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BCG matrix by gamal arafa


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BCG matrix by gamal arafa

  1. 1. BCG GROWTH / SHARE MATRIX A Tool for Analyzing Opportunities & Ability to Compete Gamal A. Arafa Monday Class - SheratonGAMAL AHMED ARAFA
  2. 2. OUTLINES  History of BCG  Market share & market growth  Portfolio analysis  Product life cycle  The BCG matrix  The case  ConclusionGAMAL AHMED ARAFA
  3. 3. HISTORY OF BCG • BCG is founded by Bruce D. Henderson in 1963 • A global management consulting firm with offices in 42 countries. • One of only three companies to appear in the top 15 of Fortunes "Best Companies to Work For" report for seven consecutive years. • In the 2011 and 2012 Fortune lists, BCG is listed as the second best company to work forGAMAL AHMED ARAFA
  4. 4. BCG MATRIX • BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970’s. • According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share.GAMAL AHMED ARAFA
  5. 5. RELATIVE MARKET SHARE AND MARKET GROWTH • To understand the Boston Matrix we need to understand how market share and market growth interrelateGAMAL AHMED ARAFA
  6. 6. MARKET SHARE • Market share is the percentage of the business unit sales to the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. It indicates the business unit strength. • MS = Business unit sales this year Total market sizeGAMAL AHMED ARAFA
  7. 7. RELATIVE MARKET SHARE • Relative market share is the percentage of the business unit sales to the highest competitors sales, measured either in revenue terms or unit volume terms. It indicates the business unit strength. • RMS = Business unit sales this year Leading competitor sales this yearGAMAL AHMED ARAFA
  8. 8. MARKET GROWTH RATE • Market growth is used as a measure of a market’s attractiveness. • MGR = total market sales this year - total market sales last year total market 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.GAMAL AHMED ARAFA
  9. 9. PORTFOLIO ANALYSIS • Product Portfolio – the range of products a company has in development or available for consumers at any one time • Managing product portfolio is important for cash flow • Strategic Business Unit (SBU) Definition • Single independent operation of a company • Has its own competitors • One manager responsible for performanceGAMAL AHMED ARAFA
  10. 10. PRODUCT LIFE CYCLE Shows the stages that products go through from development to withdrawal from the market • Each product may have a different life cycle • Contributes to strategic marketing planning • Helps to identify when a product needs support, redesign, withdrawal, etc. • Helps in new product development planning • Helps in forecasting and managing cash flowGAMAL AHMED ARAFA
  11. 11. STAGES OF THE PRODUCT LIFE CYCLE: Profit • Development maturity • Introduction / Launch • Growth Growth Decline • Maturity Withdrawal • Decline • Withdrawal Introduction Development TimeGAMAL AHMED ARAFA
  12. 12. PRODUCT LIFE CYCLE AND BCG MATRIX Mature Phase “Cash Sales Volume Cow” Growth Phase “Star” Decline Phase “Dog” Introductory Phase “?” TimeGAMAL AHMED ARAFA
  13. 13. WHY BCG MATRIX ? To assess :  Profiles of products / businesses  The cash demands of products  The development cycles of products  Resource allocation and divestment decisionsGAMAL AHMED ARAFA
  14. 14. THE BCG MATRIX High Relative Market Share Low High Product Sales Growth Rate LowGAMAL AHMED ARAFA
  15. 15. STARS HIGH GROWTH, HIGH MARKET SHARE • Stars are leaders in business by having high market share in a growing market.. • They also require heavy investment, to maintain its large market share. • It leads to large amount of cash consumption and cash generation.GAMAL AHMED ARAFA
  16. 16. STRATEGY RECOMMENDATIONS • Investment • Further Growth • Maintain Market Position • Cash flow • Self-sustaining: Fund their own growth • Require funds from other SBUs (Cash Cows) • Assure the future of the company • Grow into Cash CowsGAMAL AHMED ARAFA
  17. 17. QUESTION MARKS HIGH GROWTH , LOW MARKET SHARE • Question marks are essentially new products where buyers have yet to discover them.Most businesses start of as question marks in growing markets but have low market share.. • Question marks have high demands and low returns due to low market share.Investments should be high for question marks. • They will absorb great amounts of cash if the market share remains unchanged, (low). • Question marks have potential to become stars and eventually cash cow but can also become a dog.GAMAL AHMED ARAFA
  18. 18. STRATEGY RECOMMENDATIONS • Investment • Increase market share • Selectively develop into Stars • Cash Flow • Require funds from other SBUs (Cash Cows) • Unrealized future opportunities • The marketing strategy is to get markets to adopt these products. • These products need to increase their market share quickly or they become dogs. • The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them .GAMAL AHMED ARAFA
  19. 19. 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.GAMAL AHMED ARAFA
  20. 20. STRATEGY RECOMMENDATIONS • Investment • Maintain market share • Maintain capacity • Cash Flow • Positive cash flow • Provides funding to support Stars and “?” • No potential for profit growthGAMAL AHMED ARAFA
  21. 21. 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.GAMAL AHMED ARAFA
  22. 22. STRATEGY RECOMMENDATIONS • Investment • Divestiture strategy • Reduce capacity to free up resources • Cash Flow • Goal of Positive Cash Flow • Negative Cash Flow = Divestment • No real growth opportunitiesGAMAL AHMED ARAFA
  23. 23. EVALUATION OF BCG MATRIX: CONS • Oversimplifies complex decisions • BCG MATRIX uses only two dimensions, Relative market share and market growth rate. • Only considers current businesses no dynamics • Does not recognize possible synergies between SBUs • High market share does not mean profits all the time. • Business with low market share can be profitable too.GAMAL AHMED ARAFA
  24. 24. EVALUATION OF BCG MATRIX: PROS • BCG MATRIX 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. • Good measurability of market share and growth • Provides information about efficient resource allocation within the organization • Generator for strategic options • It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.GAMAL AHMED ARAFA
  25. 25. 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.GAMAL AHMED ARAFA
  26. 26. BCG MATRIX WITH CASH FLOW Relative Market Share Product Sales Growth RateGAMAL AHMED ARAFA
  28. 28. CONCLUSION Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products. As long as management understands that the BCG Growth/Share Matrix generates options which require further analysis and validation, this tool canGAMAL AHMED ARAFA greatly enhance strategic decision making