What is the BCG Growth-Share Matrix? What are the most important aspects of BCG Growth-Share Matrix? In addition to developing BCG Growth-Share Matrix of a company? Where to find information for the BCG Growth-Share Matrix?
INTRODUCTION
No strategic management or marketing text appears to be complete without the inclusion of the Boston Consulting Group (BCG) growth-share matrix. If used effectively, this model provides a guide for resource allocation. And despite its inherentWeaknesses, is probably one of the most used for the request of the administration and portfolio management. The demand for instant, each SBU (Strategic Business Unit) for large companies like General Electric, Siemens, Centrica and different strategies to compete effectively and efficiently. It's not a matter of strategy for all SBUs since the probability for each of them experience the same rate of market growth industry threats and leverage is very slim. Here is the BCGModel comes into play as a tool for management analysis. Subsequent studies the fundamentals of the model, for what it is used, and how to use it because it is used.
WHAT IS THE BCG GROWTH-SHARE MATRIX?
First, BCG is respected, an acronym for Boston Consulting Group, a consulting firm advising high overall management strategy. BCG growth-Share Matrix (see Figure 1) is made with a lot of strategic concepts of BCG, the organization at the end of 1970, is under development,and is taught in schools of business leaders and executive education programs around the world.
This is a management tool that four different purposes (McDonald 2003, Kotler 2003; Cipher 2006) is used: it can be used for product portfolio in four types of business graphics as four labels Stars, Cash Cows, Question Marks and Dogs classified, it can be said that the priority should be given in the product portfolio of a company, product organization to classifyPortfolio depending on their use and cash generation, and offers management strategies for different product lines available to respond. Consider companies like Apple Computer, General Electric, Unilever, Siemens, Centrica and many others, participation in diverse product lines. BCG model is therefore a valuable tool of analysis for an organization's diverse product lines and vote as later seen in the following sections.
WHAT THE GROWTH main aspects of the BCG matrix market share?
Relative market share and market growth: Growth-Share Matrix BCG is based on two sizes. They are often indicators for the health of a company (Kotler, 2003, McDonald 2003). In other words, are produced with a higher market share or in a fast-growing market will lead to higher profit margins expected. This also applies vice versa. Look at the following model components:
Figure 1: Source: 12manage.com 2006
Relative market share
Afterproponents of the BCG (Herndemson 1972), captures the relative market share of a business unit or product. But that's not all! It allows the business units of analysis against its rivals will be played. As stated earlier, this is due to some correlation between market share and cash generating products. This phenomenon is often compared to the paradigm of the experience curve, that when an organization with fewer costs, more efficient operationsOvertime operations. The principle of this requirement is that the more an organization plays a role often tends to open new horizons in the performance of these tasks better, to develop in lower operating costs (Cipher 2006) results. What this suggests that the experience curve effect states that the market share will be increased in order to be able to reduce costs in the long term and, at the same time, a company with a dominant market share is inevitably an advantage cost compared to competitorsbecause the largest market share. Thus, its market share is correlated with the experience.
An example is the flagship product from Apple called iPod that plays a dominant share of 73% of the portable music player (Cantrell 2006). Analysts believe that the impetus for economic rebirth of Apple's revenue is 40% of Apple's iPod product line (Cantrell 2006) attributed. Similarly, shares of Dell's PC line of iPods that domain theory. The PCGiant production, is in a global market share of 18.1%, which according to its main market of its competitors (see Figure 2).
Figure 2: Source: Reuters 2006
Growing market
Market growth axis is correlated with the paradigm of the life cycle of the product, and predicates of the cash requirements of a product must be in relation to the growth of this market. A rapidly growing market is generally considered interesting and attracts a lot of resources of the organization, in an attempt to increaseProfits. An example is to look at the technology market to a large extent by the experts as a fast growing market, and tends to attract a lot of competition. Therefore play a life cycle of the product and the market associated with a central role in decision-making.
Cash Cows
These products have high profitability, and require an investment just for the fact that they are market-leading low-growth market. This view is captured by the founders themselves thus:
The fund their cash cowsgrowth. It is the company paying the dividends. You pay the business overhead. You pay the interest of the company. They provide funds for R & D. They provide the resource for other investment products. Justify the borrowing capacity for the entire company. Protect them (Henderson 1976).
According to experts (Drummond & Ensor 2004, Kotler 2003, McDonald 2003), should excess liquidity from the cash-cow products are channeled to create the future cash Stars and questionsCows.
Stars
The stars are a leader in fast-growing markets. They tend to / should generate large amounts of money, but also a lot of money because of market conditions on the rise. For example, Apple Computer has a large share in the rapidly growing market for portable digital music (Cantrell 2006).
Question Marks
Question Marks have achieved a dominant position, and therefore does not generate much money. They tend to be a lot of money because of the growing market to take advantage of conditions.Consider Hewlett-Packard's small share of the digital camera market, behind industry leader, 21% Canon (Canon 2006). However, this is a rapidly growing market.
Dogs
Dogs often have little future and the money drains on society, there is very little money, to generate because of their small market share in a market with very low growth.
Consider Pfizer's Inspra (Gibson 2006):
"The launch of this drug by Pfizer in the 4 th quarter of 2003 and continue to pump money into this child's problem, despiteanemic sales of approximately $ 40 million to $ 2.7 billion market in heart failure Toprol-XL (metoprolol) dominates. It 'was designed to gain market share and become a star, and eventually a cash cow if market growth slows. But according to industry experts Inspra will likely remain a dog, even if a lot of support for its perceived safety issues and spironolactone cheapest and most efficient in the same portfolio Pfizer. Because Pfizer invested heavily in promoting an early ageInspra is the profitability of the drug and the positive cash flow difficult at best. A portfolio-analysis of cardiovascular franchise, Pfizer might suggest a Inspra spend on advertising other up-and-coming stars like Caduet (amlodipine / atorvastatin) or torcetrapib, to ensure these drugs to their earning potential. "
How to develop a good BCG GROWTH-SHARE MATRIX of a company?
SBUs or products along the lines of circles and fall into one of the four cells of the matrix showndescribed above. Mathematically, the center axis on the scale of the low-high is 1.0 (; Kotler 2003 Drummond & Ensor 2004) represented. At this point corresponds to the SBU's market share or market share the product of its largest competitor (Drummond & Ensor 2004, Kotler 2003). Next, calculate the relative market share and market growth for each SBU and product. Figure 3 shows the formulas to calculate the relative market share and market growth.
Fig3
Often, if you have a specific sector and companies that you know, you can create a BCG matrix for each company, without the need for the data processing market share and market growth. Figure 4 shows a fairly accurate BCG Growth-Share Matrix for Apple Computer in the spring of 2005, developed without the author's calculations of market share and market growth.
Figure 4 Source: Asong (2005)
Once the products have been applied or SBU,The designer must then decide on the strategy objective, and the budget lines of business. In practice, at this point that organizations should strive to maintain a balanced portfolio. Cash generated from cash cows should be assigned to Stars and the question mark in an attempt to create future cash cows. In addition, there are four major strategies to be pursued at this time, can be described in the following section.
Strategies available to pursue
Build
The product or SBU, market sharemust be increased in order to strengthen its position. In the short term income and profits have fallen by the way, it is hoped that long-term profits will be higher than this. This strategy is suitable question marks when they are also the stars.
Keep
The goal is to share the current position and this strategy is often used for cash cows, in order to generate large amounts of money to keep it going.
Vintage
Here, the management attempts to increase short-term cash flowas possible (for example, price increases, cost reduction) even at the cost of the products or SBU, the long-term future. And 'suitable for a strategy, or weak cows to be milked cows in cash, in a market with a limited future. The collection is also used to question marks where there is no way to turn them into stars, and for dogs.
Dispose of
The purpose of this strategy is the organization of the products or SBU that a charge to earnings for the free and use these resourcesin other sectors of the economy where they may be more beneficial. This strategy is usually to question marks, stars and is not used for dogs.
WHERE TO FIND INFORMATION FOR THE GROWTH-BCG matrix market share?
Information for Growth-Share Matrix BCG is from multiple sources, including annual reports the company generates, and a variety of fillings sec specialized research institutes, such as IDC, Hoover, Edgar, Forrester and many others. Armed with this information, the development of aShare Matrix BCG growth should make it less of a problem.
Limitations
BCG is the model for a number of limitations (Kotler 2003, McDonald 2003) has criticized:
o There are other reasons other than a relative market share and market growth that the allocation of resources that may be to influence a product or SBU: reasons, such as the need for a strong brand and product positioning could allocate resources to force an SBU or product (Drummond and Ensor 2004).
or what is more,The model is based on net cash consumption or production as criteria for the balance of the portfolio. This is only appropriate in a capital constrained environment. In modern economies, with capital flows relatively free of friction, this is not the appropriate metrics - and not risk-adjusted discounted cash flows to be used (many worlds, 2005).
or addition, the array of products / business units separately and independently of assets outside the company. InIn other words, there is no provision for the synergy between the products / business units. This is rarely realistic.
o The relationship between cash flow and market share is too weak due to a number of factors, including (Cipher 2006): competitors can have access to cheap materials, regardless of their position relative share, at low altitude producers' market on a very steep learning curve with its superior production technology and other strategic factors can affect market share gainsMargins.
o In addition, the growth-share matrix on the assumption that high growth rates brings the use of funds of great size and maturity of the life cycle of the gain expected return is based. This may not be correct for several reasons (Cipher 2006): capital intensity may be low and the business / product could be grown without large cash outlays, high barriers to entry may then there are margins to be sustainable and large enough to produce a positive cash flow and growth at the sameOvercapacity time, and industry price competition may push prices at the end.
o In addition, market growth is not the only factor or necessarily the most important factor in assessing the attractiveness of a market. A rapidly growing market is not necessarily attractive. Growth markets attract new players and if capacity exceeds demand then the market with a low profit margin and thus become unattractive. A high-growth market may lack the size and stability.
Since the 'mentioned weaknesses, BCG Growth-Share Matrix can be used with caution, but it is a well known business model portfolio evaluation (Kotler 2003).
If you found this article useful please take a look at the other articles we have written: PEST analysis, Porter's 5 forces analysis, Ansoff, SWOT, Porter's Generic Strategies, Scenario Planning, analysis of the value chain.
REFERENCE
12Management (2006). BCG matrix. www.12management.com [accessed September23, 2006]
Asong, B. (2005). Case Study: Apple Computer Market Assessment and strategy of product launch. CLC-PHW: London, p. 17-40.
BCG (2006). Growth-Share Matrix. www.bcg.com [consulted 20 September 2006]
Canon (2006). Research InfoSource provides Canon No. 1 in the United Kingdom and Ireland. [Accessed: 28 September 2006]
Cantrell, A. (2006). Extraordinary comeback story of Apple. [Accessed: 28 September 2006]
Drummond, G. & Ensor, J. (2004). Strategic Marketing: PlanningAnd control. 2nd ed. Butterworth-Heinemann, MA, p. 96-100.
Henderson, B. (1976). Anatomy of the Cash Cow. Accessed: September 21, 2006]
Lane, S. (2006). Total Mac OS usage market share declining? [Accessed: 28 September 2006] http://www.appleinsider.com/article.php?id=2059
Many Worlds (2005). Models and concepts [Accessed: 24 September 2006].
McDonald, M. (2003). Marketing plans: how to prepare, how to use them. MA: Butterworth-Heinemann, p. 175-245.
Tools of the mind (2006). The Boston Matrix. www.mindtools.com/pages/article/newTED_97.htm [Accessed: 28 September 2006]
REFERENCES
Cooper, RG, Edgett, SJ, and Kleinschmidt, EJ (2006). Portfolio Management. Working Paper No. 12: The Product Development Institute.
Lee, CK (2004). Asia Zirconium Limited Evaluation Report. Prudential Tower: Standard & Poors.
Vriens, D (2004). The role of Information and Communication Technology in Competitive Intelligence. IdeaGroup Inc: University of Nijmegen.
Zolkiewski, J. & Turnbull, P. (Undated). Report portfolio-Past, Present and Future.
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