Every company has different business areas that meet specific objectives and require specific resources. A portfolio analysis (BCG matrix) can be used to determine which strategies and investments make sense for which products.
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Definition / explanation
The portfolio analysis (also called BCG matrix or four-field matrix) describes the market growth-market share matrix of the Boston Consulting Group.
The business units (products) of a company are classified based on the criteria of market growth and market share. The matrix serves as the basis for strategic company decisions.
Video: Explanation of portfolio analysis / BCG matrix
Building the portfolio
X-axis (horizontal axis) shows the relative market share:
- relative market share = own market share / market share of the largest competitor
- relative market share = measure of current competitive position
Y-axis (vertical axis) represents the market growth:
- Market growth = growth of the markets in which the products operate
- Market growth = increase in sales volume and level of sales
- Market growth = future opportunities for profit
The individual products are drawn in as circles. Depending on the conversion, the area of the circle is larger or smaller.
The matrix is divided into four fields. The individual products are assigned to one of the four fields based on market growth and their relative market share. Their positions in the matrix can change over time.
It is believed that every product has a specific one Product life cycle passes through. Typically, a product begins as a “question mark” to become a “star” and mutate into a “cash cow” before being rejected as a “poor dog”.
"Question Marks" operate in growth markets, but only have a low market share. Mostly these are new products that are in their initial phase and require high investments in order to be able to develop their potential.
Their development is questionable. Ideally, “question marks” turn into “stars” with the help of the investment strategy. Otherwise, companies have to cut back investments in good time so as not to produce “poor dogs”. The funds thus freed up can be invested in other products.
"Stars" operate as market leaders in a growing market. After the "stars" have successfully passed the introductory phase, growth strategies are required in order to further expand their market position and to fend off competitors.
As a rule, “stars” already generate profits before, in the best case scenario, as later “cash cows” they ensure high inflows of money.
Mit Eintritt in die Sättigungsphase mutiert der „Star“ zur „Cashcow“, welche einen sehr hohen Marktanteil und eine sinkende Wachstumsrate verzeichnet. Als „Milchkuh“ bringt sie dem Unternehmen hohe liquide Mittel, welche in die financing von „Question Marks“, „Stars“ und „Poor Dogs“ fließen können (Abschöpfungsstrategie). Es geht darum, den Marktanteil zu halten, eine Umwandlung in ein „Fragezeichen“ oder einen „Star“ anzudenken oder einen rechtzeitigen Produktabstoß vorzubereiten.
“Poor dogs” with their low market share in stagnating or slowly growing markets are considered to be discontinued products. They only write marginal profits or red numbers. If the contribution margin is negative and there is no strategic importance, they should be withdrawn from the market (Product elimination).
advantages and disadvantages
- With the help of the BCG matrix, each individual business unit can be assessed and classified
- A strategy can be read from the respective position
- from this, goals for the future can be worked out
- the matrix provides a clear representation
- it is just a simplified illustration of complex issues that does not take into account all the important factors
- Dependencies are just as neglected as composite effects
- the growth rate is assumed to be a given value, which in practice can, however, be influenced and is subject to change
- as a mere snapshot, the BCG Matrix does not permit any reliable future prognosis
- nicht jedes Produkt folgt dem typischen Product life cycle