BCG Analysis

Document Sample
BCG Analysis Powered By Docstoc

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

                                Stage 1:
                              Input Stage

   Stage 2:                                      Stage 3:
Matching Stage                                Decision Stage

   December'08     Strategic Mangement                         4
         Analytical Framework for Strategy Formulation

                                          Internal Factor Evaluation
                                                Matrix (IFEM)

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

                                          Competitive Profile Matrix

December'08      Strategic Mangement                       5
         Analytical Framework for Strategy Formulation
                                                 SWOT Matrix

                                                 SPACE Matrix

     Stage 2:                                     BCG Matrix
  Matching Stage

                                                    IE Matrix

                                            Grand Strategy Matrix

December'08      Strategic Mangement                            6
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
             Advantage) High / Low

8   Strategic Mangement                                    December'08
    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.

9   Strategic Mangement                              December'08
     Growth-Share Formulae

10   Strategic Mangement     December'08
     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

11   Strategic Mangement                                 December'08
     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

12   Strategic Mangement                                       December'08
Growth-Share Matrix

    December'08   Strategic Mangement   13
     The Four Categories
                           1. Cash Cow
                           2. Star
                           3. Question Mark
                           4. Dog

14   Strategic Mangement                      December'08
     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.

15   Strategic Mangement                              December'08
     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
              Becomes cash cow when market growth rate stabilizes /

16   Strategic Mangement                                            December'08
     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.

17   Strategic Mangement                                      December'08
     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.

18   Strategic Mangement                                          December'08
     BCG Model: Strategies

19   Strategic Mangement     December'08
     Strategy Options
               Build: Invest & strengthen (Star, Question Mark with
               a bright future)
               Hold: Maintain business (Cash Cow)
               Harvest: Grab short-term cash flow (for Cash Cows
               with limit-to-growth or near-expiry-date)
               Divest: For Dogs & weak Question Marks.

20   Strategic Mangement                                      December'08
     An Example
     Multi-product, multi-market company
              Harvest the CTV business
              Invest heavily in Cellphone SBU. Merge i-pod division
               with it. Buy competitors.
              Maintain Washing Machine SBU
              Divest Stereo System SBU even at cost
              Drop Bangladesh & Sri Lanka markets
              Sell off Kitchen Appliances SBU soonest.

21   Strategic Mangement                                           December'08

Shared By:
Description: notes