The bkg boston consulting group matrix is ​​applied. Boston Consulting Group Matrix

The figure below shows the matrix of the Boston consulting group, in this version using indicators of relative market share ( X axis) and relative market growth rate ( Y axis) for the individual products being assessed.

The range of changes in relative indicators ranges from 0 to 1. For the market share indicator in this case, a reverse scale is used, i.e. in the matrix it varies from 1 to 0, although in some cases a direct scale can also be used. The rate of market growth is determined over a certain period of time, say, over a year.

This matrix is ​​based on the following assumptions: the higher the growth rate, the greater the development opportunities; The larger the market share, the stronger the organization's position in competition.

The intersection of these two coordinates forms four squares. If products are characterized by high values ​​of both indicators, then they are called “stars” and should be supported and strengthened. True, stars have one drawback: since the market is developing at a high pace, stars require high investments, thus “eating away” the money they earn. If products are characterized by a high value of the indicator X and low Y, then they are called “cash cows” and are generators of the organization’s funds, since there is no need to invest in the development of the product and market (the market is not growing or growing slightly), but there is no future for them. When the indicator is low X and high Y products are called “problem children”; they must be specially studied to determine whether, with certain investments, they can turn into “stars”. When as an indicator X, and so is the indicator Y have low values, then the products are called “losers” (“dogs”), bringing either small profits or small losses; They should be disposed of whenever possible, unless there are compelling reasons for their preservation (possible renewal of demand, they are socially important products, etc.).

In addition, to display negative values ​​of changes in sales volume, a more complex form of the matrix considered is used. Two additional positions appear on it: “war horses”, which bring small amounts of money, and “dodo birds”, which bring losses to the organization.

1. difficulties in collecting data on market share and market growth rate. To overcome this disadvantage, qualitative scales can be used that use gradations such as greater than, less than, equal to, etc.;
2. the matrix of the Boston Consulting Group gives a static picture of the position of strategic economic units, types of business in the market, on the basis of which it is impossible to make predictive assessments like: “Where in the matrix field will the products under study be located after one year?”;
3. it does not take into account the interdependence (synergistic effect) of individual types of businesses: if such a dependence exists, this matrix gives distorted results and a multi-criteria assessment must be carried out for each of these areas, which is what is done when using the General Electric (GE) matrix.

• Stars— are developing rapidly and have a large market share. Rapid growth requires strong investment. Over time, growth slows down and they turn into “Cash Cows”.
• Cash cows(Money bags) - low growth rates and large market share. They do not require large capital investments and generate high income, which the company uses to pay its bills and to support other areas of its activities.
• Dark horses(Wild cats, problem children, question marks) - low market share, but high growth rates. They require large funds to maintain market share, and even more so to increase it. Due to the large capital investments and risk, company management needs to analyze which dark horses will become stars and which ones should be eliminated.
• Dogs(Lame ducks, dead weight) - low market share, low growth rate. They generate enough income to support themselves, but do not become sufficient sources to finance other projects. We need to get rid of dogs.

• The BCG model is based on a vague definition of market and market share for business industries.
• Market share is overrated. Many factors that influence industry profitability are overlooked.
• The BCG model stops working when it is applied to industries with low levels of competition.
• High growth rates are far from the main sign of an industry’s attractiveness.

• "Stars", according to the Boston matrix method, companies with the best sales volumes and market share are considered. They generate the most income, and for such firms the main task is to maintain and increase market share. However, the “stars” require serious investments to maintain high growth rates. And although companies in this category are expensive, they are often burdened with loans taken out to support expansion.
• "Cash Cows", they are also “money bags”, also have a high market share, but at the same time show low growth rates in sales volumes. Such companies bring consistently high profits, which practically do not grow: it is known that, having captured a sufficiently large piece of the market, it is quite difficult to increase the share. Experts say that you should not try to expand the cash cow business too much, as this can lead to the opposite effect. Such companies need to be protected and carefully monitored. “Money bags” require practically no investment, but their profits can be usefully used for the development of other promising companies in the owner’s portfolio, for example from the category of stars.
• The most unpromising group of companies, according to the Boston matrix method, is called "Dogs"(“lame ducks”, “dead weight”). The growth rates of the “dogs” are low, the market share under their control is small, and, as a rule, such companies produce a product with low profitability. Managing such a business is extremely difficult, and consultants from the Boston group recommend getting rid of “dog” enterprises.
• The most interesting category of companies are "Difficult Children", they are also “dark horses” (“wild cats”, “question marks”). Such companies are characterized by a still small market share, but high growth rates. In the future, they can become both “stars” and “dogs”, so before investing in “difficult children” they need to be studied especially carefully. This is precisely the category of companies in which venture investors are eager to invest, and the closer the company is to the “stars,” the higher the likelihood of receiving funding.

The Boston matrix is ​​visual, but primitive

The weakness of the Boston matrix is ​​that it greatly simplifies the situation: only two factors are taken into account, while many forces influence business. A large relative market share is not the only sign of a company's success, just as high growth rates are not the only indicator of market attractiveness. In addition, the Boston matrix does not take into account the financial aspect. If you get rid of products from the “dog” category, this can lead to an increase in the cost of “cows” and “stars”, as well as a negative impact on the loyalty of the company’s customers. Also, a large market share does not automatically lead to high profits, especially if the company is in the process of launching a new product and this is accompanied by significant investments. And a market downturn is often not caused by the end of a product’s life cycle.

There are situations when an economic crisis intervenes, rush demand ends, or substitute products appear from parallel industries. Nevertheless, the results obtained are clear and the Boston matrix is ​​easy to construct. Using objective indicators that are easily calculated - relative market share and market growth rates - you can easily develop a strategy and your own investment policy.

Application of the Boston matrix method

The black arrows on the Boston matrix graph show how investments should be distributed: from “cash cows” to “problem children” to “stars”. The red line demonstrates the classic development cycle of a company: from childhood as a problem child, through stardom and cash cow status, to decline as a dog. Of course, at each stage, a business may encounter insurmountable obstacles, and the company may close without reaching the next level of development.

The BCG matrix is ​​a kind of display of the positions of a particular type of business in a strategic space defined by two coordinate axes, one of which is used to measure the growth rate of the market for the corresponding product, and the other to measure the relative share of the organization’s products in the market for the product in question.

The BCG model is a 2x2 matrix on which business areas are depicted by circles with centers at the intersection of coordinates formed by the corresponding market growth rates and the relative share of the organization in the corresponding market (see figure). Each circle plotted on the matrix characterizes only one business area characteristic of the organization under study. The size of the circle is proportional to the overall size of the entire market (in other words, not only the size of the business of this particular organization is taken into account, but in general its size as an industry across the entire economy. Most often, this size is determined by simply adding the organization’s business and the corresponding business of its competitors). Sometimes on each circle (business area) a segment is identified that characterizes the relative share of the organization's business area in a given market, although this is not necessary to obtain strategic conclusions in this model. Market sizes, like business areas, are most often measured by sales volume and sometimes by asset value.

It should be especially noted that the division of the axes into 2 parts was not done by chance. At the top of the matrix are business areas related to industries with growth rates above average, at the bottom, respectively, those with lower ones. The original version of the BCG model assumed that the boundary between high and low growth rates was a 10% increase in output per year.

The x-axis, as already noted, is logarithmic. Therefore, usually the coefficient characterizing the relative market share occupied by a business area varies from 0.1 to 10. Display of competitive position (which is understood here as the ratio of the organization's sales in the relevant business area to the total sales of its competitors) on a logarithmic scale is a fundamental detail of the BCG model. The fact is that the main idea of ​​this model assumes the existence of a functional relationship between production volume and unit cost of production, which on a logarithmic scale looks like a straight line.

Dividing the matrix along the x-axis into two parts allows us to identify two areas, one of which includes business areas with weak competitive positions, and the second - with strong ones. The border between the two regions is at the coefficient level of 1.0.

Thus, the BCG model consists of four quadrants:

Rice. 4. Presentation of the BCG model for strategic position analysis and planning

• High market growth rates / High relative market share of the business area;
• Low market growth / High relative market share of the business area;
• High market growth / Low relative market share of the business area;
• Low market growth / Low relative market share of the business area.

Stars
These usually include new business areas that occupy a relatively large share of a rapidly growing market, operations in which generate high profits. These business areas can be called leaders in their industries. They bring very high income to organizations. However, the main problem is determining the right balance between income and investment in this area in order to ensure the return of the latter in the future.

Cash cows
These are business areas that have gained relatively large market share in the past. However, over time, the growth of the relevant industry has slowed down noticeably. As usual, cash cows are the stars of the past who currently provide the organization with sufficient profits to maintain its competitive position in the market. The cash flow in these positions is well balanced since the bare minimum is required to invest in such a business area. Such a business area can bring very large income to the organization.

Problem children
These business areas compete in growing industries but have a relatively small market share. This combination of circumstances leads to the need to increase investment in order to protect its market share and guarantee survival in it. High market growth rates require significant cash flow to keep up with that growth. However, these business areas have great difficulty generating revenue for the organization due to their small market share. These areas are most often net consumers of cash rather than generators of cash, and remain so until their market share changes. These business areas have the greatest degree of uncertainty: either they will become profitable for the organization in the future or they will not. One thing is clear: without significant additional investment, these business areas are likely to slide into "dog" positions.

Dogs
These are business areas with a relatively small market share in slow-growing industries. Cash flow in these areas of the business is usually very low, and often even negative. Any move by an organization towards gaining a larger market share is definitely immediately counterattacked by the dominant competitors in the industry. Only the skill of a manager can help an organization maintain such positions in the business area.

When using the BCG model, it is very important to correctly measure the growth rate of the market and the relative share of the organization in this market. It is proposed to measure market growth rates based on industry data for the last 2-3 years, but no more. An organization's relative market share is the logarithm of the ratio of the organization's sales volume in a given business area to the sales volume of the leading organization in this business. If the organization itself is a leader, then its relationship to the first organization following it is considered. If the resulting coefficient exceeds one, this confirms the organization’s leadership in the market. Otherwise, this will mean that some organizations have greater competitive advantages over this one in this business area.

(from the book “Strategic Management of an Organization” Bandurin A.V., Chub B.A.)

Publications

The difficult fate of the BCG matrix
About the disadvantages of the BCG model and the difficulties of its use

Strategic planning and the role of marketing in an organization
In particular, the article outlines some methods of strategic analysis of a business portfolio

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Strategic analysis models (BCG, etc.), strategy formation and analysis

The Boston Consulting Group
Website of the company that developed the BCG model

A two-dimensional matrix developed by the Boston Advisory Group has been widely used in the practice of strategic choice. Therefore, this matrix is ​​better known as the Boston Consulting Group matrix, or the BCG matrix. This matrix allows a business to categorize products by their market share relative to major competitors and the industry's annual growth rate.

The matrix makes it possible to determine which product of the enterprise occupies a leading position in comparison with competitors, what is the dynamics of its markets, and allows for the preliminary distribution of strategic financial resources between products. The matrix is ​​built on a well-known premise - the greater the share of a product on the market (the greater the production volume), the lower the unit costs per unit of production and the higher the profit as a result of relative savings on production volumes.

The BCG matrix is ​​compiled for the entire portfolio, and for each product the following information should be available:

Sales volume in value terms, it is represented on a matrix with the area of ​​a circle;

The product's market share relative to its largest competitor, which determines the horizontal position of the circle in the matrix;

The growth rate of the market in which the enterprise operates with its products is determined by the vertical component of the circle in the matrix.

From the BCG matrices, if they are performed for different periods of time, it is possible to construct a kind of dynamic series, which will give (a visual representation of the patterns of movement in the market of each product, the directions and rates of promotion of the product on the market. When constructing the BCG matrix, the growth rates of product sales volumes are divided into “high” and “low” by a conditional line at the level of 10%. The relative market share is also divided into “high” and “low”, and the border between them is 1.0. The coefficient of 1.0 shows that the company is close to the leader.

The interpretation of the BCG matrix is ​​based on the following provisions:

Firstly, the gross profit and total revenues of the enterprise increase in proportion to the growth of the enterprise's market share;

Secondly, if an enterprise wants to maintain market share, then the need for additional funds grows in proportion to the market growth rate;

Third, since the growth of each market eventually declines as the product approaches maturity in its life cycle, therefore, in order not to lose previously gained market position, the profits generated should be directed or distributed among products that have growth trends.

Based on the above, the matrix offers the following classification of product types in the corresponding strategic zones depending on the characteristics of profit distribution: “stars”, “cash cows”, “wild cats” (or “question mark”), “dogs”. This classification is presented in Fig. 6.2.

"Stars" are products that occupy a leading position in a rapidly growing industry. They generate significant profits, but at the same time require significant amounts of resources to finance continued growth, as well as tight management control over these resources. In other words, they should be protected and strengthened in order to maintain rapid growth.

Rice. 6.2. BCG Matrix

Cash cows are products that occupy a leading position in a relatively stable or declining industry. Since sales are relatively stable without any additional costs, this product generates more profit than is required to maintain its market share. Thus, the production of products of this type is a kind of cash generator for the entire enterprise, that is, to provide financial support for developing products.

Dogs are products with limited sales in an established or declining industry. Over a long period of time on the market, these products failed to win the sympathy of consumers, and they are significantly inferior to competitors in all indicators (market share, size and cost structure, product image, etc.), in other words, they do not produce and do not need significant amounts of financial resources. An organization with such products may attempt to temporarily increase profits by penetrating specialty markets and reducing supporting services or exiting the market.

Problem Children (Question Mark, Wildcats) are products that have low market impact (low market share) in a growing industry. They typically have weak customer support and unclear competitive advantages. Competitors occupy a leading position in the market. Since low market share usually means small profits and limited revenue, these products, being in high-growth markets, require large amounts of capital to maintain market share and, naturally, even greater capital to further increase that share.

In Fig. 6.2 the dashed line shows that “wild cats” under certain conditions can become “stars”, and “stars” with the advent of inevitable maturity will first turn into “cash cows” and then into “dogs”. The solid line shows the redistribution of resources from cash cows.

Thus, within the framework of the BCG matrix, the following options can be distinguished for choosing strategies:

- growth and increase in market share- turning a “question mark” into a “star”;

- maintaining market share— a strategy for “cash cows” whose income is important for growing types of products and financial innovations;

- "harvesting", i.e., obtaining a short-term share of profit in the maximum possible size, even at the expense of reducing market share- a strategy for weak “cows”, deprived of a future, unlucky “question marks” and “dogs”;

- liquidation of business or abandonment of it and the use of the resulting funds in other industries is a strategy for “dogs” and “question marks” who no longer have the opportunity to invest to improve their positions.

The BCG matrix can be used:

To determine interrelated conclusions about the position of products (or business units) included in the enterprise and their strategic prospects;

To conduct negotiations between senior managers and managers at the business unit level and make decisions on the amount of investment (capital investment) in a particular business unit.

For example, “question marks” operating in fast-growing industries, as a rule, are in dire need of a constant influx of funds to expand their business and strengthen their positions, and “money bags”, limited in growth opportunities, often have excess cash. In other words, using the BCG matrix, an enterprise forms the composition of its portfolio (i.e., it determines combinations of capital investments in various industries, various business units).

Based on the Boston Matrix, or Growth/Market Share Matrix lies a model of the product life cycle, according to which a product goes through four stages in its development: market entry (problem product), growth (star product), maturity (cash cow product), and decline (product - “dog”). At the same time, the cash flows and profit of the enterprise also change: negative profit is replaced by its growth and then a gradual decrease. The Boston Matrix focuses on the positive and negative cash flows that are associated with an enterprise's various business units or products.

The range of products manufactured by the enterprise is analyzed on the basis of this matrix, i.e. it is determined to which position of the specified matrix each type of product of the enterprise can be attributed. To do this, the business units of the enterprise are classified according to relative market share indicators (ODR) and industry market growth rates. The ODR indicator is defined as the market share of a business unit divided by the market share of the largest competitor. It is clear that the ODR indicator of the market leader will be greater than one, including ODR = 2 means that the market share of the market leader is twice as large as that of the nearest competitor. On the other hand, ODR< 1 соответствует ситуации, когда доля рынка бизнес-единицы меньше, чем у рыночного лидера. Высокая доля рынка рассматривается как индикатор бизнеса, который генерирует положительные денежные потоки, как показатель ожидаемого потока доходов. Это положение основано на опытной кривой.

The second variable is the growth rate of the industry market (TPP) -- based on industry product sales forecasts and linked to industry life cycle analysis. Of course, the actual life cycle curve of an industry can only be constructed retrospectively. However, the management of an enterprise can expertly assess the stage of the life cycle of the industry in which it operates in order to determine (predict) the need for finance. In high-growth industries, significant investments are required in research and development of new products and in advertising to try to achieve a dominant position in the market and therefore positive cash flows.

To construct the BCG matrix, we fix the values ​​of the relative market share along the horizontal axis, and the market growth rates along the vertical axis. Next, dividing this plane into four parts, we obtain the desired matrix (Fig. 1). The value of the ODR variable equal to one separates products - market leaders - from followers.

As for the second variable, industry growth rates of 10% or more are generally considered high. It can be recommended to use as a base level separating markets with high and low growth rates, the growth rate of the gross national product in physical terms or a weighted average of the growth rates of various segments of the industry market in which the company operates. It is believed that each of the quadrants of the matrix describes significantly different situations that require a special approach in terms of financing and marketing.

The BCG matrix is ​​based on two hypotheses:

* The first hypothesis is based on the experience effect and assumes that a significant market share means the presence of a competitive advantage associated with the level of production costs. From this hypothesis it follows that the largest competitor has the highest profitability when selling at market prices and for it the financial flows are maximum.

* The second hypothesis is based on the product life cycle model and assumes that presence in a growing market means an increased need for financial resources to update and expand production, conduct intensive advertising, etc. If the market growth rate is low (mature or probationary market), then the product does not require significant financing.

In the case when both hypotheses are fulfilled (and this is not always the case), four groups of markets can be distinguished with different strategic goals and financial needs.

High Low

Comparative market share

Fig.1. Boston Consulting Group Growth/Market Share Matrix: 1-- innovator; 2- follower; 3 - failure; 4 -- mediocrity

Each business unit of an enterprise or its product falls into one of the quadrants of the matrix according to the growth rate of the industry in which the enterprise operates and the relative market share. In this method, it is important to clearly define the industry in which the company operates.

If an industry is defined too narrowly, the firm may become a leader; if the industry is defined broadly, the firm will appear weak. Graphically, a product or business unit's position is usually represented by a circle, the area of ​​which reflects the relative importance of the structure or product to the enterprise, measured by the amount of assets used or profits generated. It is recommended to carry out such an analysis over time, tracking the development of each business over time.

The growth/market share matrix has much in common with the product life cycle curve. However, its advantage or difference from a simple product (industry) life cycle model lies in the comprehensive consideration of a certain set of products that may be at different stages of the life cycle, and the development of recommendations regarding the redistribution of financial flows between products.

New products are more likely to appear in growing industries and have the status of a “problem” product. Such products may be very promising, but they require significant financial support from the center. As long as these products are associated with large negative cash flows, there remains a danger that they will not be able to become star products. The main strategic question, which presents a certain complexity, is when to stop financing these products and exclude them from the corporate portfolio?

If you do this too early, you may lose a potential star product. The category of “star” products can include both new products and new trademarks of the enterprise’s products.

The risk of financial investments in this group is greatest. Star products are market leaders, usually at the peak of their product cycle. They themselves bring in enough funds to maintain a high share of a dynamically developing market. But despite the strategically attractive position of this product, its net cash income is quite low, since significant investments are required to ensure high growth rates to take advantage of the experienced curve. Managers are tempted to reduce investment in order to increase current profits, but this may be short-sighted, since in the long term the product may become a cash cow commodity. In this sense, what is important is the future income of the star product, not the current one.

When market growth slows, star products become cash cows. These are products, or business units, that occupy leading positions in a low-growth market. Their attractiveness is due to the fact that they do not require large investments and provide significant positive cash flows based on the experienced curve. Such business units not only pay for themselves, but also provide funds for investment in new projects on which the future growth of the enterprise depends.

In order for the phenomenon of “cash cow” products to be fully used in the investment policy of an enterprise, competent product management is necessary, especially in the field of marketing. Competition in stagnating industries is very fierce. Therefore, constant efforts are required to maintain market share and search for new market niches.

Dog products are products that have low market share and lack growth opportunities because they are located in unattractive industries (in particular, an industry may be unattractive due to high levels of competition). Such business units have zero or negative net cash flows. Unless there are special circumstances (for example, the product is complementary to a cash cow or star product), then these business units should be disposed of. However, sometimes corporations retain such products in their range if they belong to “mature” industries. Capacious markets of “mature” industries are to a certain extent protected from sharp fluctuations in demand and major innovations that radically change consumer preferences, which makes it possible to maintain the competitiveness of products even in conditions of a small market share (for example, the market for razor blades).

Thus, the desired sequence of product development is as follows:

"Problem"--> "Star"--> "Milch cow"

[and if unavoidable] --> "Dog"

The implementation of such a sequence depends on efforts aimed at achieving a balanced portfolio, which also involves a decisive rejection of unpromising products.

Ideally, a balanced product portfolio of an enterprise should include 2-3 “cow” products, 1-2 “stars”, several “problems” as a foundation for the future and, possibly, a small number of “dog” products. A typical unbalanced portfolio usually has one “cow” product, many “dogs”, several “problems”, but no “star” products that can take the place of the “dogs”. An excess of aging goods (“dogs”) indicates the danger of a recession, even if the current performance of the company is relatively good. An oversupply of new products can lead to financial difficulties. In a dynamic corporate portfolio they can

be, for example, the following trajectories:

* "innovator's trajectory" By investing in R&D the funds received from the sale of goods - “cash cows”, the enterprise enters the market with a fundamentally new product, which takes the place of the “star”;

* "follower trajectory". Funds from the sale of “cash cow” products are invested in the “problem” product, the market of which is dominated by the leader. In this situation, the company chooses an aggressive strategy to increase market share, and the “problem” product turns into a “star”;

* "trajectory of failure" Due to insufficient investment, the “star” product loses its leading position in the market and becomes a “problem” product;

* “a trajectory of permanent mediocrity.” The “problem” product fails to increase its market share and enters the next stage (the “dog” product).

The Boston Consulting Group matrix represents a corporation as a number of divisions, practically independent of each other in terms of production and sales (business units), which are positioned in the market depending on the values ​​of two criteria.

The essence of portfolio analysis is to determine which departments to withdraw resources from (they are taken from the “cash cow”) and to whom they are transferred (they are given to the “star” or “problem”). The main recommendations of the Boston Corporate Portfolio Advisory Group are presented in Table 1. It should be emphasized that these strategies are justified only to the extent that the hypotheses on which they are based are realized.

Therefore, analysis based on the BCG matrix allows us to draw the following conclusions:

* determine a possible strategy for business units or products;

* assess their financing needs and profitability potential;

* assess the balance of the corporate portfolio.

When conducting portfolio analysis in practice, enterprise management may encounter many methodological problems. In particular, in multi-product companies it is difficult to identify business units, as well as to choose a limit separating fast and slow growing types of business, it is difficult to group business units in order to develop a unified development strategy, etc. However, portfolio analysis is used in the formation corporate strategy due to its inherent advantages. Portfolio analysis has a positive effect in the following areas:

* stimulates senior management to separately evaluate each type of business of the enterprise, set goals for it and redistribute resources;

* provides a simple and clear picture of the comparative “strength” of each business unit in the corporate portfolio;

* shows both the ability of each business unit to generate a revenue stream and its need for financing;

* stimulates the use of data on the external environment;

* raises the problem of matching financial flows with the needs of business expansion and growth.

The main criticism of the Boston Consulting Group's approach is as follows:

* the matrix provides only two dimensions - market growth and relative market share, many other growth factors are not considered;

* the position of a strategic business unit significantly depends on the definition of the boundaries and scale of the market;

* in practice, it is not always clear how market growth/market share affects business profitability. The hypothesis about the relationship between relative market share and profitability potential is applicable only in the presence of an experienced curve, that is, mainly in mass production industries;

* the interdependence of business units is ignored;

* a certain cyclical nature of the development of commodity markets is ignored.

Portfolio matrices show that a separate division within an enterprise is obliged not only to keep records of its profits and not to share it with other divisions. The situation changes over time, and a unit that was, for example, a “star” becomes a “cash cow”, and that, in turn, sooner or later turns out to be a “dog”. Let us emphasize once again that within the framework of this approach, the existence of an experience curve in the industry is assumed and the development strategy of each individual business is reduced to a simplified alternative: expansion-maintenance-reduction of activity (movement through the stages of the product life cycle). Although in real life the relationships between factors and possible development strategies are much more complex. At the same time, the Boston matrix can be used as a methodological approach in determining cash flows within an enterprise.