Lecture Notes: Introduction to BCG Matrix

Presenter

• Lars from Business to You

Background

• BCG Matrix: Developed by Bruce Jenner from the Boston Consulting Group in 1970.
• Use: Analyze strategic business units (SBUs) or product lines within a corporation.
• Aim: Determine where to allocate resources, make investment decisions at a corporate level.

Levels of Strategy

• Corporate Strategy: Concerns over the entire suite of business operations. Focus on portfolio management.
  • Example: Deciding whether to stay in or exit an industry
• Business-Level Strategy: Focused on gaining and sustaining competitive advantage within an industry.
  • Example: Value chain analysis, Porter's 5 Forces, VRIO framework
• Functional-Level Strategy: Addresses how to support business strategy from different functional departments (e.g., Marketing, HR).

BCG Matrix Framework

• Plotting SBUs/Product Lines: Based on
  • Company competitiveness (market share)
  • Market attractiveness (market growth rate)
• Key Measures:
  • Relative Market Share: Comparison with the largest competitor
  • Market Growth Rate: High growth rate typically above 10%, but this can vary by industry

Categories of BCG Matrix

1. Question Marks: Low market share, high growth markets. Require significant investment; potential to be stars or could fail.
2. Stars: High market share, high growth markets. Generates large cash, requires investment to maintain/grow market share.
3. Cash Cows: High market share, low growth markets. Generates excess cash; little investment needed.
4. Dogs: Low market share, low growth markets. Low cash generation; candidates for divestment.

Life Cycle Connection

• Introduction Phase (Question Marks): New products in high growth markets
• Growth Phase (Stars): Products showing significant sales increase
• Maturity Phase (Cash Cows): High sales but growth rate slows down
• Decline Phase (Dogs): Sales decline; product may be phased out

Example: Samsung Product Portfolio

• Cash Cows: Samsung’s washing machines
• Stars: Samsung Galaxy smartphones, smart TVs
• Question Marks: Various emerging product lines

Practical Guidelines for Using BCG Matrix

• Careful Analysis: Determine which question marks could become stars.
• Divesting Dogs: Consider market potential and cross-selling opportunities before removing.
• Balanced Portfolio: Ensure a mix of question marks, stars, and cash cows for sustained cash flow.
• Regular Re-Evaluation: Strategies may need adjustments based on market conditions and corporate goals.

Conclusion

• BCG Matrix is a useful tool for corporate portfolio management but should be used judiciously.
• Importance of balancing investments across various SBUs to ensure growth and stability.
• Encouraged to analyze comments and feedback from other business frameworks for continuous improvement.
• Stay tuned for more educational content on business frameworks.

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