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What Are the Two Axes of the BCG Business Portfolio Analysis?
The BCG (Boston Consulting Group) business portfolio analysis is a strategic management tool that helps businesses evaluate their product lines or business units. It provides a framework for analyzing the company’s portfolio and making decisions about resource allocation and future investment. The BCG matrix consists of two axes, namely, market growth rate and relative market share, which are used to categorize products or business units into four quadrants: Stars, Cash Cows, Question Marks, and Dogs.
1. Market Growth Rate: The market growth rate axis represents the annual growth rate of the industry in which the product or business unit operates. It indicates the attractiveness of the market and its potential for future expansion. High growth rates suggest a dynamic and growing market, while low growth rates signify a mature or declining industry.
2. Relative Market Share: The relative market share axis measures the product or business unit’s market share compared to its largest competitor. It indicates the company’s competitive position within the market. High market share implies a strong competitive advantage, while low market share suggests a weaker position.
The combination of these two axes allows companies to identify the strategic position of each product or business unit within the portfolio. Here’s a breakdown of the four quadrants:
– Stars: High market growth rate and high relative market share. Stars are products or business units that operate in rapidly growing industries and have a significant market share. They require substantial investment to maintain growth and market dominance.
– Cash Cows: Low market growth rate and high relative market share. Cash Cows are products or business units that operate in mature industries with limited growth potential. They generate high profits and cash flow, requiring minimal investment.
– Question Marks (or Problem Children): High market growth rate and low relative market share. Question Marks are products or business units that operate in rapidly growing industries but have a low market share. They require careful evaluation to determine whether they can gain market share or should be divested.
– Dogs: Low market growth rate and low relative market share. Dogs are products or business units that operate in stagnant or declining industries and have a weak market position. They often generate low profits and should be considered for divestment.
FAQs:
1. What is the purpose of the BCG matrix?
The BCG matrix helps businesses evaluate their product lines or business units and make strategic decisions about resource allocation and future investment.
2. How do you determine market growth rate?
The market growth rate is determined by analyzing industry data and assessing its annual growth rate.
3. What is relative market share?
Relative market share compares a product or business unit’s market share to that of its largest competitor.
4. What does a high market growth rate indicate?
A high market growth rate suggests a dynamic and growing market with potential for expansion.
5. What does a high relative market share signify?
A high relative market share indicates a strong competitive position within the market.
6. What does the Stars quadrant represent?
The Stars quadrant represents products or business units with high market growth rates and high relative market shares.
7. What are Cash Cows?
Cash Cows are products or business units with low market growth rates and high relative market shares.
8. What are Question Marks?
Question Marks are products or business units with high market growth rates and low relative market shares.
9. What are Dogs?
Dogs are products or business units with low market growth rates and low relative market shares, typically operating in stagnant or declining industries.
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