Question

1. Discuss why evaluating the effectiveness of BCG growth-share matrix as one example of business portfolio is a critical effort to the firm from the perspective of strategic planning at firm level. It is needed to consider what BCG matrix attempts to diagnose, given the definition of strategic planning. Prepare your answers using less than 500 words. (15 points)

Answer 1

• Boston Consulting Group (BCG) Matrix, developed by the BCG Group is a corporate portfolio analysis and planning tool which helps companies to analyse the different business or products in their portfolio based on their respective market shares and growth rates.
• It basically assess which products are making losses and which one makes profits and with that information, companies can effectively plan their market strategy.
• The creation of the tool was based on the principle that Relative Market Share and Market Growth Rate are the most important factors that determine the Strategic Business Unit (SBU). It is a graphical represntation where the company's business units are classified as Cash Cows, Stars, Question Marks and Dogs.
• Stars which represent high market shares & high growth rate and Cash Crows which has low growth rate but high market share are the relatively risk free investment units. The companies want their products to be listed in either of these two segments for the long run.
• Question Marks which represent high growth & low market share and Dogs with low growth & low market share are the categories companies want to avoid listing their units in.
• The one major reason why the BCG matrix is popular because it's easy to understand. The companies can monitor and decipher the market trends and plot it in a simple manner which aids them in making substantial decisions.
• For an entry level business unit, it might be listed in Question mark section initially but with adequate amount of investment, they can either catch up with the industry leaders to get a Star rating or also fall in the Dog. The matrix helps in determining the path of the product.
• Defining the market correctly is necessary to get the correct figures effectively from the BCG matrix. Wrongly categorised products in markets may get an erroreous index and affect the calculations and decisions of the company.
• The categories helps companies to identify and reduce investments in loss making segments and by eliminating the Dogs, companies can turn up their profit helping them to invest more in those top segments.
• It helps in maintaining a balanced portfolio for businesses which helps them to pay attention to the cash flow, investment and the needs of it's business units.
• The Business units in Dogs can be profitable at times as well and may help other businesses to gain advantage which is neglected as the companies using this matrix will be of the impression to shut down the non-profitable units.
• The advantage of simplicity can be a demerit as well since the strategic competitive positions are more complicated than labelling as 'high' and 'low.'
• The evolving market conditions are dependent on a lot of factors while the usage of two dimensional approach is ineffective in adapting to the real competitiveness of the industry as Growth rate and Market share alone cannot be the deciding factors.
• Since a lot of advantages and also disadvantages are there in the BCG model, businesses cannot solely trust on the merit of this model in making important decisions. It should only be one deciding factor which outlines the decision.
• It often makes it difficult for the companies to classify their business units into the four-celled approach of BCG matrix hence alternative evaluation measures must be used in making strategical decisions.