Strategic Analysis and Choice

Table of Contents

Introduction .2

Stars .3

Cash Cows .4

Question Marks .4

Dogs .5

Critical Examination of BCG of Dell Inc .5

Benefits of Using BCG Matrix .8

Limitations of BCG Matrix .10

Conclusion .11

Introduction

The acronym BCG stands for Boston Consulting Group which is a consulting company involved in managing a business strategy . The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970 's ' This matrix

divides the company 's business units into four categories . This categorization is based on two dimensions namely the market growth of the business unit and the market share of the business unit

Source (The BCG Growth-Share Matrix

Market growth helps to understand the attractiveness of the business unit and it also helps the organization understand how much concentration and investment should be made to that business unit . The market share helps to realize the competitive advantage the organization has over its competitors . These two factors taken together are used to evaluate the profitability of the business units

The assumption of this matrix is that when the market share of a business unit increases , it will lead to more cash inflows because the firm is gaining more experience in the product compared to its competitors and therefore it 's acquiring a cash advantage over its competitors . Moreover , a business unit that is experiencing an increased growth will require more investment and this will lead to consumption of cash . Therefore , the business unit is placed in the matrix according to its ability to generate cash and consume it . The concept in this matrix is to take the cash from those business units that have a big market share and are generating handsome cash and using that cash and investing into those business units that are experiencing a rising growth rate so that their market share can also be increased

The following figure shows a BCG Growth-Share matrix

Figure 1 : BCG Growth-Share Matrix (Source : http /www .netmba .com

The matrix is divided into four categories in the BCG matrix are Stars Question Marks , Cows and Dogs . According to a product 's cash generation and consumption capability , it is put into one of the four boxes of the matrix

Stars

They are those business units that have a big market share and a high growth rate . Since their market share is large , they end up producing more cash for the organization , however , they also consume large amount of cash since their growth rate is high . Due to these reasons , their cash inflows almost nets out the cash outflow . If these products maintain their market share then after some time , they will become cash cows and their cash inflows will become greater than their cash outflows

Cash Cows

In this part of the matrix are those products that have reached their maturity of the product life cycle and their growth rate has declined In such situations , the product produces more cash than it consumes...