Corporate Portfolio Miatrix
It was once the most popular approach to determining
corporate-level strategy the corporate portfolio matrix The first of these matrixes was developed by the Bosto Consulting Group.
The BCG atrix introduced the idea that each of an organization's SBUs could be evaluated ard plotted on a 2 x2 matrix to identify which ones offered high potential and which were a drain on organizational resources This matrix is shown in Figure 8-6. The horizontal axis represents market share, and the vertical axis indicates anticipated market growth. High market share means that a business is the leader in its strate industry, and high market growth is defined as at least 10 percent annual growth in sales igh (after adjusting for inflation). The BCG matrix defines four business groups Cash cows (ow growth, high market share). Businesses in this category generate large amounts of cash, but their prospects for future growth are limited Stars (high growth, high rnarket share). These businesses are in a fast-growing mar ket and hold a dominant share of that market but might or might not produce a positive cash flow, depending on the need for investment in new plant and equipment or product development Question marks (high growth, low market share). These businesses are speculative and entail high risks. They are in an attractive industry, but they hold a small percent of market share. Dogs (low growth, low market share). Businesses in this category do not produce much cash, nor do they require much. These businesses hold no promise for improved performance. It's important to understand that the BCG matrix assumes the existence of a cumulative experience curve. This is the assumption that if a business is producing a product and managing its production process properly, every significant increase in the cumulative amount of product manufactured will bring about a predictable decrease in the per unit ve cost of manufacturing the product. Specifically, the Boston Consulting Group contended that doubling manufacturing volume typically led to a 20 to 30 percent reduction in unit cost. The obvious conclusion then was that businesses with the largest market share should of have the lowest costs. Now let's turn specifically to the strategic implications of the BCG matrix. What strategy should management pursue with each group identified iru the matrix? BCG's research shows that organizations that sacrifice short-run profits to gain market share yield the highest long
Corporate Portfolio Miatrix It was once the most popular approach to determining corporate-level strategy the corporate portfolio matrix The first of these matrixes was developed by the Bosto Consulting Group. The BCG atrix introduced the idea that each of an organization's SBUs could be evaluated ard plotted on a 2 x2 matrix to identify which ones offered high potential and which were a drain on organizational resources This matrix is shown in Figure 8-6. The horizontal axis represents market share, and the vertical axis indicates anticipated market growth. High market share means that a business is the leader in its strate industry, and high market growth is defined as at least 10 percent annual growth in sales igh (after adjusting for inflation). The BCG matrix defines four business groups Cash cows (ow growth, high market share). Businesses in this category generate large amounts of cash, but their prospects for future growth are limited Stars (high growth, high rnarket share). These businesses are in a fast-growing mar ket and hold a dominant share of that market but might or might not produce a positive cash flow, depending on the need for investment in new plant and equipment or product development Question marks (high growth, low market share). These businesses are speculative and entail high risks. They are in an attractive industry, but they hold a small percent of market share. Dogs (low growth, low market share). Businesses in this category do not produce much cash, nor do they require much. These businesses hold no promise for improved performance. It's important to understand that the BCG matrix assumes the existence of a cumulative experience curve. This is the assumption that if a business is producing a product and managing its production process properly, every significant increase in the cumulative amount of product manufactured will bring about a predictable decrease in the per unit ve cost of manufacturing the product. Specifically, the Boston Consulting Group contended that doubling manufacturing volume typically led to a 20 to 30 percent reduction in unit cost. The obvious conclusion then was that businesses with the largest market share should of have the lowest costs. Now let's turn specifically to the strategic implications of the BCG matrix. What strategy should management pursue with each group identified iru the matrix? BCG's research shows that organizations that sacrifice short-run profits to gain market share yield the highest long
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