Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBU’s (Strategic Business Units). 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.
Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2. 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates.
4.2 Boston Consulting Group (BCG) Matrix. The growth–share matrix (BCG-matrix, Boston matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that was created by Bruce D. Henderson for the Boston Consulting Group in 1970 to help corporations to analyze their business units. Is a business model. One of the tool is BCG Matrix. According to BCG matrix; Question mark are those segments which, operate in high sales growth industry and have low relative market share. DZIENNIK USTAW Z 2006R.NR 137 POZ.984 PDF. These are low growth or low market share products and have very few chances of showing any growth. Oct 25, 2018 BCG matrix helps in categorizing the products or the business units among four quadrants, which are; stars, cash cows, dogs and question marks. The analysis is done by considering two main aspects, which are, market growth and market share. The businesses are analyzed in this manner for the companies to make effective decisions (Hanlon, 2018). The BCG matrix of Reliance Industries Limited is as follows; Cash Cows.
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.
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 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is set at the growth rate for the economy.
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.
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- 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. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.
- 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. These SBU’s are the corporation’s key source of cash, and are specifically the core business. They are the base of an organization. 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.
- 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. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. 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.
- 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.
- Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability.
- At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes.
- This four-celled approach is considered as to be too simplistic.
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BCG Matrix of ITC
BCG Matrix also known as the growth-share matrix is used by organizations to classify their business units or products into 4 different categories: Dogs, Stars, Cash Cows and Question Mark.
Growth rate of an industry and the market share of a respective business relative to the largest competitor present in the industry are taken as the basis for the classifications, for that reason, BCG Matrix is also called as Growth-Share Matrix.
Dogs
These are the products with low growth or market share
Bcg Matrix Of Reliance Pdf Download
These are low growth or low market share products and have very few chances of showing any growth.
The investment strategy for these products has to be very well thought through by the management as there are chances that these businesses might not yield any profit for the organization.
These business units or products are cash traps and therefore are not seen as a useful source of earning.
Cash Cows
These are the products which are in low growth markets with high market share.
Products which are market leaders in their specific industry and their industry is not expected to see any major growth in the future are considered as Cash Cows.
These products are the money churners for the company and require very low investments to sustain their leadership and profitability in the market.
Star
These are the products which are in high growth markets with a high market share.
Products or Business Units which hold a high market share and are also considered to grow in the future are positioned as Stars.
As a result, companies are interested to invest in developing these units further to gain a larger market share and attain a stronger position in the market.
These products have the potential of being positioned as cash cows in the future owing to the industry growth prospects.
Question Mark
Products in high growth markets with a low market share.
Products or business units of the company that are still in the nascent stage of their product lifecycle and can either become a revenue generator by taking the position of a Star or can become a loss-making machine for the company in the future.
The industry has high potential to grow hence giving the room to the products to grow as well only if the pertinent issues are managed effectively.
Let’s check out the BCG Matrix of ITC and what products of the company fall under what Quadrant.
Cash Cows:
Cashcows are the products that have a high market share in a market that has low growth. For ITC, there is one product that has undoubtedly been the Cash Cow and its FMCG Cigarettes.
Bcg Matrix Of Reliance Pdf Free
Having a market share of 80-85 %, ITC Cigarettes holds a very strong hold in the market.
The product requires very less investment to maintain its market share and fight off any competition.
stars:
High market share product in high growth industry are considered Stars of the organization.
ITC’s paperboard and packaging business, Agribusiness and Hotels are the Stars of the organization.
Question Mark:
There are products that formulate a part of the industry that is still in the phase of development, yet the organization has not been able to create a significant position in that industry. The small market share obtained by the organization makes the future outlook for the product uncertain, therefore investing in such domains is seen as a high-risk decision.
With stiff competition and the growing demand for ayurvedic products has prompted ITC to go back to the drawing board, invest in R&D and look out for improvements in their products
ITC’s FMCG business, Personal Care business, are placed in the Question Mark quadrant of the BCG Matrix of ITC.
Decreasing market share due to new entrants to the market and the introduction of new ayurvedic products and their growing demand are the main reasons that these business units have become Question Marks.
DOGS:
Dogs are those products that were perceived to have the potential to grow but however failed to create magic due to the slow market growth.
Failure to deliver the expected results makes the product a source of loss for the organization, propelling the management to withdraw future investment in the venture. Since the product is not expected to bring in any significant capital, future investment is seen as a wastage of company resources, which could be invested in a Question mark or Star category instead.
ITC Infotech a specialized global full service IT consulting & outsourcing solutions provider focused on creating value for Supply Chain based Industries etc.
Heavy competition from the likes of Infosys, TCS, Accenture, HCL etc have led to a decrease in the market share of ITC Infotech and made it tough for the organization to survive in such tough market scenario.
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