BCG Matrix

BCG(Boston consulting group)matrix is the well-known framework, used for portfolio management by the business. This could be asked in the exam scenario based question where business has number of investments.

1. STAR (high growth rate/high market share)
   
   1. High growth rate requires high levels of investments to cope with competitors in the markets. This can cause significant cash outflows from the business. High market share should provide cash for these investments. Cash generated from operations is to be re-invested into the business.
      
   2. Main challenge for the business is to maintain or even increase its market share to generate cash for growing needs of the business.
      
   3. Eventually, at the maturity of the market star will be turned into cash cow generating cash that could be invested elsewhere.
      
   4. Is the future of the organization.
      
   5. Product development and innovation is the key to success as new competitor are emerging in the market. This will keep the business ahead of others.
      
   6. Cash generated from cash cows can be utilized on star.
      

      
       

2. CASH COW (low growth rate/ high market share)
   
   1. This is the main cash generating unit for the business.
      
   2. There is very difficult to sustain growth rate because of market is at the maturity stage.
      
   3. Business should focus on maintaining its market share.
      
   4. Growth is only possible through increase market share probably at the expense of others.
      
   5. Competition is robust at this stage; marketing is primarily activity at this stage.
      
   6. Innovation would not help at this stage because new development can quickly be copied by competitors.
      

      
       

3. QUESTION MARK(high growth rate/low market share)
   
   1. This is the part of portfolio demanding cash for his growing needs but does not generated cash because of low market share.
      
   2. It has potential to become star if market share is increased otherwise as the time passes it will became dog rather than becoming cash cow.
      
   3. Marketing and innovation both are useful tools at this stage.
      
   4. It requires greater management time and resources to prevent the investment being eroded.
      
   5. Either heavy investments should be made or it should be sold but this option only transfers problem to the buyers, it does not solve the problem.
      
   6. Strategic alliance with other competitor facing the same problem or acquisition by successful competitor may help resolve the issue.
      

      
       

4. DOG (low growth rate/ low market share)
   
   1. It does not provide any growth to business either way.
      
   2. It may still generate some cash for the business so it is wise to retain it in absence of other investment proposal, if not, it should be disposed to realize cash.
      
   3. Strategies decided to re-position it to cash cow should be carefully considered otherwise it will waste money which could be used on star.
      
   4. Market share can be obtained by selling standard products at relatively low price as an incentive to buy the product. Cost-efficiency is key to success. Perhaps by targeting people of a lower – middle class.
      

LIMITATIONS OF BCG MATRIX.

1. It does not consider profit margin.
   
2. It does not take account of any ethical reason for holding an investment e.g. creation of an employment in the region.
   
3. It does not identify any criteria for deciding acceptable growth rate and market share.
   
4. There may be any other strategic reason for holding investment e.g. cross-selling benefits, strengthening up-side or downside supply chain.