Boston Consulting Group Essay

1870 Words 8 Pages
BCGMATRIX

HISTORY:
The Boston Consulting Group (BCG) is a global management consulting firm with 82 offices in 46 countries founded in 1963.The BCG matrix was developed by BRUCE HENDERSON of the Boston Consultancy group in the year 1970s.
INTRODUCTION:
The BCG matrix is also called as the “Growth Share matrix”. This is the most popular matrix to describe a corporation’s portfolio of business or products.
BCG matrix is based on the premise that majority of the companies carry out numberof business activities in a number of different product-market segments. Together, these different businesses form the business portfolio of the company, which need to be balanced for overall profitability
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It is assumed that if a business unit enjoys high market share, its cash earnings would be corresponding higher and vice versa.
MARKET GROWTH RATE{Y-axis}:
It is the percentage of market growth, that is, the percentage by which sales of a particular product or business unit have increased. A high growth rate enables the company to expand its operations. It makes it easier for the company to increase its market share and provide the opportunities of profitable investment. The company may plough back its earnings into the business and further increase the rate of return on the investment. Additional cash will necessarily be required to avail of the investment opportunities of growth. On the other hand, low market growth rate indicates stagnation with little scope for expansion and profitable investments may be risky to undertake. Increase in market share in such a situation can be possible only by cutting into the competitor’s market price.
ANALYSIS OF BCG MATRIX
The BCG matrix reflects the contribution of the business unitsor products to its cash flow. Based on this analysis the business units or products divided as:
 Stars
 Cash Cows
 Question marks{Problem child}
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In such a structure:
 Cash cows products will reach their target easily. Their management have a very easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses.
 Dogs’ business units are fighting an impossible battle and, even worse, now and then investments are made. These are desperate attempts to “turn the business around”.
 As a result all Question marks and stars receive only average investment funds. In this way they can never become cash cow. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become cash cow (or stars), or otherwise companies are advised to disinvest. Then they can try to get any possible cash from the Question marks that were not selected.

MAIN STEPS OF BCG MATRIX:
• Identifying and dividing a company into

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