The boston matrix

Summary of the GE Matrix.

The boston matrix

It is the most renowned corporate portfolio analysis tool. In other words, it is a comparative analysis of business potential and the evaluation of environment. According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.

The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership.

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BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate.

The mid-point of relative market share is set at 1. Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs.

Each of these cells represents a particular type of business. BCG Matrix Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest.

If successful, a star will become a cash cow when the industry matures.

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Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units.

They are the base of an organization.

The boston matrix

These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable.

Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted.

Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars.

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Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages.

These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share.

Number of dogs should be avoided and minimized in an organization. Limitations of BCG Matrix The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance.

But BCG Matrix is not free from limitations, such as- BCG matrix classifies businesses as low and high, but generally businesses can be medium also.

Thus, the true nature of business may not be reflected.

Growth–share matrix - Wikipedia

Market is not clearly defined in this model. High market share does not always leads to high profits. There are high costs also involved with high market share.Marketing Theories – Boston Consulting Group Matrix.

Visit our Marketing Theories Page to see more of our marketing buzzword busting blogs.. If you are working with a product portfolio you have a range of tools at your disposal to determine how each one or a group of the products are doing.

The Boston Consulting group’s product portfolio matrix (BCG) is designed to help with long-term strategic planning. We give BCG matrix examples to help you. Strategic Management > BCG Matrix. The BCG Growth-Share Matrix.

The boston matrix

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BCG Matrix - Meaning and its Limitations