Question

what is the purpose of learning BCG's portfolio growth matrix? explain with the help of diagram and choose any mobile phone/technology company which can use this model for pursuit of their business.

Answer 1

Boston Consulting Group (BCG) Growth-Share Matrix

The BCG growth-share matrix is the simplest way to portray a corporation’s portfolio of
investments. Growth share matrix also known for its cow and dog metaphors is popularly used
for resource allocation in a diversified company. Using the BCG approach, a company
classifies its different businesses on a two-dimensional growth-share matrix. In the matrix:
♦ The vertical axis represents market growth rate and provides a measure of market attractiveness.
♦ The horizontal axis represents relative market share and serves as a measure of
company strength in the market.
Using the matrix, organisations can identify four different types of products or SBU as follows:

♦ Stars are products or SBUs that are growing rapidly. They also need heavy investment
to maintain their position and finance their rapid growth potential. They represent best
opportunities for expansion.
♦ Cash Cows are low-growth, high market share businesses or products. They generate
cash and have low costs. They are established, successful, and need less investment to
maintain their market share. In long run when the growth rate slows down, stars become
cash cows.
♦ Question Marks, sometimes called problem children or wildcats, are low market share
business in high-growth markets. They require a lot of cash to hold their share. They
need heavy investments with low potential to generate cash. Question marks if left
unattended are capable of becoming cash traps. Since growth rate is high, increasing it
should be relatively easier. It is for business organisations to turn them stars and then to
cash cows when the growth rate reduces.
♦ Dogs are low-growth, low-share businesses and products. They may generate enough
cash to maintain themselves, but do not have much future. Sometimes they may need
cash to survive. Dogs should be minimised by means of divestment or liquidation.
Once the organisations have classified its products or SBUs, it must determine what role
each will play in the future. The four strategies that can be pursued are:
1. Build: Here the objective is to increase market share, even by forgoing short-term
earnings in favour of building a strong future with large market share.
2. Hold: Here the objective is to preserve market share.
3. Harvest: Here the objective is to increase short-term cash flow regardless of long-
term effect.
4. Divest: Here the objective is to sell or liquidate the business because resources
can be better used elsewhere.

Let’s take example of BCG Matrix of Samsung and what products of the company fall under what Quadrant.

CASH COWS:

Samsung Home appliances which include Samsung AC’s, Refrigerators, Washing Machines and Cooking Appliances are the Cash Cows for the company.

Over the years, Samsung Home Appliances have become a household name and stand for quality and trust. Samsung has been able to attain a good market share across different industry segments and still holds a good potential to grow in the coming future.

STARS:

The products or business units that have a high market share in high growth industry are the stars of the organization. In the case of Samsung, Mobile phones, Tab, and TV business fall in the Star Category of the BCG Matrix of Samsung.

Mobile phones: Samsung Galaxyand Note Series are quite a hit among customers and have their own base of loyal customers. In order to maintain its market share and ward off the competition, Samsung launches new smartphones with new features and design.

Samsung TV:  LED and OLED TVfrom Samsung are gaining good traction from the global market and can be considered as the Stars of the company. The company is experimenting with new technologies and it coming up with new TV’s with technologically advanced features to gain customers.

QUESTION MARK:

There are products that formulate a part of the industry that is still in the phase of development, yet the organization has not been able to create a significant position in that industry. The small market share obtained by the organization makes the future outlook for the product uncertain, therefore investing in such domains is seen as a high-risk decision.

Considering the performance of all the products that Samsung to offer, Samsung Printer is one such product which can be placed in the Question Mark quadrant of the BCG Matrix of Samsung.

High competition and small market share of the product in the industry is what makes it place in this quadrant.

DOGS:

Dogs are those products that were perceived to have the potential to grow but however failed to create magic due to the slow market growth.

Failure to deliver the expected results makes the product a source of loss for the organization, propelling the management to withdraw future investment in the venture. Since the product is not expected to bring in any significant capital, future investment is seen as a wastage of company resources, which could be invested in a Question mark or Star category instead.

With an aim to cater to the growing need of the digital world, Samsung launched it’s Samsung Smartwatch but the product failed to achieve the success that it was expected to achieve.

Samsung Smartwatch: Tough competition from competitors like Apple watch led to the downfall of the product.

Hence Samsung Smartwatch can easily be placed in the Dog quadrant of the BCG Matrix.