BCG matrix is a management tool that provides a framework for assessing performance of different businesses within a company’s portfolio. It considers two parameters in the evaluation: market growth rate and market share of a particular company. The upper right quadrant of the matrix is characterized by high growth and low market share and the businesses in this quadrant are called “question marks”. Businesses in the lower left quadrant of the matrix enjoy high market share, but a low market growth, therefore they are considered “cash cows” (Griffin, 2010).
The electronics division of the company is a question mark business, therefore its future is unknown. If the company manages to capture a large share of the growing market in the future, it will enjoy significant profits over time. However, if the electronics division is not able to keep up with the level of industry growth, the company should divest from the business as it is not going to be profitable. The appliance division is a “cash cow”, therefore it is not expected to grow significantly, but the company already possesses a significant market share in the business. Hence, it is possible to derive profits and cash from the appliance division in order to invest in the growing segments, such as the electronic division.
The conclusions derived from the BCG matrix do not represent an absolute truth and need to be further investigated and checked. In particular, due to the ambiguity of assigning positions on the matrix, businesses may be categorized wrongly, thus destroying promising businesses. Moreover, BCG matrix uses historical information as an input for business categorizations, and these data do not always reflect the future performance appropriately (Williams, 2012). Furthermore, matrix considers only market growth, while not evaluating its attractiveness. Therefore, an additional analysis of the market characteristics, such as the level of competition, supplier bargaining power and the availability of substitutes, should be conducted in order to reinforce or reject the conclusions made based on the BCG matrix (Fyall & Garrod, 2005). This could be done within the framework of a Porter’s Five Forces analysis.
References
Fyall, A., & Garrod, B. (2005). Tourism marketing: A collaborative approach. Clevedon,
UK: Channel View Publications.
Griffin, R. W. (2010). Management. (10th ed.). Mason, OH: South-Western Cengage
Learning.
Williams, C. (2011). Effective management, a multimedia approach. (5th ed.). Mason, OH:
South-Western Cengage Learning.
