The BCG (Boston Consulting Group) Matrix is an assessment tool, used by many companies in order to evaluate the efficiency of various business units and product line. A manager, who applies this method, focuses mostly on the balance between cash spenders and cash generators (Butje 2005, p 157). This technique is supposed to help an organization allocate investments and resources.
We will write a custom Critical Writing on Boston Consulting Group Matrix specifically for you
301 certified writers online
Judging from this grid, we can single out several types of business units:
- cash cows, which generate sufficient amount of profit to sustain themselves;
- question marks, those divisions, which require considerable expenditures to become successful, and it is difficult to determine whether they will increase their market share or not;
- dogs, those units which yield sufficient returns to break even but their profitability is small;
- stars, which hold high market share and at the same time they use large quantities of cash (Griffin, 2006, p 219).
It should be noted that the BSG matrix does not provide conclusive evidence as to the contribution of each division to the overall success of the company, especially if we are speaking those organizations, where business units work on the creation of the same or similar products.
If the divisions are interconnected with one another, and each of them is an inseparable part of value chain, the use of the BCG matrix is no appropriate. Most importantly, this tool fails to take into account, the external environment (economic, legal, social and political factors) in which the firm operates.
Overall these findings indicate at that the given moment one of the company’s business units (the electronics division) cannot break even, and its expenditures are higher than its returns. In turn, the appliances division generates excessive amounts of cash. This division can be regarded as self-sufficient and according to the classification, adopted by the Boston Consulting Group, it should be called a “cash cow” (Butje 2005, p 157).
On the basis of these findings, we can make the following recommendations: the management should either increase the market share of the electronics division in order to justify its cash consumption or they need to sell this business unit.
However, prior to making this decision, the management should undertake a series of investigations: in particular, they need to conduct value chain analysis as this will help them to understand the interactions between various divisions of the enterprise. Moreover, they need to carry out PESTLE and SWOT analysis, as these methods will show external environment can affect the development of each division.
They need to apply Five Forces Model, developed by Michael Porter (2008). This tool is used to evaluate the intensity of competition in the market. On the whole, we can say that the BCG Matrix gives only a cursory overview of the situation within the firm.
The authors of the previous posts have done an in-depth analysis of the key findings. They have pointed out that such an assessment tool as the BCG matrix has several limitations (extra focus on quantitative data and inability to consider external environment of the firm). I agree with the recommendations that they have proposed.
Yet, it seems to me that they paid little or no attention to the internal structure of the company: they regard appliances and electronics divisions, as entirely independent bodies, which do not interact in any way. In my opinion, it is quite probable, that these parts are not independent.
For example, the electronics division (question mark) can assist the appliances division (cash cow), and this may partly explain their differences in profit margins.
Butje M. (2005). Product marketing for technology companies. Butterworth-Heinemann
Griffin R. (2006). Management. Cengage Learning.
Porter M. (2008). On Competition. Cambridge: Harvard Business Press.