Description of Boston Consulting Group

Describe the Boston Consulting Group’s approach to portfolio analysis. Briefly discuss why management may find it difficult to dispose of a “dog”

The BCG matrix a is a business planning tool, which is used to portray a firm’s brand, portfolio or SBUs on a four celled matrix, originally developed by the Boston Consulting Group, USA. The BCG matrix is the most renowned corporate portfolio analysis tool; it provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share or industry growth; these two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it. The general purpose of the BCG is to help understand which brand the firm should invest in and which brand should be divested.

Relative market share is a dimension used in the evaluation of business portfolios; higher markets shares usually results in higher cash returns. This is because a firm that produces more benefits from higher economies of scale and experience curve. In terms of industry growth, high market share means higher growth earnings and profits but it also consumes a lot of cash, which in return, is used as an investment to stimulate growth.

The four quadrants of the BCG are classified:

1. Dog – these are products or services that are positioned in a declining market and is highly competitive. Companies usually want to get rid of it when it becomes too expensive to maintain.

2. Cash Cows – these are the most profitable brands that should be “Milked” to provide as much cash as possible. Cash cows have a large market share in a mature, slow growing industry.

3. Question Marks – question marks represents products or services having low market share and high industry growth. They require large amounts of cash to be maintained

4. Stars – these represent promising goods or services, they generate cash but because of high growing market stars...