Frequently Used Model in Presentations: BCG Matrix

I had the valuable experience to learn from Thomas M. Hout during my MBA study.  Thomas M. Hout was a partner at Boston Consulting Group.  He is also a co-author of a bestseller called Competing Against Time and an author of five Harvard Business Reviews articles.

One of the best models I have learnt in his class is BCG Matrix.  BCG Matrix was a very core tools Boston Consulting Group used to do portfolio planning analysis for their clients in the 70s.  And, this matrix became so popular to the stage where many managers start applying the matrix internally for their own companies.

I personally like using the BCG Matrix to help evaluate business units (or product lines) during company’s annual meeting presentation.  My bosses are usually very impressed with the matrix and the BCG Matrix always brought up intelligent discussions for the group.

Here is how the BCG Matrix looks like in a PowerPoint slide:

Simply categorize your business units (or product lines) into one of the four groups according to the market growth rate and market shares.  Here is a brief explanation of the four groups:

1. Cash Cows: Business units (or product lines) that have high market shares in slow-growing markets.  These types of business units often generate more cash than needed to sustain market positions.  BCG consultants believe that minimal investments should be injected into Cash Cows.  Indeed, the exceed cash generated from Cash Cows should be used to support other business units that have high market growth rates.
2. Dogs: Business units (or product lines) that have low market shares in matured markets.  These business units often break-even themselves.  Not much cash could be generated to help other business units.  BCG consultants advise their clients to sell off these business units because these business units hurt the company’s overall return on asset (ROA) in the accounting point of view.
3. Question Marks: Business units (or product lines) that have low market shares in fast-growing markets.  These business units require large amount of cash to gain market shares.  When these business units become market leaders, you can categorize them as Stars.  And, as the market growth rate slows down, these business units will eventually become Cash Cows. On the other hand, if these business units could not become a market leader, they will eventually become dogs when the market growth rate slows down.
4. Stars: Business units (or product lines) that have high market shares in fast-growing markets.  The ideal circumstances are that they could sustain their market leader position for a long period of time.  As the market growth rate come down, they would become Cash Cows.  Stars require a lot of cash in order for it to sustain their leading position in a growing market.

 

The typical cases are that new business units start off as Question Marks in growing markets.  Companies invest money to help the business units gain market shares thus eventually become Stars.  As markets mature and market growth rates come down, these business units become Cash Cows.  Finally, the business units become dogs as they move towards the end of the industry life cycles.
BCG consultants’ proposed actions for the four groups are that companies should generate enough cash from Cash Cows to support Stars and possibly Question Marks.  And, sell the dogs whenever possible.

Now you have probably gained some insights about this matrix.  Try including a BCG Matrix slide for your annual meeting presentation.  I am sure you can amaze your company managements and at the same time help stimulate more intelligent discussions.

Source and More Reading

http://en.wikipedia.org/wiki/Growth-share_matrix
http://www.netmba.com/strategy/matrix/bcg/

To build professional-looking presentation, download free powerpoint templates here.

You can now easily make your own Who Wants to be a Millionaire Flash Game. You can put your own questions to the game and show it in your presentation or on your own web site.

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