BCG Matrix explained _ SMI.pdf - BCG Matrix explained | SMI...

This preview shows page 1 - 3 out of 8 pages.

4/29/2021 BCG Matrix explained | SMI 1/8 Home Strategy Tools BCG Matrix BCG growth-share matrix Ovidijus Jurevicius | May 1, 2013 Print De±nition BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray ±rm’s brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market growth (vertical axis) axis. Growth-share matrix is a business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio and suggest further investment strategies. Understanding the tool BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and its potential. It classi±es business portfolio into four categories based on industry attractiveness (growth rate of that industry) and competitive position (relative market share). These two dimensions reveal likely pro±tability of the business portfolio in terms of cash needed to support that unit and cash generated by it. The general purpose of the analysis is to help understand, which brands the ±rm should invest in and which ones should be divested.
4/29/2021 BCG Matrix explained | SMI 2/8 Relative market share. One of the dimensions used to evaluate business portfolio is relative market share. Higher corporate’s market share results in higher cash returns. This is because a ±rm that produces more, bene±ts from higher economies of scale and experience curve, which results in higher pro±ts. Nonetheless, it is worth to note that some ±rms may experience the same bene±ts with lower production outputs and lower market share. Market growth rate. High market growth rate means higher earnings and sometimes pro±ts but it also consumes lots of cash, which is used as investment to stimulate further growth. Therefore, business units that operate in rapid growth industries are cash users and are worth investing in only when they are expected to grow or maintain market share in the future. There are four quadrants into which ±rms brands are classi±ed: Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing market. In general, they are not worth investing in because they generate low or negative cash returns. But this is not always the truth. Some dogs may be pro±table for long period of time, they may provide synergies for other brands or SBUs or simple act as a defense to counter competitors moves. Therefore, it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture