The BCG matrix (also Boston I Portfolio) is a Portfolio for the strategic management of enterprises. It was developed of the Boston Consulting Group (BCG) and is to clarify the connection between the product life cycle and the cost experience curve. It is developed in a matrix.

Structure of the Portfolios

The thought of the product life cycle deals by the illustration of material future market growth with the ordinate. It is to reflect the surrounding field of the enterprise.

On the abscissa against it the relative market share which is based on the experience curve concept is cleared away. It embodies the enterprise dimension and is for the thought calculation to carry that an enterprise, which exhibits a higher paragraph in the comparison to the competition at experience wins. This additional experience leads particularly to cost degressions as well as to the lowering of the market risk.

The relative market share results out: \ frac {own market share} {Marktanteil~des~st \ ddot arksten~Konkurrenten}

For the allocation of the Portfolios dividing lines must be found. For market growth the dividing line results from the future average growth of the industry and/or the gross national product. For the market share usually a value of 1,0 is taken, another value is however possible.

The diameters of the circles represent the conversion of the respective products.

Standard strategies

The products or business fields of an enterprise are assigned to one of the four ranges now on the basis their values. Each range embodies thereby a standard strategy in such a way specified. It is to give a recommendation regarding the further procedure. The life way of a typical product runs from the Question Mark over star and cash Cow to the Poor Dog. There are also products, which do not follow this ideal way. Many flops do not reach the dying realm only at all. An imitating product against it possibly jumps over the range of the Question Marks.

• The Question Marks (also question mark, new generation product or baby) is the newcomers under the products. They have a high Wachstumspotenzial, however only small market shares. The management stands before the decision whether it is to invest or give the product up. In case of an investment the product needs very many liquid means, which cannot gain it however. An offensive strategy is recommended. The strategy recommendation reads: Selection.

• Star are the absolute asterisks of the enterprise. They have not only a high market share, but also a high market growth. They however already cover the enormous investment demand, which results from high market growth, with high cash flow. The strategy recommendation reads: Investment.

• The cash Cows (milking cows), have the largest market share, however a small market growth. They are front runners in the cash-flow and can without further investments become "“milked"”. An absorption strategy is appropriate.

• The Poor Dogs is the discharge products in the enterprise. They have a small market growth, sometimes even a market decrease as well as a small market share. Additionally even the danger of the establishment of the Verlustbringers develops, therefore the Portfolio should be settled (the investment strategy).

It is however not only important to judge the individual products on the basis the standard strategies to take but also the entire Portfolio in inspection. Particularly is to be paid attention here to the static financial adjustment. The products in the Portfolio should support themselves mutually and be able to finance. A Question Mark can expand only if e.g. the cash Cow this extension bezuschusst. Also future developments are evident. So the products should be evenly represented in the individual ranges. An enterprise without new generation products has surely hardly chances on the future market.

Example

The above example Portfolio is strongly unbalanced. Although many products are in the ranges liquidity-bringing, it is missing at new generation products. The enterprise is gotten central to on a long-term basis problems with its position at the market. This realization arises very simply with a view of the visualization of the product conversions as a result of the Bubbles in such a way specified. Herein a substantial advantage of the model is - the overview of static sizes (in this case absolute turnover figures) in the context of dynamic dimensions (the dimensions of the matrix).

From view of the product politics in marketing it is advisable in this example to eliminate the existing offers within the range Poor Dogs either rapidly or then strongly relaunchen that they can be prepared with suitable market communication for the coming market.

Such a situation has also strong effects on the Unternehmensrating in accordance with Basel II. throws off the enterprise in such a way high amounts covered, it is however not said with the fact at present that the probably good capitalization of the enterprise is invested also in time into the product innovation. Since with a credit inquiry the assessment of company value queries the static achievement indices by the bank to Basel II only, without the view of a dynamic Ausschichtung of the Produktportfolios, the enterprise becomes from available example both the public exhibition for multimedia analysis (PUBLIC EXHIBITION FOR MULTIMEDIA: earnings before interest and tax) and creation of value characteristic numbers outstanding to represent know.

The problem during an outside capital financing is however the Werthaltigkeit of the commitment for the future and thus the provision of security of the credit with successes which can be expected in the future. Banks, which adjusted themselves to Basel a Ii-conformal performance review, will not recognize the strategic risk of their customer in this case. The enterprise will receive if necessary high credits to favorable conditions, without central until on a long-term basis a subsequent yield in the present Portfolio is to be expected. If an enterprise this advantage should for the financing of new products used directly, the further success of the offerer can be however relatively simply foreignfinanced. The advantage of the BCG matrix is here thus in each case in the illustration of present and perspective Potenziale in the enterprise.

Criticism

The relation between market share and profitability is questionable, since the development of the market share can require high investments. Beyond that the beginning sets a doubtful high weight on market growth and ignores the Potenzial of declining markets. The matrix could be supplemented therefore downward, thus for shrinking markets, around two fields: Been subject one (Under Dogs, sinking growth with low market share) and loser (Buckets, sinking growth with high market share).

A further point of criticism refers to the growth rate of the market, which in the model of the BCG as given factor is regarded. Actually an enterprise can positively affect market growth however by suitable marketing measures.

As usual boundary between relatively low and relatively high market share the value 1,0 is considered. This means that only the market leader of star and cash Cows in its Portfolio can have.

The matrix is not only a snapshot and supplies a prognosis.

See also

• List of the Controllinginstrumente

Setting of the values for the dividing lines (e.g. 1.0 for the relative market share or 4% for material market growth) is purely subjective. It must take place in consciousness that other values (e.g. 0.7 for the relative market share or 8% for material market growth) can lead to a shift of the positioning of the business fields into another quadrant of the Portfolios. This would lead in the long run to other standard strategies.

Literature

• Tree, Heinz Georg/Coenenberg, Adolf Thomas: Strategic Controlling, 3. Aufl., Poeschel publishing house, Stuttgart 2004, ISBN 3-7910-2114-1 (explanation of different Portfolios with examples)
• Geml, Richard/Lauer, Hermann: The small marketing encyclopedia, 3. Aufl., Duesseldorf 2004, ISBN 3-87881-183-7
• Cock, Dietger/Taylor, Bernhard [Hrsg.]: Strategic Unternehmsplanung - strategic Unternehmsfuehrung: Conditions and development tendencies, 7. Aufl., Physica publishing house, Heidelberg, 1997, ISBN 3-540-23575-2, S.342-353, P. 372-435
• Olbrich, Rainer: Marketing, Berlin 2001
• Cutter, Dietram: Management and strategic Controlling - superior instruments and methods, 4. Aufl., Hanser publishing house, Munich, 2005, ISBN 3-446-40428-7

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