Portfolio Analysis

And
BCG Matrix

The 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.

Growth Share Matrix

Most Businesses will

have cash generating,
cash neutral
and
cash consuming
businesses.

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 Businesses are evaluated on
two parameters
Market growth
(Industry attractiveness)

and

Relative market share

(Competitive strength)

The Growth Share Matrix

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

Growth-Share Matrix

20%-
Market Growth Rate

18%-
16%-
14%-
12%-
10%-
8%-
6%-
4%-
2%-
0
10x 4x 2x 1.5x 1x .5x .4x .3x .2x .1x
Relative Market Share

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 The Growth Share Matrix

The market growth rate on the vertical

axis is the proxy measure for the
industry Attractiveness.

The relative market share is proxy foits

competitive Business strength in the
industry.

BCG model uses two Independent

Dimensions

The future rate of growth of the market

And

The relative market share of the market

Each of these dimension is surrogate for

another underlying variable

The future rate of growth of the market is

assumed to be a surrogate of the need for cash

And

The relative market share is assumed to a

measure of the ability to generate cash

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 BCG 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.

BCG Matrix

Stars Problem Child

?
market growth rate

Market growth rate

$
Cash Cows Dogs
Relative market
Relative marketshare
share

The BCG Matrix

High
Market growth rate

Stars Question
marks

Cash cows Dogs

Low
High Relative market share Low

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

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 BCG Matrix

Stars Problem Child

Market growth rate

Revenue ++++ Revenue +

Expenses _ _ _ Expenses _ _ _ _
Net + Net ___

Revenue + + + + + Revenue + +
Expenses _ Expenses _ _ _ _
Net ++++ Net ___

Cash Cows Dogs

Relative market share

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 BCG Market Share/Market Growth Matrix

BCG Matrix
(Three Paths to Success)
• Continuously generate cash cows and use the
cash throw-up by the cash cows to invest in the
question marks that are not self-sustaining

• Stars need a lot of reinvestments and as the

market matures, stars will degenerate into cash
cows and the process will be repeated.

• As for dogs, segment the markets and nurse the

dogs to health or manage for cash

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Paths to Success (cont’d)
Relative Market Share
High Low

High

Market
Growth
Rate

Low

BCG Matrix
(Three Paths to Failure)

• Over invest in cash cows and under

invest in question marks

• Under invest in the stars

• Over milked the cash cows

Three Paths to Failure (cont’d)

Relative Market Share
High Low

High

Market
Growth Rate

Low

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 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 futur

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 Question marks

sometimes called problem children, are low-

share business units in high-growth markets.
They need a lot of cash to keep and increase
their share; they can not generate enough
cash themselves. Management must decide
which question mark it should build into stars
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
BUILD
Does the SBU have the potential to be a star?

HOLD
Can you maintain and preserve market share?

HARVEST
.
Increase the short-term return without
Four impacting long-run prospects.
Portfolio
Strategies DIVEST
Is it appropriate to dump SBU’s
with low-growth potential?

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 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?

• 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.

Industry

An industry is a group of firms that

offer a product or a class of product
that are similar
and
are close substitute for one another.

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 Market
A Market is being comprised of
individuals or organizations
who are interested and are willing
to buy a good or service to obtain
benefits that will satisfy a particular
need or want and
who have the resources to engage in
such a transaction

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