Boston consulting group (BCG) matrix is developed by Bruce Henderson of the Boston consulting group in the early 1970’s

 It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates.

According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.

Relative Market Share & Market Growth Rate

To understand the Boston Matrix you need to understand how market share and market growth interrelate.   

MARKET SHARE

 Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. 

RELATIVE MARKET SHARE RMS= Business unit sales this year Leading rival sales this year

The higher your market share, the higher proportion of the market you control.

 MARKET GROWTH RATEMarket growth is used as a measure of

a market’s attractiveness. 

MGR = Individual sales - Individual sales

this year last year Individual sales last year

 Markets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.

 THE BCG GROWTH-SHARE MATRIX 

 It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories:

Stars Question marks Cash cows Dogs It is based on the combination of market growth

and market share relative to the next best competitor.

BCG Matrix

High LowRelative Market Share

High

Low

Mar

ket

Gro

wth

Ra t

e (A

nnua

l/ C

urre

ncy)

10%

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|8%

6%

4%

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0

12%

14%16%

18%

20%

| | | | | | | | | | | | | | | |10 4 2 1. 5 1 0.5 0.4 0.3 0.2 0.1

Star Question Mark

Cash Cow

Dog (Cash

Traps)

1

23

4

5

67

8

 STARS  High growth, High market share Stars 

 Leaders in business.

 They also require heavy investment, to maintain its large market share. 

It leads to large amount of cash consumption and cash generation.

 Attempts should be made to hold the market share otherwise the star will become a CASH COW.

CASH COWS   Low growth , High market share They are foundation of the

company and often the stars of yesterday.

They generate more cash than required. 

 They extract the profits by investing as little cash as possible.

They are located in an industry that is mature, not growing or declining.

DOGS Low growth, Low market share

Dogs are the cash traps. 

Dogs do not have potential to bring in much cash.

 Number of dogs in the company should be minimized. 

 Business is situated at a declining stage.

QUESTION MARKS  High growth , Low market  Most businesses start of as question marks.

They will absorb great amounts of cash if the market share remains unchanged, (low).

 Why question marks?

 Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks.

WHY BCG MATRIX ?To assess : Profiles of

products/businesses.  The cash demands of

products .

The development cycles of products.

Resource allocation and divestment decisions

MAIN STEPS OF BCG MATRIX   Identifying and dividing a company into SBU.

Assessing and comparing the prospects of each SBU according to two criteria :

1. SBU’S relative market share.

2.  Growth rate OF SBU’S industry. 

Classifying the SBU’S on the basis of BCG matrix.

Developing strategic objectives for each SBU.

 BENEFITS BCG MATRIX It is simple and easy to understand.

 It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.

 It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.

 LIMITATIONS BCG MATRIX  It uses only two dimensions.

Relative market share and market growth rate. Problems of getting data on market share and market growth.

High market share does not mean profits all the time.

 Business with low market share can be profitable too.

BCG-Mahindra & Mahindra Mahindra & Mahindra Limited (M&M) is

an Indian multinational automobile manufacturing corporation headquartered in Mumbai.

It is a US $6.3 billion conglomerate with employee strength of over 50,000.

The Brand Trust Report ranked M&M as India's 68th Most Trusted Brand in 2011 (from 16000 brands analyzed) and 66th Most Trusted Brand in 2012.

SBU OF M&M

Tractors Two Wheelers Utility Vehicles

PLACE OF TRACTOR

Market share of M&M = 29% (Market Leader)

2 nd largest player is Tafe group (messy tractor) Market share of Tafe group = 23% .

RMS of M&M Tractor = 1.26x

10%

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8%

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0%

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x0.2

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1x

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x10x

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Busi

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gro

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Rat

e

Relative Market share

PLACE OF TWO WHEELERS

Market Share of M&M two Wheelers = 1%

Market Share of Hero Honda = 52%

RMS of M&M two wheelers = 0.02x

10%

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x0.2

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1x

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HIGH

LOW

TRAD

ITIO

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BCG

MAT

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Relative Market share

PLACE OF UTILITY VEHICLES

Market Share of M&M Utility Vehicle = 42% (Market Leader)

Market Share of Tata Motors in UV = 21%

RMS of M&M Utility Vehicle = 2x

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Relative Market share

CONCLUSION

SBUSBU M&M mkt M&M mkt Share (a)Share (a)

Largest Largest Competitor Competitor Mkt. share Mkt. share

(b)(b)

X = a/bX = a/b

TRACTORSTRACTORS 29%29% 23% 23% (TAFE)(TAFE) 1.261.26

TWO WHEELERSTWO WHEELERS 1%1% 52% 52% (HERO (HERO HONDA)HONDA)

0.020.02

UTILITY UTILITY VEHICLES VEHICLES 42%42% 21% 21% (TATA (TATA

MOTORS)MOTORS)2.002.00

10%

12%

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20%

8%

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4%

2%

0%

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x0.2

x

1x

0.5

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4x 2x

Busi

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HIGH

LOW

TRAD

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BCG

MAT

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Relative Market share

APPROPRIATE STRATEGIES TRACTORS (STAR)

HOLD STRATEGY (Invest to protect)

Build capacity expansion Increase investment Increase advertisement and

promotion Increase market reach

CONT…

TWO WHEELERS (QUESTION MARK ?) Exceptional case (Money hogger)

Product is in early stage Try to build it and turn in to STAR Invest intensively

CONT…

• UTILITY VEHICLES (CASH COW)

HOLD STRATEGY (INVEST TO PROTECT)

Increase advertisement and promotion Increase market reach Increase Investment

BCG OF TELECOM PLAYERS

BHARTI AIRTEL

Bharti Airtel is the market leader in the telecom sector with a market share of 31%. The market challenger in this industry is Vodafone. So we plot the BCG matrix of Airtel with respect to Vodafone. Taking the market share of Vodafone (i.e. 23%) , the relative market share of Airtel comes as 1.35X. The BCG matrix of Airtel wrt to Vodafone will look as under:

10%

12%

14%

16%

18%

20%

8%

6%

4%

2%

0%

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x0.2

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1x

0.5

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Busi

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HIGH

LOW

Relative Market share

In the above matrix, Bharti Airtel falls in the quadrant of “STAR” with respect to the market challenger. The circle size represents the absolute market share (i.e. 31%) of Airtel in the telecom sector.

Analysis of BCG matrix:

VODAFONE Vodafone is the market challenger in the

telecom sector with a market share of 23%. The market leader in this industry is Vodafone and so we plot the BCG matrix of Vodafone with respect to Airtel. Taking the market share of Airtel (i.e. 31%) , the relative market share of Vodafone comes as 0.74X. The BCG matrix of Vodafone wrt Airtel will look as under:

10%

12%

14%

16%

18%

20%

8%

6%

4%

2%

0%

0.1

x0.2

x

1x

0.5

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x 0.3

x10x

4x 2x

Busi

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gro

wth

Rat

e

HIGH

LOW

Relative Market share

Analysis of BCG matrix:

In the above matrix, Vodafone falls in the quadrant of “QUESTION MARK” with respect to the market LEADER. The circle size represents the absolute market share (i.e. 23%) of Vodafone in the telecom sector.

GE(General Electric) MATRIX

Developed by McKinsey & Company in 1970’s.

GE is a model to perform business portfolio analysis on the SBU’s.

GE is rated in terms of ‘Market Attractiveness & Business Strength’

It is an Enlarged & Sophisticated version of BCG.

Annual market growth

rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

MARKET ATTRACTIVENESS

Current market share Brand image Production capacity Corporate image Profit margins relative

to competitors R & D performance Promotional

effectiveness

BUSINESS STRENGTH

GE Nine Cell Matrix Grow – Business units that fall under grow attract high

investment. Firms may go for product differentiation or Cost leadership. Huge cash is generated in this phase. Market leaders exist in this phase.

Hold – Business units that fall under hold phase attract moderate investment. Market segmentation, Market penetration, imitation strategies are adopted in this phase. Followers exist in this phase.

Harvest - Business units that fall under this phase are unattractive. Low priority is given in these business units. Strategies like divestment, Diversification, mergers are adopted in this phase.

ADVANTAGES

Decision of invest on different SBUs. Knowledge for innovation   Decide which product to be discontinued .  Better than Boston Consulting Group Matrix.

 WHY BETTER ? Broad Field of Study that point the reason for

such Status of SBU .  Specialized than BCG 3 X 3 is more detailed

than 2 X 2.

EXAMPLE OF GE NINE CELL MATRIX

Founded in 1981.

Products are Maruti 800, Omni, Alto,SX4,Swift Desire, Swift, A-star, Gypsy, Wagon R ,Ritz others.

VISION – “The Leader in the Indian Automobile Industry, Creating Customer Delight and Shareholder’s Wealth a Pride of India”

Core Values : Our Core Values drive us in every endeavor- Customer Obsession, Fast, Flexible & first mover, Innovation & creativity Networking & Partnership Openness & Learning

About Maruti Udyog