become Dogs.
Cash Cow

These are products with a high market share in a market that is not growing very
much. As a result of the strong market position, they produce many cash resources,
and they require few investments because of the limited market growth.

Question Marks

These products (also called Problem Children or Wild Cats) have a small market
share in a rapidly growing market. As the name indicates, they have unsure and
questionable situation and can create problems: they produce little but require a lot
of cash resources. If they are able to strengthen their position, they can become
stars and over time, when market growth decreases, cash cows.

Dogs

These are products with a low market share in a market that is growing very little.
Therefore, they produce little but also require few investments. That means that the
cash resources used for and the cash resources required by these products are both
low and for that reason are in balance. Dogs are worthless cash traps, they do not
bring sufficient profits for a company.

Strategic Recommendations

Based on the BCG analysis, company has to decide what objective, strategy, and
budget should be assigned to each SBU. Several general investment strategies may
be recommended. The following strategies are possible:

1. Growth (Build)

For some Question Marks a company may use a growth strategy financed by Cash
Cows The part of the Cash Cows' revenues would strengthen the positions of
Question Marks that have the potential to become Stars. In that case, a company
increases its market share substantially.

2. Maintain position (Hold)

The strong positions of the Stars and the Cash Cows should be maintained. Also, if
the Dogs have a sound size, they may be an important part of a company's
activities. In that case, a maintenance strategy appears also to be promising.
3. Harvest or milk

The main aim of this strategy is to rise short-term cash flow despite the long-term
consequences. Harvesting implies a decision of getting out of a business by
executing a program of constant cost cutting. Companies use this strategy when
they expect to reduce their cost at faster rate than potential fall in sales. This
strategy is suitable for weak Cash Cows, Question Marks and Dogs. The
recommendation for the Dogs is to milk them and remove them from the market.

4. Liquidation (Terminate, Divest)

If a company runs a weak business, it should consider weather to harvest or divest

its business units. The decision of liquidation gives a company the opportunity to
reinvest its resources in a more prosperous business. This strategy is appropriate
for the Dogs and the rest of the Question Marks, which are not financed by the
Cash Cows.