BCG Matrix-what is BCG Matrix?
Boston matrix, also known as market growth rate - the relative market share matrix, Boston Consulting Group Law, four-quadrant analysis, portfolio structure, management method.
The development of corporate-level strategy is one of the most popular way to BCG matrix. This method is by the Boston Consulting Group (Boston Consulting Group, BCG) in the early 1970s developed. BCG matrix will be organized in every strategic business units (SBUs) in a standard 2-dimensional matrix, thereby showing which SBUs to provide high potential benefits, and organizational resources which SBUs are funnel. BCG matrix, the inventor, founder of Boston's Bruce that "the company to succeed, we must have growth and market share varied portfolio. Portfolio composition depends on the balance of the cash flow." It seems , BCG's essence is to optimize business performance through a combination of the cash flow balance.
BCG matrix to distinguish four kinds of business combinations.
(1) problem-based business (Question Marks, referring to high growth, low market share)
In this area are some of the speculative nature of the product, with a greater risk. These products may be highly profitable, but a very small market share. This is often a company's new business. For the development business, companies must establish factories, more equipment and personnel to keep up with rapidly growing market, and more than its competitors, this means a lot of capital investment. "Problem" is very apt description of the company's attitude towards this type of business, because then the company must be careful to answer "whether to continue investment in the development of the business?" This issue. Only those who meet the long-term business development goals, the enterprise has the resources to enhance the core competitiveness of the business before receiving a positive reply. Affirmative answer based business using strategic framework for the growth strategy that aims to expand the SBUs of the market, and even willing to give up income to achieve this goal recently, because the issue type to develop into a star-type business, must have a larger market share growth. Get the negative answer is appropriate for contract-based business strategy.
How to choose the problem type of business is to develop strategies with BCG matrix, the most important, is difficult, which concerns the future development of enterprises. Growth strategy for business growth in a variety of programs to set priorities, BCG also provides a simple way. The figure ROI by balancing selection and a relatively high share of the resources need to invest too much width the program.
(2) star-type business (Stars, refers to high-growth, high market share)
Products in this area of rapid growth and market share dominance of the market, but may or may not generate positive cash flow, depending on the new plant, equipment and product development requirements on investment. Star-type business is problem-based business continues to invest in developed, high growth markets can be regarded as a leader, it will become the company's future cash cow business. This does not mean star business enterprise will be able to bring a steady stream of cash flow, because the market is still high growth, companies must continue to invest to keep pace with the market growth and fight off competitors. If companies do not star business, lost hope, but may also flash flashing stars take the eyes of business executives, led to make wrong decisions. At this time must have the ability to identify planets and stars, will invest in companies with limited resources can develop into a star on the cash cow. Similarly, the star-based business to become cash cows for the use of business growth strategy.
(3) cash cow business (Cash cows, mean low growth, high market share)Products in this area produce large amounts of cash, but future growth prospects are limited. This is a mature market leader, it is a source of corporate cash. As the market has matured, companies do not have to invest heavily to expand the size of the market, while as the market leader in the business to enjoy economies of scale and high-margin, and therefore, large amounts of cash flow to the enterprise. Companies often pay cash cow business to balance and support the other three require a lot of cash business. Cash cow business mentioned in the strategic framework for the use of strategic stability, the purpose is to maintain market share SBUs.
(4) business-type dogs (Dogs, refers to the low growth, low market share)The rest of the field of product can not generate a lot of cash, do not need to invest large amounts of cash, these products do not wish to improve their performance. Under normal circumstances, this type of business is often marginal profit or even losses, the business-type dogs exist because more is due to emotional factors, although has been operating profit, but like humans, like raising dogs for many years and could not bear to give up reluctantly . In fact, dogs based business usually takes a lot of resources, such as capital, management's time, most of the time is worth the candle. Dogs for adoption of a strategic framework for business-type mentioned in the contract strategy, aimed at the sale or liquidation of the business in order to shift resources to more favorable areas.Why BCG Matrix? The essence of the BCG matrix for strategic planning and capital budgeting closely up to a complex behavior with two important business metrics classified into four types, with four relatively simple analysis to address complex strategic issues. The matrix to help diversified companies determine which products are appropriate for investment, it is appropriate to manipulate what products to make profits, it is appropriate to exclude from the portfolio which products to operate the business portfolio to achieve the best results.
Boston Consulting Group, the application of law rules:
Boston Consulting Group in accordance with the principles of law, the higher the market share, the greater the ability to make a profit; the other hand, the higher the sales growth, in order to maintain its growth and expand market share, the funds are needed more. This product structure of the enterprise to achieve products with each other support, financial situation a virtuous circle. Products in the quadrant according to the location and movement trends of the division, the formation of the Boston Consulting Group The basic application of law.
First Law: Successful crescent ring. Companies engaged in the cause of the distribution of various products within the field of display crescent ring if it is a symbol of successful enterprises, not only because of a large product profitability, and sales of these products was relatively large, there are many star products. The products in question and dogs are very few sales of the product. If the product structure shows the scattered distribution, indicating the industry's product mix is not being to good planning, corporate performance will inevitably poor. Then you should distinguish between different products, using different strategies.
The second rule: black ball failed law. If the cash cow in the region are not a product, or even if its sales are almost close to zero, can be a large black spheres. This state of affairs shows no profit large business product, indicating that the structure should be the withdrawal of existing products, reducing the strategic adjustment, consider infiltration to other business, the development of new business.
The third rule: the northwest down. A company's products in the distribution of the four quadrants more concentrated in the northwest, shows the structure of the company's products more star product, the more potential for development; the contrary, the more concentrated the distribution of products in the southeast corner, indicating the thin large number of dog products, indicating that the product mix and recession, business is not successful.
Fourth Law: active speed laws. From each of the product development process and trends, products, higher sales growth, sustained growth needed to maintain its relatively higher amount of money; and greater market share, the greater the ability to make a profit, duration is relatively long. The normal trend, the products in question by the star product into the final product stage cash cow to mark the product from the pure cost of funding to provide benefits for the enterprise development process, but this trend also affects the speed of the speed can provide benefits to its the size of the.
If a product from the products in question (including products from the skinny dog) into a cash cow products moving too fast, indicating its high investment and high profit margins in the star zone meter time is very short, so the profits of the enterprise to provide the possibility of and duration will not be too long, the total contribution will not be great; but the contrary, if product development is too slow, in the long residence time within a quadrant, then the product will soon be eliminated.
In this method of application, the business's mission is four-quadrant method of analysis, control and status of product structure to predict the future changes in the market, and thus the effective and rational allocation of business resources. In the product structure adjustment, business operators are not in the product to the 'dogs' stage to consider how to retreat, but should be in the "cash cow" stage, to consider how to minimize product loss and the greatest profits.
