Analysis of the Boston Consulting group Matrix

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Boston Consulting Group Matrix (BCG Matrix)

According to Sadler and Craig (2003:54), the BCG matrix is a corporate portfolio analysis tool that provides a graphic representation of an organization that is used to scrutinize the different businesses involved in the portfolio on the basis of the related market share and industry growth rate. However, it is also a model based on the product-life cycle theory that is used to determine the priorities that are supposed to be given in the product portfolio of a business unit in order to ensure that long-term value is created (Sadler and Craig, 2003:54). Therefore, a company needs to have a portfolio of products that comprise of both the high-growth products in order to create the need of cash inputs and low-growth products that generates a lot of cash (Sadler and Craig, 2003:54).

Furthermore, the BCG matrix can be elaborated as a two dimensional analysis on management of the Strategic Business Unit (SBU), generally meaning that it is a comparative analysis of a business potential and the environmental evaluation (Warren, 2008:344). Thus, the two dimensions are the relative market share (SBU sales this year leading to the competitors sales this year) and market growth rate (industry sales this year minus the industry sales last year) and this analysis entails that both measures be calculated for each SBU (Warren, 2008:344). However, the relative market share is the strength of the business dimension and it measures the comparative advantage indicated by market dominance while the market share is achieved due to the overall cost leadership (Warren, 2008:344).

As a result, the BCG matrix has four cells and the horizontal axis represents the relative market share with the vertical axis indicating the market growth rate meanwhile the mid-point of the relative market share is set at 1.0 (Warren, 2008:344-345). Thus, if all the SBU’s are in the same industry, the average growth rate of the industry is used and if all SBU’s are located in different industries the mid-point will be set at the growth rate for the economy (Warren, 2008:3344-345).

However, the various resources are assigned to the different business units according to their state on the grid and the four cells of the matrix are called the question marks, stars, cows, and dogs each of them demonstrating a particular type of business and the graphic illustration of the matrix as follows and the explanation of each cell will be found below the diagram:

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10x                              1x                                0.1x

Source adapted from Harvard Business Review

Elaboration of the BCG Matrix cells:

Question Marks signify business units that have a low relative market share and are positioned in a high growth industry that requires a fairly enormous amount of cash in order to maintain or gain market share (Lechner and Floyd, 2012: 460). They entail the need to be able to determine if whether the venture can be practical and are generally new goods and services which have a good commercial forthcoming. However, the question marks ...

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