BCG portfolio matrix. Understand The Boston Consulting Group (BCG) method of SBU analysis.
Business portfolio analysis is a technique that managers use to quantify performance measures and growth targets to analyze its clients’ strategic business units (SBUs) as though they were a collection of separate investments.
Vertical axis - market growth rate, which is the annual rate of growth of the SBU's industry.
Horizontal axis - relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry.
- bottom left (low growth rate, high market share), generate large amount of cash, far more than they can invest profitably in themselves. they have dominant shares of slow-growth markets and provide cash to cover the organiz.'s overhead and to invest in other SBU's.
- top left (high growth rate, high market share), SBUs with high share of high-growth markets that may need extra cash to finance their own rapid future growth. when their growth slows, they are likely to become cash cows.
- top right (high growth rate, low market share) SBUs with a low share of high-growth markets. they require large injections of cash just to maintain their market share, much less increase it. They pose a problem to management since they must choose which to invest in and phase out others.
- bottom right (low growth rate, low market share) SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they do not hold the promise of ever becoming real winners for the organiz. Dropping SBUs that are dogs may be required, except when they provide a benefit to other SBUs.