BCG Matrix-Theory & Practice

8/13/2019 BCG Matrix-Theory & Practice

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BCG Matrix

A Business Portfolio Tool


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What is Business Portfolio?


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Methods of Portfolio Planning

The two best-known portfolio planning methods

are from the Boston Consulting Group and by

General Electric/Shell:

BCG Matrix

GE Matrix


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BCG MatrixAn Introduction

The BCG matrix model was developed by

Bruce Henderson of the Boston Consulting

Group in the early 1970's.

The BCG matrix/ BCG model is the mostrenowned corporate portfolio analysis tool.


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What is BCG Model?


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The first step in BCG Matrix is to identify the

various Strategic Business Units ("SBU's") in a

company portfolio. According to this technique, businesses or

products are classified as low or high

performers depending upon their marketgrowth rate and relative market share.

Relative market share - this serves as a measure of

SBU strength in the market

Market growth rate - this provides a measure of

market attractiveness


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WHY BCG MATRIX?

To assess:

Profiles of products/businesses

The cash demands of products The development cycles of products

Resource allocation and divestment

decisions


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It is a portfolio planning model which is based

on the observation that a companys business

units can be classified in to four categories: STARS

QUESTION MARKS

CASH COWS DOGS


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BCG Matrix


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THE BCG MATRIX COMPONENTS

Stars High market share and High growthrate (high competition)

Cash Cows High market share but low

growth rate (most profitable) Question marks Low market share and high

growth rate (uncertainty)

Dogs Low market share and low growth rate(less profitable or may even be negative

profitability)


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STARS

HIGH GROWTH, HIGH MARKET SHARE

Stars are leaders in business.

They require heavy investment to maintain its large

market share.

It leads to a large amount of cash consumption and

cash generation. Attempts should be made to hold the market share

otherwise the star will become a cash cow.


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CASH COWS

LOW GROWTH, HIGH MARKET SHARE

They are foundation of the company and

often the stars of yesterday.

They generate more cash than required.

They extract the profits by investing as little

cash as possible.

They are located in an industry that is mature,

not growing or declining.


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QUESTION MARKS

HIGH GROWTH , LOW MARKET SHARE

Most businesses start of as question marks.

They will absorb great amounts of cash if the

market share remains unchanged

Question marks have potential to become starand eventually cash cow but can also become

a dog. Investments should be high for question

marks.


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DOGS

LOW GROWTH, LOW MARKET SHARE

Dogs are the cash traps.

Dogs do not have potential to bring in muchcash.

Business is situated at a declining stage.


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Strategies based on the BCG MatrixThere are four strategies possible for any product / SBU under the BCG

analysis. These are:

1) Build By increasing investment, the product is given an impetus suchthat the product increases its market share. Make further investments(for example, to maintain Star status, or to turn a Question Mark into aStar).

2) Hold The company cannot invest. Maintain the status quo (donothing). The company invests just enough to keep the SBU in itspresent position. Example Holding a star there itself as higherinvestment to move a star into cash cow is currently not possible.

3) Harvest Best observed in the Cash cow scenario, wherein thecompany reduces the amount of investment and tries to take out

maximum cash flow from the said product which increases the overallprofitability.

4) Divest Best observed in case of Dog quadrant products which aregenerally divested to release the amount of money already stuck in thebusiness.


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ADVANTAGES OF BCG-MATRIX

It is simple and easy to understand.

It helps to quickly and simply screen the open

opportunities, and helps in thinking as to how

one can make the most of them.

It is used to identify how corporate cash

resources can best be used to maximize a

companysfuture growth and profitability.


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LIMITATIONS OF BCG-MATRIX

It uses only two dimensions i.e., Relative

market share and market growth rate.

Problems of getting data on market share and

market growth.

High market share does not mean profits all

the time.

Business with low market share can be

profitable too.


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Success Sequence in BCG Matrix


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Disaster sequence in BCG Matrix


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Example: COCA COLA Coca-cola Company returned to India in 1993 after a gap of 16 years after

nourishing the global community with the worldslargest selling soft drinksince 1886.

HCCB (Hindustan Coca Cola Beverages Ltd.) serves in India some of themost recalled brands across the world including names such as Coca-cola,Sprite, Fanta, Thumbs up, Limca, Maaza and Kinley (packaged drinkingwater), Minute maid pulpy orange, etc.

The business system of the company in India directly employsapproximately 6,000 people, and indirectly creates employment for manymore. Coca-Cola India has increased its market share from 57 percent inthe carbonated soft drink (CDs)category in 2005 to 61 percent at the endof December 2006.

Coca Cola was the first in the country to launch cans, plastic cap leak proof

bottles and full length delivery crates. Ranking: They own 4 of the worlds top 5 non-alcoholic sparkling

beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta.

Company Associates: 90,500 worldwide (December 31, 2007)

Operational Reach: 200+ countries

Consumer Servings (per day): 1.5 billion.


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Mission: Our Roadmap starts with our mission, which is enduring. It declaresour purpose as a company and serves as the standard against which weweigh our actions and decisions.

To refresh the world..

To inspire moments of optimism and happiness To create value and make a difference

Vision: Our vision serves as the framework for our Roadmap and guidesevery aspect of our business by describing what we need to accomplish in

order to continue achieving sustainable, quality growth. People: Be a great place to work where people are inspired to be the best

they can be

Portfolio: Bring to the world a portfolio of quality beverage brands thatanticipate and satisfy peoples desires and needs

Partners: Nurture a winning network of customers and suppliers, together

we create mutual, enduring value Planet: Be a responsible citizen that makes a difference by helping build

and support sustainable communities

Profit: Maximize long-term return to share owners while being mindful ofour overall responsibilities

Productivity: Be a highly effective, lean and fast-moving organization


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PRODUCT LINE OF COCA-COLA IN INDIA


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SWOT Analysis of Coca Cola


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Strength

Strong leading brands with high level of consumeracceptance this allows the company to extend itsproducts to attract new customers

Large scale of operations Coca-Cola products arealready sold in 200 countries.

Leading market position the brand has a largemarket about 5% ahead of its maincompetitor PepsiCo.

Strong cash flows from operations- the brand is ableto create over $ 50million a day.


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Weakness

Impact of Financial market volatility which in

turn affects the liquidity position of the

company. Slow decision making can give competitive

advantage to the competitors such as

PepsiCo may be the first to introducea product.


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Opportunities

Global growth in non-alcoholic ready-to-drinkbeverage industry- this trend is set to generate

retail sale in the industry to more than

$1trillion by 2020. Growing global bottle water market

Booming global functional drinks market e.g.

energy drink. Target the ageing customers and the young

and more environmental concern people


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Threat

Economic climatecountries from all over theworld have felt the impacts of the currentrecession. This may be a problem for Coke,which derives approximately 75% of its sales

from outside North America. Health and wellness has created a concern for

carbonated products specially in the USA andEurope.

Overdependence on bottling partners Intense competition either local or global

market.


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BCG-MATRIX FOR THE PRODUCT LINE

OF COCA-COLASTARS - HIGH GROWTH, HIGH MARKET SHARE

Thumbs up, Maaza, Kinley

CASH COWS - LOW GROWTH, HIGH MARKET SHARE

Limca, Coca Cola

QUESTION MARKS - HIGH GROWTH , LOW MARKET SHARE

Fanta, sprite

DOGS - LOW GROWTH, LOW MARKET SHARE

Diet Coke, Minute maid


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Depiction of BCG Matrix in a PLC

.


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From the diagram we can conclude that:-

INTRODUCTION STAGE:- FANTA & SPRITE are at the introduction stage , as both are much new in

the market as compared to thumbs up and limca.

GROWTH STAGE:-

THUMBS UP, KINLEY & MAZAA are at the growth stage having high growth

and low market share.

MATURITY STAGE:

LIMCA, COCA-COLA are at the maturity stage having low growth but highmarket share.

DECLINE STAGE:-

DIET COKE, MINUTE MADE PULPY ORANGE & KINLEY SODA are at thedecline stage, proving to be non profitable products having low growthand low market share.


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Conclusion

LIFE CYCLE: To be able to market its product properly, a firmmust be aware of the product life cycle of its product. Thestandard product life cycle tends to have five phases:Development, Introduction, Growth, Maturity and Decline.

Star Strategy: Invest profits for future growth and for earning

more of market share and profits. Cash Cow Strategy: Use profits to finance new products and

growth elsewhere.

Question Mark Strategy: Either invest heavily in order to pushthe products to star status, or divest in order to avoid it

becoming a Dog. Dog Strategy: Either invest to earn market share or consider

disinvesting.Thus the BCG matrix is the best way for a business portfolio analysis. The

strategies recommended after BCG analysis help the firm decide on theright line of action and help them implement the same.


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Thank you

Any Questions pls?

Disclaimer Clause: Views expressed in this presentation

views of the author do not necessary reflect those of the

Institute.

Documents

BCG Matrix-Theory & Practice