The cows, dogs, stars and question marks of the growth-share matrix have become a part of the strategic management literature. Common sense says that we should kick the dogs, cloister the cows and throw our money at the stars. They have become so frequently used that oversimplification has resulted in many problems. To avoid these oversimplifications, we should recognize that the dogs may be friendly, the cows may need a bull now and then to remain friendly, and excessive investment in stars may result in their burning out.
Bruce Henderson initiated the process of assigning resources to different SBUs based on their relative market share and growth rate. The purpose of doing so is to identify separate strategic inputs for different business units. It helps senior management to understand what has been "yesterday's has-beens" and well as "tomorrow's bread earners". However, it cannot solely depend upon their perceptions, but requires analytical tools to classify business by profit potential. The BCG matrix helps the management to do just that.
The market growth rate on the Y-axis indicates the annual growth rate of the market where the SBU operates. The average growth rate is decided by the concerned researcher and as such high and low market growth rates are also defined by him. Relative market share which is measured on the X-axis refers to the SBU's market share with respect to its largest competitor. The X-axis is taken in a logarithmic scale. For example, a relative market share of 0.1 means that the market leader is 10 times bigger than the concerned SBU. Similarly, a relative market share of 10 implies that the concerned SBU is 10 times larger than its nearest competitor. |
