BCG-Matrix

BCG-Matrix Abstract
With BCG matrix strategic business segments are assessed by two dimensions:
Relative market share (strength in competition) Market growth rate (market attractiveness)

The BCG matrix is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Diagram
+ 20%

Market growth rate

Star
+/- 0%

Question Mark

Cash Cow
- 20% 2 1 Relative market share

Dog

0,1

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Relative market share

Relation between own share of the market and that of the biggest competitor. Indicator for the competitive strength. If the relative share of the market is greater than 1, the considered business segment is market leader is in its segment. As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it is assumed that earnings will grow faster the higher share.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Market growth rate

Description of market attractiveness Typically the market growth rate is shown from -20% to +20% to illustrate different market circumstances. Rapidly growing in rapidly growing markets, are what organizations strive for. The theory behind the matrix assumes that a higher growth rate is indicative of accompanying demands on investment.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Cash Cow

Shrinking or only slow-growing market. Typically these business units still generate a lot of turnover with high profitability. Cash is generated in excess of the amount of cash needed to maintain the business. Regarded as staid and boring, in a "mature" market Every corporation would be thrilled to own as many as possible.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Star

Stars are units with a high market share in a fast-growing industry. Investments are necessary to hold or extend the market share. Strategic options are:
Forwards or backwards integration Market development Product development Joint ventures

The hope is that stars become the next cash cows. When growth slows, stars become cash cows if they have been able to maintain their leadership, or they move from dog.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Dog

Dogs are units with low market share in a mature, slow-growing or even shrinking industry. Barely enough cash is generated to maintain the business's market share. Dogs usually should be reduced, sold off or even liquidated. Synergies with other business units have to be considered

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Explanation / Question Mark

Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash. Because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.

BCG-Matrix_v1

Dr. Harald Fien

BCG-Matrix Lessons Learned

What is a BCG-matrix? Outline the diagram of a BCG-matrix. Give the explanation for relative market share of a BCG-matrix Give the explanation for market growth rate of a BCG-matrix Give the explanation for cash cow of a BCG-matrix Give the explanation for star of a BCG-matrix Give the explanation for dog of a BCG-matrix Give the explanation for question mark of a BCG-matrix

BCG-Matrix_v1

Dr. Harald Fien

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