The investments are for example needed to fund marketing campaigns or to increase capacity.THE place that brings real life business, management and strategy to you.By combining these two variables into a matrix, a corporation can plot their business units accordingly and determine where to allocate extra (financial) resources, where to cash out and where to divest.
The main purpose of the BCG Matrix is therefore to make investment decisions on a corporate level. Depending on how well the unit and the industry is doing, four different category labels can be attributed to each unit: Dogs, Question Marks, Cash Cows and Stars. Bcg Matrix Example P&G How To Properly UseThis article will cover each of these categories and how to properly use the BCG Matrix yourself. BCG Growth Share Matrix BCG Model Stars Cash Cows Question Marks Dogs. Each of the conglomerates businesses operate independently from the other businesses. Often, the only centralized function of the parent company is to assign financial resources to the businesses that need investments and take out money from the businesses that have a surplus. A conglomerate is often formed through acquisitions and is a great way to reduce total investment risk by building up a portfolio of diversified businesses. Samsung sells phones, cameras, TVs, microwaves, refrigerators, laundry machines, and even chemicals and insurances. This is a smart corporate strategy to have because it spreads risk among a large variety of business units. In case something might happen to the camera industry for instance, Samsung is still likely to have positive cash flows from other business units in other product categories. This helps Samsung to cope with the financial setback elsewhere. However even in a well balanced product portfolio, corporate strategists will have to make decisions on allocating money to and distributing money across all of those business units. Where do you put most of the money and where should you perhaps divest The BCG Matrix uses Relative Market Share and the Market Growth Rate to determine that. BCG Matrix Video Tutorial Relative Market Share The creator of the BCG Matrix used this variable to actually measure a companys competitiveness. The exact measure for Relative Market Share is the focal companys share relative to its largest competitor. So if Samsung has a 20 percent market share in the mobile phone industry and Apple (its largest competitor) has 60 percent so to speak, the ratio would be 1:3 (0.33) implying that Samsung has a relatively weak position. ![]() The cut-off point here is 1.0, meaning that the focal company should at least have a similar market share as its largest competitor in order to have a high relative market share. The assumption in this framework is that an increase in relative market share will result in an increase in the generation of cash, since the focal company benefits from economies of scales and thus gains a cost advantage relative to its competitors. Market Growth Rate The second variable is the Market Growth Rate, which is used to measure the market attractiveness. Rapidly growing markets are what organizations usually strive for, since they are promising for interesting returns on investments in the long term. The drawback however is that companies in growing markets are likely to be in need for investments in order to make growth possible.
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