Bcg Analysis
Boston matrix (BCG matrix)
At the end of the 1960s, Bruce Henderson, founder of the Boston Consulting Group, BCG, developed his portfolio matrix. The effect on the business world was dramatic. Henderson first came up with the concept of an experience curve, which differs widely from the learning curve, a concept formulated many years before and which states that staff productivity increases according to the number of times a particular work task is carried out. The experience curve does not have the inherent threshold effects of the learning curve. The experience curve states that when a particular task is duplicated, the cost of carrying it out the second time will fall by about 20 per cent. Thus, by doubling our sales force, customer sales costs will fall by about 20 per cent. The same thing applies to invoicing, production, etc. For more on this, see the entry Experience curve. The other important principle in the BCG concept was relative market share, which was calculated in relation to the biggest competitor. The experience curve was combined with relative market share and the life cycle curve in the well-known BCG matrix shown in the figure below. The matrix was popularized by the use of symbols mainly representing animals. Such terms as ‘dogs’, ‘wildcats’, ‘star’ and ‘cash cow’ subsequently came into business use, whereupon the Boston matrix was referred to as the ‘BCG zoo’. If we look at the four squares of the BCG zoo and try to predict cash flow for the next 3.5 years, we begin to make out certain patterns. The dog or the star should have a minimal positive or negative cash flow. The cash cow delivers very positive cash flow, while the wildcat has negative cash flow. When portfolio strategy was in its infancy, balancing the cash flow was one of group management’s most important functions. The theory was that cash flow should be created in the cash cow and invested in the wildcat in order to increase market share and reach a strong competitive position. This
At the end of the 1960s, Bruce Henderson, founder of the Boston Consulting Group, BCG, developed his portfolio matrix. The effect on the business world was dramatic. Henderson first came up with the concept of an experience curve, which differs widely from the learning curve, a concept formulated many years before and which states that staff productivity increases according to the number of times a particular work task is carried out. The experience curve does not have the inherent threshold effects of the learning curve. The experience curve states that when a particular task is duplicated, the cost of carrying it out the second time will fall by about 20 per cent. Thus, by doubling our sales force, customer sales costs will fall by about 20 per cent. The same thing applies to invoicing, production, etc. For more on this, see the entry Experience curve. The other important principle in the BCG concept was relative market share, which was calculated in relation to the biggest competitor. The experience curve was combined with relative market share and the life cycle curve in the well-known BCG matrix shown in the figure below. The matrix was popularized by the use of symbols mainly representing animals. Such terms as ‘dogs’, ‘wildcats’, ‘star’ and ‘cash cow’ subsequently came into business use, whereupon the Boston matrix was referred to as the ‘BCG zoo’. If we look at the four squares of the BCG zoo and try to predict cash flow for the next 3.5 years, we begin to make out certain patterns. The dog or the star should have a minimal positive or negative cash flow. The cash cow delivers very positive cash flow, while the wildcat has negative cash flow. When portfolio strategy was in its infancy, balancing the cash flow was one of group management’s most important functions. The theory was that cash flow should be created in the cash cow and invested in the wildcat in order to increase market share and reach a strong competitive position. This