The BCG Model Explained

The BCG Matrix is an analysis tool used by businesses to improve the competitive stability of the company. Much like a SWOT Analysis which considers opportunities and threats from internal and external environments to sustained success within a real-world setting, the BCG Matrix considers potential success projected into the future based on the market share and growth rate of a business unit or even a potential market.

Rather than a matrix divided into quadrants of strengths, weaknesses, opportunities, and threats, the BCG Growth-Share Matrix considers Cash Use (growth rate) and Cash Generation (market share) with alternating divisions between high and low for a total of four quadrants. For example, a software designer at Apple Inc. would command a high salary yet also be responsible for the construction of the latest technology produced for the consumer market, thereby operating with both the high cash use and high cash generation quadrant. For an investor, a high-grade savings bond, once purchased, would not use cash yet generate a measurable amount of income, thereby relegating it into the low cash use and high cash generation quadrant. A lazy yet talented employee would fall into the high cash use, low cash generation quadrant, and an inanimate object such as a desk would generate no cash on its own merit while requiring little maintenance, thereby falling into our fourth and final quadrant. More typically, these quadrants are divided between the star (high cash use, high reward), the cow (low cash use, high reward), the dog (low cash use, low reward), and the question mark (high cash use, low reward).

Today, KFC dominates the fast food industry with a worldwide market in over 100 countries. With an ever-expanding empire bent on profit growth, KFC uses the current prospects of the company to evaluate current and future markets based on their potential for cash use and cash generation. This allows administrators to make informed decisions for continued success.

Reference

Pearce, J. A., & Robinson, R. B. (2009). Strategic management: Formulation, implementation, and control (11th ed.). Boston: Irwin/McGraw-Hill.