Portfolio Analysis BCG

Portfolio Analysis

And

BCG Matrix

The Growth Share MatrixThe Growth Share Matrix

• It evaluates the strength of a firm from the portfolio of

businesses or products the firm has in different stages

of PLC, which are required for future growth.

• It analyses the impact of investing resources in

different SBUs on the corporate’s future earnings and

cash flow.

SBUs are evaluated from two ways

1. Industry attractiveness (market growth)

And

2. Competitive strength (relative market share)


A Matrix is created considering the market

growth and relative market share of all the

businesses in their respective industries

and businesses are placed in that matrix for

analysis and evaluation.

The Boston Consulting Group’s The Boston Consulting Group’s Growth-Share MatrixGrowth-Share Matrix

20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0M

arke

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10x 4x 2x 1.5x 1x Relative Market Share

.5x .4x .3x .2x .1x


• The market growth rate on the vertical axis is

the proxy measure for the industry

Attractiveness.

• The relative market share is proxy for its

competitive strength in the industry.

BCG Growth-Share MatrixBCG Growth-Share Matrix

In BCG approach, the company classifies all its SBUs into 4 types as

“star”, “cash cow”, “question mark” and “dog” according to their market growth and

relative market share.

The BCG MatrixThe BCG Matrix

Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.

Relative market share

Cash cows Dogs

High

Low

Questionmarks

Stars

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Cash cows Dogs

High

High Low

Questionmarks

Stars

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Low

Low

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Cash Cows Dogs

Problem Child


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BCG Matrix

Stars

Cash Cows Dogs

Problem Child


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BCG Matrix

Revenue ++++Expenses _ _ _Net +

Revenue +Expenses _ _ _ _ Net _ _ _

Revenue + + + + + Expenses _Net + + + +

Revenue + + Expenses _ _ _ _Net _ _ _

BCG Market Share/Market Growth BCG Market Share/Market Growth MatrixMatrix

BCG Matrix

Dogs are businesses that have a very small share of a market that is not expected to grow.

Cash cows are businesses that have a large share of a market that is not expected to grow substantially.

Question marks are businesses that have only a small share of a quickly growing market.

Stars are businesses that have the largest share of a rapidly growing market.

Stars

are high-growth, high-share businesses or products. They often need heavy investment to finance their rapid growth. Therefore, they may not be producing a positive cash flow. The business strategy will generally be for growth fueled by externally acquired capital. Eventually, their growth will slow, and they will turn into cash cows.

Cash cows

are low-growth, high-share businesses or products. These established and successful SBUs need less investment to keep their market share. They produce a lot of cash to be used for other business units of the company. They are either milked for investment in stars or question marks or harvested if there is little optimism for a stable future.

Question marks

sometimes called problem children, are low-sometimes called problem children, are low-share business units in high-growth markets. share business units in high-growth markets. They need a lot of cash to keep and increase They need a lot of cash to keep and increase their share; they can not generate enough their share; they can not generate enough cash themselves. Management must decide cash themselves. Management must decide which question mark it should build into stars which question mark it should build into stars and which should phase out.and which should phase out.

Dogs

are low-growth, low-share businesses and products. They often have poor profitability. Therefore, the business strategy for a dog is most often to divest, but occasionally to hold for possible strategic repositioning as a question mark or cash cow.

Portfolio Strategies Portfolio Strategies

FourFourPortfolioPortfolio

StrategiesStrategies

BUILDBUILDDoes the SBU have the potential to be a star?

HOLDHOLDCan you maintain and preserve market share?

DIVESTDIVEST Is it appropriate to dump SBU’s

with low-growth potential?

.HARVESTHARVESTIncrease the short-term return without

impacting long-run prospects.

Limitations of the BCG Matrix

1. Market Growth rate is an inadequate descriptor of overall industry attractiveness.

2. Relative market share is inadequate as a descriptor of overall competitive strength.

3. The analysis is highly sensitive to how growth and share are measured.

4. It provide little guidance on how best to implement the investment strategies.

5. The model implicitly assumes that business units are independent or one another except for the flow of cash.

How to Identify SBUs?How to Identify SBUs?

• It is the basic competitive unit of a company.

• It has a specific and identifiable group of

customers.

• It has specific and identifiable competitors.

• It can be measured as an independent entity in

terms of profit and loss.

• Therefore, it may require a separate marketing

strategy.

Documents

Portfolio Analysis BCG