What is the BCG Growth–Share matrix ?
The BCG Growth–share matrix is a tool that was developed by the Boston Consulting Group in the early 1970s to help companies think about the relative attractiveness of different businesses . The matrix is based on two key dimensions :
- Market growth
- Relative market share
Businesses are generally classified into one of four categories :
- Stars
- Cash cows
- Question marks
- Dogs
Stars are businesses with high market share in a rapidly growing market . Cash cows are businesses with high market share in a slowly growing market . Question marks are businesses with low market share in a rapidly growing market . Dogs are businesses with low market share in a slowly growing market .
The BCG matrix has been used by many companies to help them make decisions about which businesses to invest in and which to divest . The advantages of using the BCG matrix are that it is easy to understand and use, it provides a clear framework for decision-making and it can be applied to companies of all sizes . The limitations of the BCG matrix are that it does not take into account all the factors that may affect a company performance, it assumes that all markets grow at the same rate and it assumes that companies can easily move from one quadrant to another .
What are The Advantages of Using The BCG Growth-share Matrix in Business Planning ?
There are several advantages to using the BCG Growth-share Matrix in business planning . First, it provides a clear and simple framework for identifying and classifying businesses according to their growth potential and relative market share . This can be helpful in making decisions about where to allocate resources within a company .
Second, the matrix can be used to develop growth strategies for individual business units . By understanding the position of each business unit on the matrix, managers can tailor strategies that will maximize growth potential .
Third, the matrix can serve as a early warning system for problem areas in the business portfolio . If a business unit is lagging in terms of growth or market share, this can be flagged early on and corrective action can be taken .
Overall, the BCG Growth-share Matrix is a valuable tool for business planners . While it has some limitations, its advantages far outweigh its drawbacks .
What are The Limitations of Using The BCG Growth-share Matrix in Business Planning ?
There are several potential limitations of using the BCG growth-share matrix in business planning . First, the model is based on a number of assumptions that may not always hold true in the real world . For example, it assumes that all businesses within an industry have equal market share and that each business has only one primary product or service . Besides , It does not take into account the profitability of each business unit .
Second, the BCG growth-share matrix does not take into account important factors such as customer loyalty, brand equity, and competitive advantage . These factors can have a significant impact on a company long-term success and are not captured by the BCG model . Besides , it assumes that all markets are equally attractive and that all businesses have equal potential for growth .
Third, the model relies heavily on historical data to make predictions about future growth . This means that it may not be accurate in rapidly changing or unpredictable industries .
Finally, the BCG growth-share matrix does not consider how resources should be allocated across different business units . This can lead to sub-optimal resource allocation and decision-making .
How to Interpret a BCG Matrix ?
There are a few things to keep in mind when interpreting a BCG matrix . The first is that the market share axis is not based on absolute market share but rather on relative market share . This means that a company can have a high market share but still be considered a dog if its relative market share is low .
The second thing to keep in mind is that the growth rate axis is based on estimated future growth, not past growth . This means that a company with a low current growth rate could still be considered a star if its estimated future growth rate is high .
Finally, it’s important to remember that the quadrants are not mutually exclusive . A company can be in more than one quadrant at the same time . For example, a company with a high market share and high growth potential could be considered both a star and a cash cow .
What are The Potential Uses of the BCG Growth–share Matrix in Business Planning ?
The BCG Growth-share Matrix can be used to help companies make decisions about their business portfolio . For example, a company may decide to sell or divest itself of a dog business . Or, a company may decide to invest more resources in a star business in order to grow its market share .
What are The Alternatives to the BCG Growth–share Matrix ?
There are a few alternatives to the BCG Growth-share matrix that businesses can use when planning . The first is the GE Business Screen, developed by General Electric in the 1970s . This model looks at business units as a portfolio and evaluates them based on market attractiveness and competitive strength .
Another alternative is the Ansoff Matrix which is a tool that helps businesses identify growth opportunities through existing or new products and existing or new markets .
While each of these models has its own advantages and disadvantages, they can all be useful tools for businesses when it comes to planning and making decisions about which products or business units to invest in .
Conclusion
The BCG Growth-Share Matrix is a useful tool for business planning that has a range of advantages and limitations . This matrix can help provide guidance for an organization in terms of allocating resources appropriately or developing new products but it does not account for other macroeconomic factors which could have an impact on organizational performance . Organizations should consider the complexity of their businesses and weigh the benefits against any potential challenges to determine if using the BCG Growth-Share Matrix is suitable in helping them develop their strategic plans .
