bcg matrix - Journal of Business Administration Vol 24 No...

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Journal of Business Administration, Vol. 24, No. 3&4, July October, 1998. Extending the BCG Matrix: Strengthening the Portfolio Analysis Syed Ferhat Anwar 1 Sharif Rayhan Siddique 2 Shakil Huda 3 Abstract: This paper critically assesses the Boston Consulting Group (BCG) Matrix and indicates how the matrix can be improved to solve portfolio problems. The extended technique incorporates situation arising out of “negative growth rate” and shows how it can aid in providing greater depth in portfolio analysis. The Portfolio Analysis : Large companies normally manage quite different businesses, each requiring its own strategy, these are termed as strategic business units (SBU) . An SBU has three characteristics (Kotler, 1999): 1. It is a single business or collection of related businesses that can be planned separately from the rest of the company. 2. It has its own set of competitors. 3. It has a team, which is responsible for strategic planning and profit performance and who control most of the factors affecting profit. A large company manages its portfolio (e.g. various SBUs) in order to hold the largest market share. The purpose of identifying the company’s SBUs is to outline separate strategies and assign appropriate financing. The BCG Matrix Managing a series of businesses strategically is the primary concern of portfolio management (Porter 1987). The objectives of portfolio strategies, strategies for managing a portfolio of SBU's are several. A number of techniques are employed to make these strategic choices. One of the more popular ones is the Boston Consulting Groups (Hedley, 1977). The assumptions underlying the matrix - and thus the strategies 1 Associate Professor, Institute of Business Administration, University of Dhaka 2 Assistant Professor, Institute of Business Administration, University of Dhaka 3 Assistant Professor, Institute of Business Administration, University of Dhaka
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to be used are that - higher market share in growth market leads to profitability but that in slow growth markets, obtaining high market share takes too much of cash (Hedley, 1976) The Boston Consulting Group (BCG) a leading management consulting firm, developed and popularized the growth-share matrix. The location of the business unit indicates its market growth rate and relative market share (Kotler, 1999). 0% 10% 20% Market Growth Rate 2 1 Question Mark Star 3 4 Cash Cow Dog 1 10 Relative market share 0.1 Fig. 1 : The Traditional BCG Model The market growth rate on vertical axis indicates the annual growth rate of the market in which the business operates. In the figure it ranges from 0 percent to 20 percent. A market growth rate above 10% is considered high. Relative market share, which is measured on the horizontal axis, refers to the SBU's market share relative to that of its
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bcg matrix - Journal of Business Administration Vol 24 No...

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