The Boston Consulting Group Matrix: A Detailed Review. Boston Advisory Group (BCG) Matrix

Engineering systems 20.10.2019

Engineering systems

The matrix method was proposed in the 50s by the American economist I. Ansoff. The most famous BCG matrix, (Boston Consulting Group Matrix, Strategic Matrix, Boston Matrix, Growth-Share Matrix), is built on two factors: the pace of market development (industry) and the market share occupied by the firm. Using this matrix, you can analyze the company's products, company lines of business, business units, projects, etc.

The method consists in assessing the share of each product in the market and assessing the degree of growth of the corresponding market (industry). Market share estimation is the result of analyzing the sales of all industry participants and determining the share of these sales attributable to the company. The share is expressed as a percentage of the market volume. The assessment of market growth is the result of a time series analysis showing sales of a given type of product in retrospect. Growth rates are expressed as a percentage of the previous period.

The BCG matrix is used in the process strategic analysis and product program planning ( product range), allows you to correctly allocate resources between the available goods. Re-building the BCG matrix after a certain period of time can be useful in the process operational management assortment.

The Boston Matrix is based on a product life cycle model, according to which a product goes through four stages in its development: entry into the market (product - "difficult child"), growth (product - "star"), maturity (product - "cash cow"). ") and recession (product-"dog"). The BCG matrix is a graphical representation of the position of a particular type of business in the strategic space "growth rate / market share".

The horizontal axis on the graph corresponds to the market share occupied by the products. When moving from right to left, market share decreases. The vertical axis corresponds to the growth rate of the market. The extreme upper point corresponds to the maximum growth rate, the extreme lower point corresponds to the minimum. The extreme low point can also have a negative value - this means that there is a product whose market is declining. When moving from top to bottom, the growth rate decreases. In the market share/market growth coordinate axes, each product is fixed as a circle, the center of which has coordinates corresponding to the received estimates of market share and market growth, and the radius is proportional to the share of the product in the company's sales volume.

Further, the entire range of product shares in the markets is divided into two parts - a high share ( right part range) and low proportion (left part of the range). The range of growth rates is also divided into two parts - high rates ( top part range) and low tempos (lower range). As a result, we will get a matrix like the one shown below.

The role of the product is determined by its place in the matrix. In total, there are four quadrants, and, accordingly, four types of products:

Zvezda is a product that has a significant share in a growing market. The circle representing this product is in the upper right quadrant of the matrix. A company that has such products, especially if they have significant shares in the company's sales (that is, the radii of the circles depicting these products are large), spends a lot of money on maintaining these products. In the fashion business, such products require special handling: you should correctly predict the time of the fall of the "star".

A cash cow is a product that has a significant market share in a low-growth or shrinking market. The product circle is located in the lower right quadrant of the matrix. The need for maintenance and marketing costs for such a product is low, and due to its high market share, such a product generates income. Such a product is usually a donor of funds for the development of new products. At garment factories, "cash cows" can be different kinds special clothes, products classic design etc.

Question Mark (Difficult Child, Wild Cat, Dark Horse) is a product with low market share in a rapidly growing market. The product circle is located in the upper left quadrant of the matrix. The market (that is, the need) for such a product is growing, but significant funds are required to increase its production and capture a significant market share. These funds can be obtained from "cash cows". However, a decision to withdraw such a product may also be made.

"Dog" ("Lame Duck") - a product with a low share in a stable or declining market. The product circle is located in the lower left quadrant of the matrix. As a rule, such products require disproportionately large amounts of resources. In clothing companies, these products may include image products that support the sale of other products (accessories) or innovative products that are still being tested by customers. Experts propose to allocate such products to a separate innovative group.

Depending on the combination of market share and growth, an individual marketing strategy. One possible strategy is to constantly create products that are in demand. The money raised from such popular products can be invested in "problems" in order to make them become "stars". As the market matures, the "stars" become popular "cash cows" and the process repeats. Graphically, the matrix is shown in Fig. 8.1

Rice. 8.1. BCG matrix

The advantages of the BCG matrix are its visibility. The matrix allows you to see the structure of the product portfolio on one sheet of paper and determine the sources financial resources(that is, which products are donors and which are acceptors of financial resources), as well as make decisions about the withdrawal and development of certain products.

The disadvantage of the matrix is its conditionality. It is difficult to answer the question - where to draw a dividing line between "high" and "low" market shares, as well as another question - which growth rates are considered "high" and which "low". The positions of the boundaries of the matrix quadrants and, consequently, the assignment of products to certain classes depend on the answers to these questions. The method does not answer these questions, leaving them to the conscience of experts. Hence, the estimates obtained are largely subjective.

The justifications for decisions made on the basis of the method also look unclear. Let's say the product is defined as "Dog". What follows from this? It depends to a large extent on what the forecast for the contraction of the market is. If the market shrinks to zero, that is, a product of this type ceases to be in demand at all, then the decision should be in favor of withdrawing the product. If the market shrinks to natural consumption (say, there is a reduction in rush demand caused by fashion or prestige), and competitors remove similar products, then the option of reducing product output to a minimum is possible.

The classic BCG matrix is difficult to use in the domestic market for the following reasons:

We do not have reliable information about the market shares of competitors;

Most domestic firms have a history of only a few years, which does not allow us to operate with the concept of an average annual growth rate;

Fashion goods are not similar, as a result of which data is needed not just for some type of product, but for its specific model.

As a result, the concept of market share loses the significance that the developers of the matrix originally attached to it. Therefore, an adapted version of the BCG matrix for domestic enterprises is proposed.

To this end, it is proposed:

Choose indicators that most fully characterize the activities of the company (revenue, profit, income, etc.);

As one parameter, you should use the annual (rather than the average annual) growth rate of the selected indicator (to calculate it, you should choose a sliding period of time equal to 12 months preceding the date of analysis, and use the least squares method to calculate the annual growth rate using 12 points);

It is expedient to set the boundary for the first parameter at the level of the annual inflation rate for this species products (or average inflation rate); * as the second parameter, you should use the share (in%) of each product (object) in the total sales volume of the company;

The boundary for the second parameter should be determined using the Pareto law (20: 80). To do this, you need to sum the shares of products, ranked in descending order. The boundary is drawn at the value of the share of the product, at which the sum of the shares exceeds 80%.

It is also proposed to characterize the share of the “rank share” that this product (HCP) occupies in the total sales (profit) of the company:

K \u003d Yi / Yo * 100%; where

Yo - total sales in monetary terms for the base period;

Yi - sales volume of products of the i-th group of goods for the same period.

At the same time, when analyzing a separate model, one should take its sales in relation to the given assortment group as a whole, and not to the entire assortment as a whole.

As the second characteristic of the product group (the vertical axis of the matrix), the parameter " specific gravity product groups in the rate of change in the sales volume of the enterprise "during the base period of time along a linear trend.

The linear trend of the sales function is proposed to be calculated according to the equation:

Yo \u003d Ao * X + Bo; where

Yo - estimated sales volume;

X - billing period (month);

Ao - estimated change (increase or decline) in sales compared to the previous billing period.

The division of products (objects) into groups of the BCG matrix should not serve as a basis for categorical conclusions. For each group, a plan for additional analysis and development of activities should be developed and taken under control. Since the results of the analysis using the BCG matrix will inevitably affect personal (career) interests specific people, it is necessary to preempt attempts to discredit the results and the method itself on their part.

Such a consideration gives meaning to the dynamics of the movement of representative points from quadrant to quadrant and allows us to outline the optimal behavior of the company, based on an understanding of the logic of the natural processes occurring in it.

Thus, using the BCG matrix at a sewing enterprise, it is possible to determine:

Leading product type in comparison with competitors;

Market dynamics.

The matrix is based on the assumption that the greater the share of products in the market, the lower the relative costs and the higher the total profit. An analysis of the received portfolio of orders shows how realistic the marketing plan is. Such a sequence of stages allows the manufacturer of new products to accelerate the promotion of goods from the first stage of the life cycle to the last and form an optimal assortment structure.

The BCG matrix, also called "growth - market share", is a simple and visual tool for portfolio analysis. Accessibility, originality of the names of the chart sectors made it very popular among marketers and managers. Consider the example of building a matrix in Excel.

Application examples of the BCG matrix

Using the Boston Consulting Group (BCG) matrix, you can quickly and visually analyze product groups, branches of an enterprise or company based on their share in the relevant market segment and market growth rate. The application of the tool is based on two hypotheses:

The market leader has a competitive advantage in production costs. Therefore, the leading company has the highest profitability in the segment.
To work effectively in a fast-growing market, an enterprise needs to invest a lot in the development of its product. Presence in a segment with a low growth rate allows the company to reduce this cost item.

Using the BCG matrix, you can quickly identify the most promising and the “weakest” products (branches, companies). And already on the basis of the data received, make a decision: which assortment group (division) to develop, and which one to liquidate.

All the analyzed elements, after the work done on the analysis, fall into one of four quadrants:

"Problems". Products present in high-growth industries but with low market share. Significant financial investments are needed to strengthen their position in the market. When an assortment group or division falls into this quadrant, the enterprise decides whether it has sufficient funds for the development of this direction. Without cash injections, the product does not develop.
"Stars". Lines of business and products are leaders in a rapidly growing market. The task of the enterprise is to support and strengthen these products. The best resources should be allocated to them, because it is a stable source of income.
"Money Bags" Goods with relatively high proportion market in a slow growing segment. They do not need high investments and are the main generator Money. The proceeds from their sale should go to the development of "stars" or "wild cats".
"Dead weight". Feature– relatively low market share in a slowly growing segment. These directions do not make sense to develop.

BCG matrix: an example of construction and analysis in Excel

Consider the construction of the BCG matrix on the example of an enterprise. Training:

Construction of the BCG matrix

In Excel, a bubble chart is best suited for this purpose.

Through the "Insert" add a construction area to the sheet. Enter the data for each row as follows:

On the horizontal axis - the relative market share (we set up a logarithmic scale: "Layout" - "Format of the horizontal axis"). On the vertical - the rate of market growth. The chart area is divided into 4 identical quadrants:

The central value for the market growth rate is 90%. For relative market share - 1.00. Based on these data, we will distribute the product categories:

Conclusions:

"Problems" - Goods 1 and 4. Investments are needed for the development of these items. Development scheme: creation competitive advantage- distribution - support.
"Stars" - Goods 2 and 3. The company has such categories - and this is a plus. At this stage, only support is needed.
"Cash Cows" - Good 5. Brings in a good profit that can be used to finance other products.
"Dead weight" was not found.

The BCG Matrix is a tool for strategic portfolio analysis of the market position 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 the Boston Consulting Group, a management consulting group, in the late 1960s under the direction of Bruce Henderson. It is to this company that the matrix owes its name. The Boston Consulting Group Matrix was one of the first portfolio analysis tools.

Why do you need a BCG matrix for a company? Being a 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 receives clear picture, on the basis of which he can decide which products (divisions, assortment groups) should be developed and protected, and which should be eliminated.

Construction of the BCG matrix

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 (for example, for last 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

At this stage, you need to calculate the annual increase in sales (revenues) or profits. Alternatively, you can calculate both the increase in revenue and the increase in profit for the year, and then calculate the average. In general, our task here is to calculate the growth rate of the market. For example, if 100 units were conditionally sold last year. goods, and this year - 110 units, then the market growth rate will be 110%.

Then, for each analyzed product (division), the market growth rate is calculated.

3. Computing 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. Classic variant- 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).

4. Construction of the BCG matrix

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 the market growth rate - 110%, for the 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 eigenvalue and a special name. Let's consider them.

The field of the BCG matrix is divided into 4 zones, each of which has 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 “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 cases 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 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.

KEEPING 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. Sometimes the liquidation of this line of business is the only reasonable option for "Dogs" and "Difficult 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.

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.

Advantages of the BCG matrix:

well-thought-out theoretical basis (the vertical axis corresponds to life cycle goods, horizontal - the effect 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 factors 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.

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1st step: Gathering initial information

Collect data on sales and profits of the analyzed groups in a single table.

2nd step: Calculate the market growth rate

Calculate the weighted average market growth rate for each product group. If it is not probable to calculate the weighted average market growth rate, it is allowed to introduce a simple market share into the model.

In accordance with the obtained data, determine the market growth rate for each product in the analysis:

if the growth rate is less than 10% - "small"
if the market growth rate is more than 10% - “highest”

3rd step: Calculate the market share of the product

Calculate the relative market share of each product. In accordance with the obtained data, determine for each product whether the relative market share is “low” or “highest”.

if the value of the relative market share is less than 1 - "low"
if the value of the relative market share is greater than 1 - "highest"

If it is unrealistic to calculate the relative market share due to lack of information, it is allowed to use a lightweight version:

if, according to your expert assessment, the share of your product is less than the share of the main rival - put "0"
if, according to your expert assessment, the share of your product is greater than the share of the main rival - put "1"

4th step: An example of building a BCG matrix by sales volume

Now, knowing the relative market share of a product and the growth rate of the market, you can find for each product in the company's backpack its place in the BCG matrix.

Based on the resulting information, build a BCG matrix, reflecting in each cell the name of the product, sales volume and total sales per group.

Analysis by sales volume allows you to judge how the company's portfolio is balanced, helps to correctly place the values for product development and highlight the main lines of business.

5th step: An example of building a BCG matrix by profit

Build a similar BCG matrix for profit, reflecting in each cell the name of the product, the amount of profit and the total profit per group.

Profit analysis allows you to judge the ability to invest and support new products of the company, helps to place values in the support of product groups.

6th step: Analysis, conclusions and strategy development

Analyze the resulting BCG matrices in terms of sales and profits, write conclusions and determine the company's backpack development strategy.

The main conclusions should outline: ( Detailed Strategies development of groups according to the BCG matrix, see the article: BCG matrix. bases)

Is the briefcase balanced or are there obvious differences from a flawless knapsack?
which product groups should be developed, which product groups should be reduced?
values in the development of the company's product range?
Can profits from current projects support new products?
Does the company have enough products that can provide future foreign exchange earnings?
what strategy in the development of each product group should be followed to maximize future income?
Is it worth adding some additional products to the assortment?

Ready solutions

We have a ready-made template with which you can easily apply theoretical knowledge this article in practice. You can download a template for building a BCG matrix in Excel format in the Useful Marketing Templates section.

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The Boston Consulting Group Matrix: A Detailed Review. Boston Advisory Group (BCG) Matrix

Application examples of the BCG matrix

BCG matrix: an example of construction and analysis in Excel

Construction of the BCG matrix

Construction of the BCG matrix

Analysis of the BCG matrix

BCG Matrix Strategies

Conclusions on the BCG matrix

Advantages and disadvantages of the BCG matrix

Send your good work in the knowledge base is simple. Use the form below

Similar Documents

Theoretical reference

1st step: Gathering initial information

2nd step: Calculate the market growth rate

3rd step: Calculate the market share of the product

4th step: An example of building a BCG matrix by sales volume

5th step: An example of building a BCG matrix by profit

6th step: Analysis, conclusions and strategy development

We recommend reading

The Boston Consulting Group Matrix: A Detailed Review. Boston Advisory Group (BCG) Matrix

Application examples of the BCG matrix

BCG matrix: an example of construction and analysis in Excel

Construction of the BCG matrix

Construction of the BCG matrix

Analysis of the BCG matrix

BCG Matrix Strategies

Conclusions on the BCG matrix

Advantages and disadvantages of the BCG matrix

Send your good work in the knowledge base is simple. Use the form below

Similar Documents

Theoretical reference

1st step: Gathering initial information

2nd step: Calculate the market growth rate

3rd step: Calculate the market share of the product

4th step: An example of building a BCG matrix by sales volume

5th step: An example of building a BCG matrix by profit

6th step: Analysis, conclusions and strategy development

We recommend reading

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