BCG matrix

It was developed by Boston consulting group.It uses relationship between market share and market growth.Market share is the share in relation to the largest competitors.Market growth is the annual market growth rate.They both affect cash flow.
BCG matrix is divided into four cells.

• A star is a business unit which has a high market share and high market growth rate.Large amount of spending is needed to protect market share.It achieves cost reduction overtime.
• A question is a business unit with high market growth rate but low market share.Heavy spending is needed to increase market share.But it is not achieving cost reduction.It has uncertain future.
• A cash cow is a business unit with high market share but low market growth rate.Heavy investment is not needed.It generates high cash flow.It has low costs relative to competitors.
• A dog has low market share and low growth rate.It drains cash to survive.Its future prospect is bleak.

Matrix of BCG matrix :

• It is important for a business unit seeking to dominate market.
• It provides a balanced mix in portfolio.
• It focuses on cost reduction and planing of cash flow.

Limitations of BCG matrix :

• The matrix is applicable only to strategic business units.
• Market growth rate and market share may not be the sole determinants of profitability.
• It gives induce focus to cash at the cost of innovation.
• It is not easy to liquidate dogs due to political and market reasons.