In a world with unlimited resources, you would not have to worry about allocation of resources. Well, you would not have to worry about a lot of things – poverty, hunger, strife. War? We cannot say that for sure.
But as we are dealing with limited resources, we can only allot so much to the different priorities in our lives or businesses. And you would want to put money behind the ones that have earned the highest priorities by promising you the highest returns.
BCG Growth Share Matrix helps you make that decision – the decision about behind what endeavor you should allocate what percentage of your total resources. It uses two fairly intelligible dimensions to do that – Relative Market Share of the product which acts as a proxy for the amount of cash it generates for your overall business, and Market Growth Rate of the product which would tell you about the amount of cash the product requires (higher the growth rate, more is the cash required to sustain that growth). Fairly simple, right?
Also, understand this: if the relative market share of one of your products is high, you have earned a competitive advantage for yourself in that product line. Hence, relative market share acts as a proxy for competitive advantage too.
Likewise, if the market growth rate for another of your product is very high, that means that the product line is attractive as an option to invest. Who doesn’t like growth! Thus, market growth rate acts as a proxy for industry attractiveness.
Now Bruce Henderson of the Boston Consulting Group considered it wise to bring competitive advantage (proxy: relative market share) and industry attractiveness (proxy: market growth rate) on the same sheet and provide us with valuable insights.
Lets look at the matrix now:
Picture Credit: www.valuebasedmanagement.net
In the follow-up article, we would look in the various aspects of the matrix above – the cash flow, the earnings and the strategy you should take when dealing with cows, dogs, question marks and stars. Till then, we would be better off thinking about what other proxies can we use for both competitive advantage and industry attractiveness?
Post your suggestions in the comments section below!
Amartya Dey, India
Other Articles by the Author:
- The First Rule of Negotiation
- Human Aspect: Beware of the Exceptional Employee
- Human Aspect: Importance of Precedent
- Two Levers: Potential & Tacit Knowledge (Part I)
- Breaking Organizational Silos (Part I)
- Breaking Organizational Silos (Part II)
- Working More than 12 Hours?
- The Abuse of the 360º Feedback System
- Human Aspect: The Context of Power
Categories: Learning Business