Explain the Boston Consulting Group Growth-Share Matrix. What are the strengths and weaknesses of this method? Give examples of each of the four cells and their strategy recommendations.

Question

What will be an ideal response?

Answer 1

The concept of the BCG approach to portfolio analysis is to position each SBU within a firm on the two-dimensional matrix. The competitive market-share dimension is the ratio of share to that of the largest competitor. The growth dimension is intended as a strong indicator of overall market attractiveness. Within the BCG matrix you find four cells, each representing strategy recommendations:

Stars (high share, high growth): important to building the future of the business and deserving any needed investment.
Cash Cows (high share, low growth): key sources of internal cash generation for the firm.
Dogs (low share, low growth): potential high cash users and prime candidates for liquidation.

Problem Children, or Question Marks (low share, high growth): high cash needs that, if properly nurtured, can convert into stars.

For purposes of strategy development, the BCG matrix approach is seductively simple and has contributed to decision making about internal cash generation and usage across SBUs. It has also morphed in application downward to often be applied to product lines and product groups, which is nominally possible so long as costs and returns can be properly isolated for investment decisions. But because of its simplicity, BCG ignores other important factors that should go into this decision making and also ignores the viability of generating cash externally.