Boston Matrix Consulting Group. Four stages of the BCG matrix. SHE or strategic economic unit
Boston Advisory Group (BCG) Matrix
The Boston Consulting Group (BCG) matrix is considered the first successful attempt to apply a strategic approach to the analysis and formation of product and competitive strategy enterprises. It was first introduced in the late 1960s by BCG founder Bruce Henderson as a tool for analyzing the market position of a company's products. From the whole variety of factors characterizing it, only two main ones were chosen to build the matrix: sales growth (profitability) of the product and its market share relative to the main competitors. The authors proceeded from the assumption that according to these features it is possible to classify all the products of the enterprise and develop proposals for business strategies based on such an analysis.
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Rice. 6.3. Boston Advisory Group Matrix
Graphically (Fig. 6.3), the BCG matrix is four squares built in a two-dimensional coordinate system "sales growth rate" (vertical axis) and "relative market share" (horizontal axis). When constructing it, the growth rates of sales of goods are divided into "high" and "low" by a conditional line at a level, for example, 5 or 10%. In practice, this limit can be set at any level acceptable for analysis and is determined by the enterprise itself. It is not recommended to set it below 5% or below the growth rate of the economy (industry) as a whole. In the original version, such a boundary was drawn at the level of a double increase in gross domestic product country with its increase by the inflation rate.
Relative share market is the ratio of the market share of products (type of activity) this enterprise to the market share of the leading competitor. For example, if product A occupies 10% of the market, and the main competitor 25%, then the relative market share for product A will be 0.4. If the company's sales for product B have the largest market share - 40%, and the main competitor has 20 %, then the relative market share for B will be 2.0. The number of competitors with this methodology for constructing the matrix is not taken into account.
The relative market share is also divided into "high" and "low", with the boundary between them being 1.0. A coefficient of 1.0 shows that the company is close to leadership: its share is close to the share of the strongest competitor. A coefficient above 1 indicates the leading position of the company's product in the industry. From this point of view left-hand side matrix highlights the leading types of products of the enterprise in the industry, the right one - lagging behind. As it seems to the author, industry average indicators can also be used as such a boundary, which in many cases is more logical, simpler and more understandable.
Depending on the place occupied in the matrix, products (or a product) have different names. Products that account for a significant portion of the booming market are placed in its most favorable upper left zone. Such products have received the figurative name "stars". Products with a significant share of a weakly growing market began to be called "cash cows". If the market share of the product is small, but its sales are growing, then the products are classified as "difficult children" ("calves" or "question marks"). Products that were able to secure only a small share of the market with its weak development are called “dogs”. In the literature on strategic management, one can also find other names for the distinguished types of products, which does not change the methodology for their grouping.
The BCG matrix is compiled for all products manufactured by the enterprise, or, as they say now, for the entire portfolio of its products or services. In this sense, it can be seen as an example portfolio analysis. For its compilation for each product should have the following information:
The volume of sales in value terms, it is represented on the matrix of the area of the circle;
The market share of a product relative to its largest competitor, which determines horizontal position circles in the matrix;
The growth rate of the market in which the enterprise operates with its products determines the vertical position of the circle in the matrix.
On the basis of BCG matrices covering various periods of time, it is possible to build a kind of dynamic series that will give a visual representation of the patterns, directions and rates of promotion on the market of each product. Matrix analysis makes it possible to determine which products or services of an enterprise occupy leading positions compared to competitors, which ones are lagging behind, as well as to preliminarily assess the feasibility and direction of the distribution of strategic resources between them. According to this form of presentation of the results of studying the position of the company's products on the market, we can say that this is a relatively simple, visual and ingenious tool for strategic analysis. It is clear enough that such results can be presented in another form: in the form of analytical tables, time series, etc., and business leaders usually know both the sales volumes of their products and their profitability, as well as their closest competitors. New in the BCG matrix was the linking of these indicators with the position of products on the market and its original division, as well as the form of presentation of the results of the analysis.
The construction and subsequent interpretation of the BCG matrix data are based on the following prerequisites:
· Increasing market share (hence increasing production and sales) reduces unit costs and increases profits as a result of the relative economies of scale.
Gross profit and total income of the enterprise increase in proportion to the growth of the market share of the enterprise;
The need for additional funds with the support of the achieved market share by the enterprise grows in proportion to the growth rate of the market;
because the market for each product eventually declines as it approaches maturity life cycle, in order not to lose the overall position in the market, the profit received by the enterprise should be directed to the production of products that have a tendency to grow.
Below are the main classification characteristics of product types in the relevant strategic areas of the BCG matrix, depending on their profitability and market share, with possible enterprise strategies in relation to them:
"Stars"- products that occupy a leading position in a rapidly developing industry. They generate significant profits, but at the same time require significant amounts of resources to finance continued growth, as well as tight management control over these resources. It is strategically important to protect and strengthen them in order to sustain rapid growth.
"Milch cow"- products that occupy a leading position in a relatively stable or declining industry. Since sales are relatively stable at no additional cost, this product generates more profit than is required to maintain its market share. Thus, the production of this type of product is a kind of cash generator for the entire enterprise, that is, to provide financial support for developing products.
"Dogs"- products with limited sales in an established or declining industry. For a long time on the market, these products failed to win the sympathy of consumers, and they are significantly inferior to competitors in all respects (market share, cost size and structure, image, etc.), in other words, they do not produce and do not need significant volumes financial resources. An organization with such products may try to temporarily increase profits by penetrating special markets and reducing their maintenance costs, or withdraw from the market.
"Difficult Children"("question marks", "calves") - products with little market impact (low market share) in an emerging industry. As a rule, they are characterized by weak customer support and unclear competitive advantages. Competitors dominate the market. Because low market share usually means little profit and limited revenue, these products, in high-growth markets, require a lot of money to maintain market share and, of course, even more money to increase that share further.
When strategically analyzing the position of individual product groups or products on the market, it should be taken into account that "difficult children" certain conditions can become "stars", and "stars" with the advent of maturity will turn first into "cash cows", and then into "dogs". Based on the data of the BCG matrix, you can choose the following main options for the marketing strategies of the enterprise:
Growth and increase in market share - the transformation of the "question mark" into a "star";
Maintaining market share is a strategy for cash cows whose revenues are important for growing product types and financial innovation;
“harvesting”, that is, obtaining short-term profits as much as possible, even at the expense of reducing market share, is a strategy for weak “cash cows” deprived of a future, unfortunate “question marks” and “dogs”;
Liquidation or abandonment of the business and the use of
resulting funds in other industries - a strategy for
"dogs" and "question marks" that have no more options
invest to improve your position.
The BCG matrix can be used:
The advantages of the BCG matrix in terms of using it as a tool for strategic analysis of the internal environment of an enterprise include the following:
Focuses on the consumer, key end results the work of the enterprise - the product (the product basket of the enterprise), the volume of its production and sales and its profitability, starting from which it is possible to analyze all the steps taken for this within the organization;
It makes it possible to visualize and analyze in detail the results of using the adopted marketing strategies of the enterprise, the position in the market and the contribution of each product (type of activity) to overall results enterprise activities;
Shows possible priorities when choosing options for marketing, production and financial solutions on various types of activities, competition strategies, the formation of a business portfolio of an enterprise;
Gives a certain general picture of the demand and competitiveness of the company's products;
Helps to justify various options for marketing strategies;
It is a simple, easy to understand and use approach to the strategic analysis of the company's product basket.
To the main shortcomings BCG matrices can be assigned:
More focused on enterprises - leaders or striving for leadership;
Does not give an answer about the strategic potential, capabilities of the enterprise and the efficiency of the use of its resources. Such an important direction of strategic analysis as the analysis of enterprise resources remains outside the framework of the matrix;
It does not answer the questions of what will happen to “difficult children”: will they grow into leaders or losers, how long will “stars” burn and give high milk yields to “cows”;
When preparing the matrix, it may be difficult to find relevant information on competitors' products, for example, their cost, which is not included in statistical reporting, as well as in the balance sheets and annual reports of enterprises, which can be found in the register of enterprises. For successful application, the matrix requires good knowledge of competitors, the market, fairly accurate positioning of the company's products on it, but does not provide analysis tools suitable for this;
The matrix is focused on financial flows and product strategies of the enterprise, while strategies in other areas of activity are no less important for it: in production, technologies, personnel, management, investments, etc.;
Does not take into account the nature of the market, the number of competitors and other market factors, which, without additional analysis, may lead to the adoption of incorrect or less profitable strategies actions.
The BCG matrix has received wide recognition in the theory and practice of management, and is included for study in many textbooks on strategic management. Despite the noted shortcomings, it still remains a useful tool for planning sales, determining the product strategies of an enterprise. Although since the creation of the matrix economic conditions have changed a lot - in the context of globalization, the number of external factors and the speed of changes in the market have increased significantly, nevertheless, its construction very clearly demonstrates the current state of the company's product portfolio and provides the basis for making new decisions in the field of strategic management.
McKinsey Matrix
An extension of the approach proposed by the BCG is the "Industry attractiveness - the strategic position of the enterprise" matrix, developed by General Electric with the participation of the McKinsey consulting firm to analyze its product portfolio. In the literature on strategic management, it is found under these two names. When constructing it, the authors took into account a number of shortcomings of the matrix of the Boston Consulting Group, introduced into the analysis a much larger number of market factors and evaluation criteria.
The McKinsey matrix is also built in a two-dimensional coordinate system, the vertical axis in which represents the multifactorial vector “attractiveness of the industry (product market)”, and the horizontal axis represents the competitive position of the business unit of the enterprise (product) on this market. To assess the positions of the enterprise's products, integral indicators "good" (high), "average", "low" are used. They consist of estimates of a number of factors, the choice and calculation of which is carried out in the process of developing a matrix by an enterprise. In table. 6.1 shows the factors that can be used to assess the attractiveness of the product market and its competitive position (the position of the business unit of the enterprise) in this market. It should be emphasized that according to both criteria in Table. 6.1 provides an approximate list of evaluation factors. In each case, their choice is determined by the enterprise itself, which allows taking into account the characteristics of each industry and each enterprise.
Table 6.1
Factors that determine the attractiveness of the market and the strategic position of the company's products
|
Pattractivenessbmarket |
Strategic position enterprises |
|
Market size (sales volume) and its growth rate |
Enterprise product market share |
|
Sizes of market segments (characteristics of the main groups of buyers) |
Share of coverage by the enterprise of the main segments of the market (groups of buyers) |
|
Market sensitivity to prices, service level, changes in external factors |
Technology Level |
|
Tendency to seasonality, cyclicality. |
Level of costs and profitability company's products compared to competitors |
|
The degree of influence of suppliers |
The nature of the company's relationship with suppliers |
|
Technological state |
Product quality |
|
Level of competition |
The quality of enterprise management |
|
Industry average profitability |
Personnel qualification |
|
Other factors important to the enterprise, such as economic, social, environmental or legal constraints |
External image, company image and other important factors |
The matrix consists of nine fields (squares), or has a dimension of 3x3. Compared to the BCG matrix, it is more detailed and allows you to give not only a more detailed classification of the types of products of the enterprise, but also to consider more opportunities for the strategic choice of its activities (Fig. 6.4). The sales volumes of the analyzed types of products are shown on the matrix in the form of circles. Their size should correspond to the total sales of products of this type on the market. The share of the enterprise is allocated in this circle as a segment. The strategic positions of the product (business lines) with this construction of the matrix improve as it moves in it from right to left and from bottom to top.
An enterprise that decides to use the McKinsey matrix must evaluate its position for each of those listed in Table. 6.1 factors. Their numerical value is determined by the method of expert estimates. To calculate such ratings, for example, you can use a scale of values from 1 to 5, which allows you to distinguish three levels of ratings: 1-2 - low, 3 - medium, 4-5 - high. Other scales may be used if necessary. Consider, using a conditional example, how this matrix is built.
The assessment of the level of attractiveness of the industry is calculated in the following order:
1. A range of factors or indicators is established by which the attractiveness of the industry (product market) will be assessed. These factors may include the growth of the industry, the intensity of competition, average profitability industry products, industry growth, market size, technological stability, etc. (see Table 6.1). The developers of the matrix themselves determine what factors should be taken into account when assessing the industry.
2. The share of each factor in the overall assessment of the attractiveness of this market in terms of its significance for the enterprise is determined. Those factors that are most important in assessing the attractiveness of an industry are given higher weights, those less important are given lower weights. For ease of calculation, the weights are distributed in such a way that their sum equals one.
3. Each of the factors is given an assessment of the degree of its attractiveness for the company in the evaluated industry. It is determined depending on what it carries with it the ability to achieve the goals of the company. Evaluation is carried out on a five-point scale: 5 - the most attractive, 1 - the least attractive parameter. For example, if an enterprise aims to expand sales volumes, and the industry is not growing, then the industry growth parameter will be rated 1. This will mean that it poses a threat to the company.
4. A generalized assessment of the attractiveness of the market is calculated. The assessment of the relative importance of each factor is multiplied by the corresponding assessment of its attractiveness and all the results are added up. In total, an integral assessment of the attractiveness of the industry is obtained. The maximum industry attractiveness rating can be 5, and the minimum is 1.
A conditional example of calculating the attractiveness of the industry is given in Table. 6.2. The overall score of 4.5 indicates that this industry (the release of a given product, service) is very attractive for the enterprise.
Table 6.2
CALCULATION OF ATTRACTIVENESS OF THE INDUSTRY
The integral (general) assessment of the competitive position in the market of each product manufactured by the enterprise is calculated similarly to the calculation of the market attractiveness assessment. In essence, it reflects a cumulative assessment of the strength of the enterprise for the analyzed type of activity in the market, its strengths and weaknesses compared to competitors. When conducting a strategic analysis of the business portfolio of an enterprise according to the McKinsey methodology, management must also determine whether to evaluate each product (line of activity) on the basis of the same group of factors or on the basis of the most significant factors for the market of each product. Using the first approach creates a level playing field for comparing the products of the enterprise's business portfolio and determining strategies in this area. The second approach can make it possible to draw a more accurate conclusion about the competitive position of the enterprise in the market for this product. An assessment of the strategic position in the competition of each product (line of activity) determines its place along the horizontal matrix and shows whether it occupies a strong, medium or weak position on it.
After estimates of the attractiveness of the market and the competitive position of the company's products are obtained, a positioning matrix for each of its types is built in the coordinate system "attractiveness of the industry / competitive position of products". Each of the axes is divided into three equal parts, characterizing the degree of attractiveness of the market (high, medium, low) and the position of the company's products on it (good, medium, poor). The intersection of the lines coming from them forms nine squares, or fields of the matrix. Each product of the enterprise with an indication of its market share is placed in one of them in accordance with the estimates received. The total sales of products of this type in the industry and the market share of the enterprise, as we noted earlier, are depicted in the matrix for clarity in the form of a circle with the selection of the enterprise sector in it. The area of the circle is determined based on the general proportions of sales volumes of all analyzed products of the enterprise.
What do the results of the analysis say? If, for example, the company's product is in the most favorable upper left cell, it can be said that it is in a good competitive position in a very attractive market and already has such and such a share of it. This means that there are favorable growth prospects for an enterprise in this area and it can pursue such a strategy. On the model of the McKinsey matrix shown in fig. 6.4 shows possible strategic decisions by products that fall into the corresponding cells of the matrix.
|
COMPETITIVE POSITION | |||
|
attractivenessmarket |
Good |
Medium |
bad |
|
High |
Growth and priority investments |
Growth and priority investments |
strengthening positions, limited investment |
|
Medium |
Growth and priority investments |
Usage achieved, limited investment |
Harvesting, abandoning this type of business |
|
Hlow |
Usage achieved, limited investment |
Harvesting, abandoning this type of business |
Harvesting, abandoning this type of business |
Rice. 6.4. McKinsey matrix model
For products that hit into three cells of the upper left part of the matrix,(maybe better like this:into three cells with high market attractiveness) the enterprise should strive to apply the development strategy. They have good competitive positions in attractive industries, therefore, are the highest priority for investment. The next highest priority products are placed in three cells, going diagonally from the lower left to the upper right corner of the matrix. The activities in the top right box (called the "Question Mark") may have a good future, but for this the enterprise should make considerable efforts to improve their competitive position. Products in the lower left box are one of the important sources of cash. They are important today for maintaining the normal life of the enterprise, but they may die, since the attractiveness of this line of business is low.
For departments whose products are three cells in the lower right corner of the matrix, ,(maybe better like this:three cells with low market attractiveness) commonly recommended strategies are "harvest" or pruning. These types of activities are in an undesirable position for the enterprise, they require a fairly quick and effective intervention in order to prevent possible serious negative consequences for the enterprise.
The McKinsey matrix can be used in the same ways as the BCG matrix:
To determine the prospects certain types products or services, activities or divisions of the enterprise and making strategic decisions on them,
For the formation of the business portfolio of the enterprise and its optimization;
To substantiate strategic decisions on the distribution or redistribution of enterprise resources directed to different kinds activities;
For negotiations between the top managers of the enterprise and heads of departments and making decisions on the amount of investment in a particular area of activity.
From the point of view of its use as a tool for strategic analysis of the internal environment of the enterprise, it retains almost all dignity Boston Matrix, but represents its more complex, flexible and detailed form. Its advantages include taking into account the greatest number of factors that are significant for the enterprise, using, along with high and low, also intermediate average estimates, highlighting areas for using enterprise resources that are most likely to lead to strengthening it. strategic positions.
To the main shortcomings McKinsey matrices ( some of them are also characteristic of the Boston Matrix) can be attributed to:
It is based on an analysis and statement of what has been achieved and cannot, without additional research, give a similar picture for the future, take into account the impact of changes in the external and internal environment enterprises;
With multi-product production, it loses such an advantage as visibility or requires separate consideration of individual product groups;
More complex and time-consuming to construct compared to the Boston matrix;
When preparing a matrix, it may be difficult to find relevant information on competitors' products, for example, their cost and profitability, which is not included in statistical reporting, as well as in balance sheets and annual reports of enterprises. For successful application, the matrix requires good knowledge of competitors, the market, fairly accurate positioning of the company's products on it, but does not provide analysis tools suitable for this;
The matrix focuses on the financial and product strategies of the enterprise, while strategies in other areas of activity are no less important for it: in production, technology, personnel, management, investment, etc.;
Does not exclude subjective, inaccurate assessments of various significant factors, which may lead to the adoption of incorrect or less profitable action strategies.
(will go to the section on organizations) internal factors organizations that influence its activities. These include: strategy, sum of skills, shared values, organization structure, systems, company employees, style. The relationship of these factors is shown in Figure 6.2. This representation of the model is based on the idea that the chosen strategy manages all the selected elements of the organization and corresponds to its goals.
.
The significance of the McKinsey 7-C model is associated primarily with the fact that it shows the importance for strategic planning not only development financial indicators but also taking into account the quality of work and qualifications of employees, as well as human relations and personal needs of the members of the organization, reflected in the concepts of "shared values" and "organization culture". The concept of "structure" in it implies not only the organizational structure of the enterprise, but also the quality of the division of labor. The concept of "system" covers all accepted technologies, including management ones.
ModelP1 MS(we will include it with reference to Petrov, then SWOT)
All models of strategic analysis (choice) discussed above are based on economic and intuitive analysis. None of them has an explicit formalized
solutions. A model in which a formalized approach is implemented
in strategic analysis (selection), is PIMS ("Impact
profit marketing strategy"). Within the framework of the regression model, not only the factors that are most closely related to profitability are determined, but also the degree of their relative influence as variables on the target function.
Initially, the model was based on information from General
Electric. Then, in addition to this information, data from many other corporations were added. And for project management
functioning of this model, the Institute for Strategic
planning. Number of participants (companies) of this model all the time
increased, as a result of which the model database was constantly growing.
Currently, the database of the model consists of materials from about 3000 SHPs from several hundred companies, mainly
North American and European. Thus, companies giving
information on their types of business (and this is data on current
technical, economic and accounting indicators of the business, the state of the serviced market, the leading competitors of the enterprise, etc.), thereby increasing the representativeness of the model, and in return receive the estimated data of the model, which serve as the basis for strategic analysis (choice). Its essence lies in the fact
that the company, comparing calculated model and actual data,
gets the opportunity to determine which strategic actions
must be produced to succeed, what can be expected
from specific strategic choices.
In the model under consideration, the objective functions are the accounting return on investment (ROI), determined by the ratio of income, after deducting corporate costs, to the amount of working and fixed capital at residual value, and cash flow (Cash Flow). Each business in the model is described by more than 30 factors that, according to the ideologists of the model, have the greatest influence on the adoption of one or another line of action. All factors can be divided into (three groups of analyzed strategic and situational variables) three main blocks: competitive situation, production structure and market situation. You can name some variables in each block. In the first - market share, relative market share and relative product quality, the increase of each of them positively affects profitability. In the second block - the ratio of the amount of invested capital to the volume of sales and added value (an increase in these indicators negatively affects profitability), as well as the degree of use of production capacities and the level of labor productivity (an increase in them has a positive effect on profitability). Finally, 
Rice. 6.6. Basic building blocks of a PIMS model with examples of specific variables
(the “+” sign means a favorable effect on profitability, the “-” sign -
opposite effect)
in the third block - indicators of market growth (positive impact
on profitability), industry capital intensity, cost ratio
on marketing to the amount of sales, the total volume of purchases (increasing their
usually has a negative impact on profitability).
In addition to calculating multiple regression equations, which
show how the objective functions will change depending on
from changing various variables, i.e. taking into account specific strategies
in a certain market situation, a participant in model calculations
may receive four more documents.
1. The first shows what level of ROI and CF will be normal
for the given nature of the market environment, use
investments, type of company and historical model
strategic actions. These calculations are based on real
past experience of business lines that have been in such
same conditions. Deviations of the company's ROI from the normal,
for example, it can show whether a business is doing well or badly
in the company, what are the critical success factors.
2. The second shows strategic sensitivity, i.e. prediction
what would change (for various periods - short-term,
long-term), if any
strategic changes. Sensitivity shows how
profitability depending on future valuations (shares
market, capital intensity, labor productivity, etc.), represented by
3. The third document characterizes the optimal PIMS strategy,
i.e. predicts which combination of strategic actions
will give the best value of ROI, CF.
4. The fourth block is the results of calculations according to the simplified model
PIMS, which takes into account only 18 variables affecting profitability,
and not 37, as in the main model. This block contains elements
all previous blocks, but not in such a detailed form.
It is believed that the simplified model is important in cases where
difficult to get all the information needed for development
PIMS models in full.
The undoubted advantage of the model, according to many researchers,
is the use of empirical material. However
application of PIMS data, as well as any other economic and mathematical
models, can only serve as a means in making
managerial decisions, not as a substitute for them.
The database is formed at the Institute of Strategic Planning,
which is located in Boston (Massachusetts, USA) and has
branches in other countries.
One of the biggest advantages of the model is that it causes
discussion and thought provoking. Conclusions may be drawn
too hastily, but the debate always takes place at the proper level
and essentially.
The disadvantage of the PIMS model is that it tends to be somewhat mechanical.
view and detachment from the realities of business. Among the adherents of this
models are especially common among supporters of the technical approach
to planning, which negatively affects its reputation
in the eyes of those who build their strategy on the basis of entrepreneurial
At the same time, the undoubted advantage of this model is
the research opportunities it opens up. Based on these studies
there are many new ideas about various aspects
strategies.
As for the applicability of this model for the conditions of Russia, then
should be said to collect the necessary and representative information
to build a similar model for Russian enterprises
not yet possible.
SWOT-analysis
SWOT analysis is the most comprehensive strategic
enterprise analysis. However, in the domestic literature
on strategic planning and management, he
found more reflections, in contrast to the BCG matrices considered above
and GE, as well as PIMS models. Therefore, it seems necessary
expand on this method in more detail.
SWOT-analysis (abbreviated from the first letters of the words: strength - strength,
weakness - weakness, opportunity - opportunity, threat - threat)
comprehensively explores the external environment and resource potential
enterprises. Wherein Special attention given not only
statement of facts, but the definition of "opportunities" and "threats" that
brings into the activity of the enterprise the external environment
environment, and "strengths" and "weaknesses" arising from the available resource
potential of the primary link of management. Based on the above,
SWOT analysis is a study carried out
sequentially according to the following procedure.
The BCG matrix is a kind of display of positions specific type business in a strategic space defined by two coordinate axes, one of which is used to measure the growth rate of the market for the relevant product, and the other is used to measure the relative share of the organization's products in the market of the product in question.
The BCG model is a 2x2 matrix in which business areas are represented by circles centered at the intersection of coordinates formed by the corresponding market growth rates and the relative share of the organization in the corresponding market (see figure). Each circle plotted on the matrix characterizes only one business area characteristic of the organization under study. The size of the circle is proportional to the total size of the entire market (in other words, it takes into account not only the size of the business of this particular organization, but in general its size as an industry on the scale of the entire economy. Most often, this size is determined by simply adding the business of the organization and the corresponding business of its competitors). Sometimes, each circle (business area) has a segment that characterizes the relative share of the organization's business area in a given market, although this is not necessary to draw strategic conclusions in this model. Market size, like business areas, is most often measured by sales volumes and sometimes by asset values.
It should be especially noted that the division of the axes into 2 parts was not done by chance. At the top of the matrix are business areas related to industries with above-average growth rates, at the bottom, respectively, with lower ones. In the original version of the BCG model, it is assumed that the boundary between high and low growth rates is a 10% increase in output per year.
The abscissa axis, as already noted, is logarithmic. Therefore, a typical coefficient characterizing the relative market share occupied by a business area varies from 0.1 to 10. Displaying competitive position (which is understood here as the ratio of an organization's sales in the corresponding business area to the total sales of its competitors) on a logarithmic scale is a fundamental detail of the BCG model. The fact is that the main idea of this model assumes the existence of such a functional relationship between the volume of production and the unit cost of production, which looks like a straight line on a logarithmic scale.
The breakdown of the matrix along the abscissa into two parts allows us to distinguish two areas, one of which includes business areas with weak competitive positions, and the second - with strong ones. The border of the two regions passes at the level of the coefficient 1.0.
Thus, the BCG model consists of four quadrants:
Rice. 4. Introducing the BCG Model for Strategic Position Analysis and Planning
- High market growth rates / High relative market share of the business area;
- Low market growth / High relative market share of the business area;
- High market growth / Low relative market share of the business area;
- Low market growth / Low relative market share of the business area.
Stars
These tend to be new business areas that account for a relatively large share of a rapidly growing market, operations in which bring high profits. These business areas can be called leaders in their industries. They bring organizations a very high income. However, the main problem is related to finding the right balance between income and investment in this area in order to guarantee the return of the latter in the future.
cash cows
These are business areas that have gained relatively large market share in the past. However, over time, the growth of the relevant industry slowed down noticeably. As usual, "cash cows" are "stars" in the past, which currently provide the organization with enough profit to maintain its competitive position in the market. The cash flow in these positions is well balanced, since investment in such a business area requires the bare minimum. Such a business area can generate very large revenues for the organization.
Difficult children
These business areas compete in growing industries but hold a relatively small market share. This combination of circumstances leads to the need to increase investment in order to protect its market share and ensure survival in it. The high growth rate of the market requires significant cash flow to match this growth. However, these business areas have a hard time generating revenue for the organization due to their small market share. These areas are most often net cash consumers, not cash generators, and remain so until their market share changes. These business areas have the greatest degree of uncertainty: either they will become profitable for the organization in the future, or not. One thing is clear, without significant additional investment, these business areas are more likely to slide into "dog" positions.
Dogs
These are business areas with relatively small market share in slow growing industries. Cash flow in these areas of business is usually very small, and often even negative. Any move by an organization towards gaining a large market share is uniquely immediately counterattacked by the industry's dominant competitors. Only the skill of a manager can help an organization maintain such positions in the business area.
When using the BCG model, it is very important to correctly measure the growth rate of the market and the relative share of the organization in this market. It is proposed to measure the market growth rate based on industry data for the last 2-3 years, but no more. An organization's relative market share is the logarithm of the ratio of an organization's sales in a given business area to that of the leading organization in that business. If the organization itself is a leader, then its relation to the first organization following it is considered. If the obtained coefficient exceeds one, then this confirms the leadership of the organization in the market. Otherwise, this will mean that some organizations have a large competitive advantage compared to this one in this business area.
(from book " Strategic management organizations" Bandurin A.V., Chub B.A.)
Publications
The difficult fate of the BCG matrix
On the shortcomings of the BCG model and the difficulties of its use
Strategic planning and the role of marketing in an organization
In particular, the article outlines some methods of strategic analysis of a portfolio of businesses
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In this section you can ask your questions or express your opinion on this technique.
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Strategic analysis models (BCG, etc.), strategy formation and analysis
The Boston Consulting Group
Website of the company that developed the BCG model
It is perhaps difficult to give an example of a more famous, illustrative and a simple tool portfolio analysis than BCG matrix. The diagram, divided into four sectors, with original memorable names (“Stars”, “Dead Dogs”, “Difficult Children” and “Cash Cows”) is known today to any marketer, manager, teacher or student.
The matrix developed by the Boston Consulting Group (USA) quickly gained popularity due to the simplicity and clarity of the analysis of products, divisions or companies based on two objective factors: their market share and market growth rate. And today, the BCG matrix is among the minimum amount of knowledge that any economist should learn.
BCG matrix: concept, essence, developers
Matrix BCG (BCG Matrix) is a tool for strategic portfolio analysis of the position in the market of goods, companies and divisions based on their market growth and market share.
A tool such as the BCG matrix is currently wide application and in management, and in marketing, and in other areas of the economy (and not only). The BCG matrix was developed by experts Boston Consulting Group ("Boston Consulting Group"), engaged in management consulting, in the late 1960s, under the leadership of Bruce Henderson. It is to this company that the matrix owes its name. In addition, the matrix of the Boston Consulting Group became one of the first portfolio analysis tools.
BCG matrix. Here, the horizontal axis (relative market share) is inverted: higher values are on the left, lower values are on the right. In my opinion, this is illogical and confusing. Therefore, the direct order of the axis values will be used below: from smallest to largest, and not vice versa, as here.
Why do you need a BCG matrix for a company? Being simple but effective tool, it allows you to identify the most promising and, on the contrary, the “weakest” products or divisions of the enterprise. Having built a BCG matrix, a manager or marketer gets a clear picture, on the basis of which he can decide which goods (divisions, assortment groups) should be developed and protected, and which should be eliminated.
Graphically, the BCG matrix represents two axes and four square sectors enclosed between them. Consider the phased construction of the BCG matrix:
1. Collection of initial data.
The first step is to make a list of those products, divisions or companies that will be analyzed using the BCG matrix.
Then for them you need to collect data on sales and / or profits for a certain period (say, for the past year). In addition, you will need similar sales data for a key competitor (or a set of major competitors).
For convenience, it is desirable to present the data in the form of a table. This will make them easier to handle.
The first step is to collect all the initial data and group them in the form of a table.
2. Calculation of the market growth rate for the year.
Then, for each analyzed product (division), the market growth rate is calculated.
3. Calculation of the relative market share.
Having calculated the market growth rate for the analyzed products (divisions), it is necessary to calculate the relative market share for them. There are several ways to do this. The classic option is to take the sales volume of the analyzed product of the company and divide it by the sales volume of a similar product of the main (key, strongest) competitor.
For example, the sales volume of our product is 5 million rubles, and the strongest competitor selling a similar product is 20 million rubles. Then the relative market share of our product will be - 0.25 (5 million rubles divided by 20 million rubles).
The next step is to calculate the relative market share (relative to the main competitor).
At the fourth last stage, the actual construction of the matrix of the Boston Consulting Group is carried out. From the origin we draw two axes: vertical (market growth rate) and horizontal (relative market share).
Each axis is divided in half, into two parts. One part corresponds to low values of indicators (low market growth rate, low relative market share), the other corresponds to high values (high market growth rate, high relative market share).
An important question to be solved here is what values of the market growth rate and relative market share should be taken as central values dividing the axes of the BCG matrix in half? The standard values are as follows: for market growth rate – 110% , for relative market share – 100% . But in your case, these values \u200b\u200bmay be different, you need to look at the conditions of a particular situation.
And the final action is the construction of the BCG matrix itself, followed by its analysis.
Thus, each axis is divided in half. As a result, four square sectors are formed, each of which has its own name and meaning. We will talk about their analysis later, but for now it is necessary to put the analyzed goods (divisions) on the field of the BCG matrix. To do this, sequentially mark the market growth rate and the relative market share of each product on the axes, and draw a circle at the intersection of these values. Ideally, the diameter of each such circle should be proportional to the profit or revenue corresponding to this product. So you can make the BCG matrix even more informative.
Analysis of the BCG matrix
Having built the BCG matrix, you will see that your products (divisions, brands) ended up in different squares. Each of these squares has its own meaning and a special name. Let's consider them.
The field of the BCG matrix is divided into 4 zones, each of which corresponds to its own type of product / division, development features, market strategy, etc.
STARS. They have the highest market growth rates and hold the largest market share. They are popular, attractive, promising, rapidly developing, but at the same time require significant investment in themselves. That's why they are "Stars". Sooner or later, the growth of the "Stars" begins to slow down and then they turn into "Cash Cows".
CAIRY COWS(aka "Money Bags"). They are characterized by a large market share, with a low rate of its growth. Cash cows do not require expensive investments, while bringing a stable and high income. The company uses this income to fund other products. Hence the name, these products literally "milk".
WILD CATS(also known as "Dark Horses", "Problem Children", "Problems" or "Question Marks"). They have it the other way around. The relative market share is small, but the sales growth rate is high. It takes a lot of effort and expense to increase their market share. Therefore, the company must conduct a thorough analysis of the BCG matrix and assess whether the "Dark Horses" are capable of becoming "Stars", whether it is worth investing in them. In general, the picture in their case is very unclear, and the stakes are high, which is why they are "Dark Horses".
DEAD DOGS(or "Lame Ducks", "Dead Weight"). They are all bad. Low relative market share, low market growth. Their income and profitability are low. They usually pay for themselves, but nothing more. There are no prospects. Dead Dogs should be disposed of, or at least their funding stopped if they can be dispensed with (there may be a situation where they are needed for the Stars, for example).
BCG matrix scenarios (strategies)
Based on the analysis of goods according to the matrix of the Boston Consulting Group, the following main strategies of the BCG matrix can be proposed:
INCREASE MARKET SHARE. Applied to "Dark Horses" in order to turn them into "Stars" - a popular and well-selling item.
KEEP MARKET SHARE. Suitable for "Cash Cows", as they bring a good stable income and it is desirable to maintain this state of affairs as much as possible.
REDUCING MARKET SHARE. Perhaps in relation to "Dogs", unpromising "Difficult Children" and weak "Cash Cows".
LIQUIDATION. At times liquidation this direction business is the only reasonable option for "Dogs" and "Problem Children", which, most likely, are not destined to become "Stars".
Conclusions on the BCG matrix
Having built and analyzed the matrix of the Boston Consulting Group, a number of conclusions can be drawn from it: 1. Management and commercial decisions should be made in relation to the following groups of the BCG matrix:
a) Stars - maintaining leading positions;
b) Cash cows - getting the maximum possible profit, over the longest possible period of time;
c) Wild cats - for promising products investment and development;
d) Dead dogs - termination of their support and / or withdrawal from the market (removal from production).
BCG matrix. The orange arrow shows the life cycle of a product that passes through all stages, from being in the status of "Wild Cats" to becoming "Dead Dogs". Purple arrows depict typical investment flows.
2. Measures should be taken to form balanced portfolio according to the BCG matrix. Ideally, such a portfolio consists of 2 types of goods:
a) Goods that bring income to the company in present time. These are "Cash Cows" and "Stars". They are making a profit today, right now. The money received from them (primarily from Dairy Cows) can be invested in the development of the company.
b) Goods that the companies will provide income in the future. These are promising "Wild Cats". At present, they can bring very small income, not bring it at all or even be unprofitable (due to investments in their development). But in the future, under favorable conditions, these "Wild Cats" will become "Cash Cows" or "Stars" and begin to bring in a good income.
This is what a balanced portfolio should look like according to the BCG matrix!
Advantages and disadvantages of the BCG matrix
The BCG matrix, as a portfolio analysis tool, has its pros and cons. Let's list some of them.
Benefits of the BCG Matrix:
- thoughtful theoretical basis (the vertical axis corresponds to the life cycle of the product, the horizontal axis corresponds to the economies of scale of production);
- objectivity of the estimated parameters ( market growth rate, relative market share);
- ease of construction;
- clarity and clarity;
- great attention is paid to cash flows;
Disadvantages of the BCG matrix:
- it is difficult to clearly define the market share;
- only two factors are evaluated, while other equally important ones are overlooked;
- not all situations can be described within the 4 studied groups;
- does not work when analyzing industries with a low level of competition;
- the dynamics of indicators, trends are almost not taken into account;
- the BCG matrix allows you to develop strategic decisions, but says nothing about tactical moments in the implementation of these strategies.
Download ready template for BCG matrix in Excel format
Galyautdinov R.R.
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It is very important for a company to understand which of the products bring profit to it, and which require large expenses, but do not bring anything. A very popular tool for planning a company's assortment, which helps determine the attractiveness of products, is called the BCG matrix. BCG is the first letters of the words "Boston Consulting Group", which developed this matrix. The BCG matrix is a portfolio tool: it allows you to analyze all the products that the company deals with.
The matrix allows you to analyze two parameters. The first is the growth rate of the market segment we need. This criterion tells us about the attractiveness of the market for the company at the moment. The second parameter is the market share that the company has relative to the most dangerous competitor for the company. This parameter allows us to tell how competitive a given product is in a given category. When determining these parameters, it is very important to be as honest as possible.
According to these two parameters, several groups of goods are distinguished:
· "Stars" - products with a large market share and a high growth rate. These are the leading products, with the greatest potential, often the most recognizable. Such products require large financial investments to promote them as long as the market continues to grow. Perhaps in the future they will become "cash cows".
· "Cash cows" - products with a large market share and low growth. These products have good sales in a market that is no longer growing and has long been divided. Such products do not require investments in promotion, on the contrary, they give the company a large profit. It is enough for the company to maintain the position of this product for as long as possible.
· "Question marks" - products with a small market share and a high growth rate. These products are not as profitable as the leading products, but as the market grows, they also have a chance to grow. Such goods require high costs, otherwise they can quickly turn into "dogs", respectively, they must either be developed in order to capture a large market share, or deinvested. The company must analyze the potential of the product, its capabilities, and choose the right strategy.
· "Dogs" - goods with a small market share and with a low growth rate. The potential of such products is not very great: they bring little profit compared to other products. Perhaps they have some value, perhaps, on the contrary, they need to be got rid of and focused on something more attractive. Such goods require significant costs with uncertain growth prospects. Spending a lot of money on such products is not recommended.
So the BCG matrix allows us to understand the attractiveness of a particular group of goods and determine the strategy for promoting goods. It is also important to understand that it is based on one parameter - the analysis of market share, and if there are few competitors in this niche, it will not be so useful.
For each of these groups, we will be able to identify our own financing and product management strategies to maximize the company's profits and increase its efficiency. Let us consider the characteristics of these groups in more detail.
cash cows
Dairy cows have a high profitability, more than is necessary for their growth, so they do not need additional investments. Dairy cows have stable sales channels, no significant advertising and promotion costs, no costs for new developments. Due to the fact that further growth and development of such products is limited, they are a source of Money on the scientific developments and the development of other, more promising products and directions. Therefore, the main strategy for such products is “skimming” (“harvesting”), in other words, profit maximization.
Stars
Star products are in-demand and competitive products that bring tangible profits, but require additional investment to develop and maintain a high market share. As strategies for this group of goods, we can offer the search for new markets, investors or cost reduction. Over time, if these commodities remain highly profitable while market growth slows, they will become cash cows.
Problems
This group includes products that are presented in fast-growing industries, but have little profitability and market share. Further development of these product groups is associated with significant investments to increase their market share. This may be additional investment in product development, expansion of distribution channels or large-scale advertising campaign. When a product falls into this quadrant of the BCG matrix, the enterprise must assess how promising this product can be and decide whether there are now sufficient resources for its development. If there are opportunities, then the goods of this group after some time can move into the “stars” category, if not, then they will either retain their positions or move into the “dogs” group.
Dogs
This group includes goods that are unprofitable or have a low rate of return. They can pay for themselves, but nothing more. At the same time, they have practically no opportunities for growth in sales and profitability. It can be both new products that have failed in the market, and products of a falling market that have ceased to be in demand by consumers. Priority strategy for these groups of goods: reducing investment, closing this line of business or selling it. In rare cases, rebranding of goods of this type, reorientation to other segments and markets is possible.
So, there are 3 main strategies for product groups from the BCG matrix:
- Investing and growing market share - for promising products from the "stars" and "problems" groups,
- Maximizing profits and maintaining market share - for "cash cows",
- Reducing investment and market share - for groups "dogs" and "problems" that have no development prospects.
Based on this, we can conclude that the ideal portfolio of goods (services) of the company should consist of 2 groups:
- Goods capable of providing the company with free cash resources for investing in business development (stars and cash cows);
- Products that are in the growth stage and capable of ensuring the future stability and profitability of the company (problems and stars);
It should also be taken into account that an excess of aging goods (“dogs”) indicates the danger of a recession, even if the current performance of the enterprise is good. On the other hand, an excess of new products can lead to financial hardship.
Advantages and disadvantages of the BCG matrix
As we said at the beginning, the Boston Consulting Group matrix has certain advantages. First, the matrix is based on two objective indicators: growth rate and relative market share, while the results obtained are clear and easy to analyze. Secondly, this model allows you to link the indicators of the life cycle of a product and investment activity. That is, with its help, we will be able to determine the investment in which products will be more promising. After that, we can develop a more balanced assortment and investment strategy for the company. However, this model also has some disadvantages that must be taken into account when using it:
- Strong simplification of the situation: high growth rates are not always a sign of profitability and attractiveness of the market, since it does not take into account how long the trend will be and other macro and micro economic factors are ignored;
- Relative market share also may not always indicate the competitiveness of a product. It is rather the result of previous decisions and actions in the company, which does not guarantee the success and leadership of the product in the future;
- Difficulty in collecting objective data on market growth rates and relative market share. It's not difficult to get approximate data based on the company's performance, but where can we get data for new markets and how reliable data can we get from external sources?
- A slowdown in market growth does not always indicate the end of a product's life cycle. There are other situations, for example, an economic crisis, when many industries experience a decline;
- The BCG matrix suggests the right directions for investing, but does not contain tactical guidelines and restrictions in the implementation of the strategy. Investment in product development without explicit competitive advantage may go inefficiently;
- This model can hardly predict the emergence of substitute products from other industries, and it is not very effective for industries with too high or too low levels of competition;
Thus, we can conclude that dividing the company's assortment into 4 groups helps to identify priority and promising areas for investment, abandon less profitable products and develop long-term strategies for the development of each assortment unit. Despite the fact that this model has certain limitations and disadvantages, it can be very useful for analyzing the market situation, due to its visibility, which will enable any company to more effectively build its investment and assortment strategy. In the following articles, we will talk about other ways to analyze the assortment. Such as
