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BCG MATRIX

1960’s – diversification of businesses.

Strategic Business Unit (SBU) Definition Single independent operation of a company Has its own competitors One manager responsible for performance

Allocation of resources over all SBUs

BCG MATRIX

RELATIVE MARKET SHARE

Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry.

GROWTH RATE

Industry growth rate in constant dollars

Question Marks - Build Market Share

Star - Hold Market Share

Cash Cows - Harvest

Dogs Divest

1. FOR STARS (= high growth, high market share)

  • 1. Investment

  • A. Further Growth

    • B. Maintain Market Position

  • 2. Cash flow

  • A. Self-sustaining: Fund their own growth

    • B. Require funds from other SBUs (Cash Cows)

  • 3. Assure the future of the company

  • 4. Grow into Cash Cows

2. FOR QUESTION MARKS (= high growth, low market

share)

  • 1. Investment

  • A. Increase market share

    • B. Selectively develop into Stars

  • 2. Cash Flow

    • A. Require funds from other SBUs (Cash Cows)

3. FOR CASH COWS (=low growth, high market share)

  • 1. Investment

  • 1. Maintain market share

  • 2. Maintain capacity

  • 2. Cash Flow

  • 1. Positive cash flow

  • 2. Provides funding to support Stars and “?”

  • 3. No potential for profit growth

4. FOR DOGS (=low growth, low market share)

  • 1. Investment

  • 1. Divestiture strategy

  • 2. Reduce capacity to free up resources

  • 2. Cash Flow

    • 1. Goal of Positive Cash Flow

    • 2. Negative Cash Flow = Divestment

BENEFITS of BCG MATRIX

It is simple and easy to understand.

It helps you to quickly and simply screen the opportunities

open to you, and helps you think about how you can make the most of them.

It is used to identify how corporate cash resources can best

be used to maximize a company’s future growth and

profitability. It helps to assess :

Profiles of products/businesses

The cash demands of products

The development cycles of products

Resource allocation and divestment decisions

PROBLEMS with BCG Approach

Oversimplifies complex decisions Only two factors considered so creates risk Uncertainty in market and SBU definition Only considers current businessesno dynamics

LIMITATIONS of BCG MATRIX

It uses only two dimensions, Relative market share and market growth rate.

Problems of getting data on market share and market growth.

High market share does not mean profits all the time.

Business with low market share can be profitable too.

The BCG Matrix for ITC Ltd.

Stars

?

Hotels Paperboards/ Packaging. Agri business.

FMCG- Others

Cows

Dogs

FMCG-Cigarettes

Maybe ITC Infotech.