Transcript Boston Matrix

BOSTON MATRIX
FRED LEE
PERIOD 3
WHAT IS BOSTON MATRIX?
• A tool of portfolio analysis developed by the Boston
Consulting Group in the early 1970’s
• Well-known management tool used in product life
cycle theory
• A tool that numerous companies utilize to enhance
their products and help decide on their portfolio
decisions
FUNCTIONS
• Categorizes products based on market growth and
market share
• It prioritizes which products of a firm should get
more investment and attention, and vice versa
• It focuses on a portfolio of products
• It focuses on the products’ cash flow
ITS ESSENCE
• Products are categorized into:
• Question Marks (a.k.a. problem
child) : Products with high market
growth but low market share
• Stars: Products with high market
growth and high market share
• Cash Cows: Products with low
market growth and high market
share
• Dogs: Products with low market
growth and low market share
DETAILS #1
• Question Mark: Low share, and low
market growth -> negative cash flow > uncertain potential -> can potentially
become a star or a dog
• Star: High share and high market
growth -> The product is relatively
strong -> neutral or modest cash inflow
DETAILS #2
• Cash Cow: High market share, but low
market growth -> at mature state of the
product cycle -> successful -> unlikely to
grow more -> large positive cash flow
• Dog: Low market share, and low market
growth -> unattractive -> no potential ->
failed products or in the decline phase
STRATEGY #1
• Question Mark:
• Invest for a high market share or divest
• Promote the product
• Produce selectively, meaning do not
produce in excess
• Star:
• Invest for a sustained market growth
• Increase sales and market share
• Maintain leadership among the firm’s
competitors
• Counter challenges from the firm’s
competitors
STRATEGY #2
• Cash Cow:
Harvest
Defend its share
Try for short term profits
Do not need to invest much; in fact reduce
investment to maximize short term profits
• Use profits to supplement other products
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• Dog:
• Phase out or divest
• Do not invest
• Its profits should invest in its own product
EXAMPLES
• Star: Walmart -> It has a high market share,
and it is growing rapidly too; IPod -> high
market share in a growing market, but needed
a lot of investment
• Question Mark: Panasonic smartphones ->
small market share in a rapidly growing market
-> customers are aware of Panasonic’s cash
cow examples, but unaware of its smartphone
market entrance.
• Cash Cow: Pepsi -> high market share, but low
market growth rate. Customers are already
aware of its products, and fluctuate little
• Dog: GM’s Hummer -> low market share, and it
is not growing much either.
ADVANTAGES
• Very simple and useful for any companies
• Highlights important factors of the firm’s portfolio
products
• Helps to generalize and make decisions with certain
products
• Can become an efficient planner tool for firms
DISADVANTAGES
• It only is a “snapshot” of a short-term condition and
position
• Assumptions on which the matrix is based have
flaws
• Does not look into environmental forces
• The product of cycle is not fixed; it varies over time
• Market share itself is sometimes enough to decide if
the product is able to generate cash flow