# BCG Analysis

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```					 Strategic
Management

BCG matrix
(c) Strategy Content, Process, and
Roles
Analytical Framework for Strategy
Formulation
Analytical Framework for Strategy Formulation

Stage 1:
Input Stage

Stage 2:                                      Stage 3:
Matching Stage                                Decision Stage

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Analytical Framework for Strategy Formulation

Internal Factor Evaluation
Matrix (IFEM)

Stage 1:                          External Factor Evaluation
Input Stage                               Matrix (EFEM)

Competitive Profile Matrix
(CPM)

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Analytical Framework for Strategy Formulation
SWOT Matrix

SPACE Matrix

Stage 2:                                     BCG Matrix
Matching Stage

IE Matrix

Grand Strategy Matrix

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BCG Matrix
The process
BCG Model
Product of Boston Consultancy Group (Bruce
Henderson 1972)
Classify Firm’s products according to:
 Market Growth (= Industry
Attractiveness) High/Low
 Relative Market Share (= Competitive

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BCG Model
2 x 2 Growth-Share Matrix
Basic idea: If a product (SBU) has a bigger
market share, or if its market grows faster,
it is better for the Firm.

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Growth-Share Formulae

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Process
For each SBU, compute relative Market Share (MS) and
market Growth Rate (GR)
Plot MS on x-axis. Generally, midpoint is 0.5
Plot GR on y-axis. Generally, midpoint is 0.0 because
GR can vary from minus to plus
However, different midpoints are possible
X,Y point for each SBU is shown by a circle
Size of circle = SBU’s share of Firm’s revenues
Pie slice in circle = SBU’s share of Firm’s profits

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Rationale
1. Relative Market Share  = Cash generation 
2. Market Growth  = Need to increase capacity  =
Investment in assets  = Cash consumption 
Thus, growth-share matrix identifies SBU’s / products
with high or low cash generation & high or low cash
consumption.

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Growth-Share Matrix

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The Four Categories
1. Cash Cow
2. Star
3. Question Mark
4. Dog

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1. Cash Cow (LGR-HMS)
\$         Generates more cash. Consumes less
\$         Most valuable to the Company
\$         Funds R&D, services debt, and
\$         Helps convert Question Mark to Star.

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2. Star (HGR-HMS)
         Leader in high growth markets
         Generate a lot of cash
         But, also use a lot of cash because of high growth market
conditions
         Becomes cash cow when market growth rate stabilizes /
declines.

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3. Question Mark (HGR-LMS)
         Generates less cash. Consumes more
         Also called ‘Problem Child’
         Can enhance market share  Star
         Subsequently,  even a Cash Cow
         Or, a permanent drag on cash
         Strategy: Either invest heavily or sell off.

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4. Dog (LGR-LMS)
         Does not generate large cash
         Does not consume large cash
         Resources tied up in low potential SBU
         Strategy: Minimize number of Dogs, avoid costly rescue
plans, divest fast.

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BCG Model: Strategies

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Strategy Options
Build: Invest & strengthen (Star, Question Mark with
a bright future)
Harvest: Grab short-term cash flow (for Cash Cows
with limit-to-growth or near-expiry-date)
Divest: For Dogs & weak Question Marks.

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An Example
Multi-product, multi-market company
         Invest heavily in Cellphone SBU. Merge i-pod division
         Maintain Washing Machine SBU
         Divest Stereo System SBU even at cost
         Drop Bangladesh & Sri Lanka markets
         Sell off Kitchen Appliances SBU soonest.

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 views: 52 posted: 7/28/2012 language: English pages: 21
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