which of the following is true of the bcg matrix approach

Because of their rapid growth they require large amounts of cash, but at the same time they provide cash through their strong relative market position. Stars Stars are in the upper left quadrant.Henderson defines the four categories according to their potential for cash generation and cash requirement. BCG-Matrix with growth/share axis and the four portfolio categories. A basic model of the matrix is shown in Figure 1 which serves as an illustration for further discussion.Ĭlassification of Businesses into Four Portfolio Categoriesįigure 1. Basically, the matrix can be divided into six core elements, each with specific assumptions.

In order to understand this position, the underlying assumptions and core elements of the matrix are presented in the following. At the time Henderson said about the matrix: Such a single chart with a projected position five years out is sufficient alone to tell a company's profitability, debt capacity, growth potential, dividend potential and competitive strength. Furthermore, it could be used to communicate decisions to subsidiaries within the company. Based on only a limited amount of input data (relative market share and market growth), senior executives gained a clear picture of their business portfolio in an increasingly complex environment. When the BCG-Matrix was developed, it met a real market need. Key Assumptions and Core Elements of the Matrix

2.2 Exemplary Use and Strategic Implications.

1.3 Relative Market Share and Cash Generation.

1.2 Strategic Business Units (SBU) and Product Markets.

1.1 Classification of Businesses into Four Portfolio Categories.

1 Key Assumptions and Core Elements of the Matrix.

Finally, limitations of the matrix are discussed based on empirical research and new findings. These serve as a guideline for a company's overall strategy. Hereafter, the application of the tool is shown with its implications for the business portfolio. The following article will present the matrix developed by Henderson with its foundations and core elements. Although the BCG describes it still as a relevant tool today, the growth share matrix has been criticized by professionals and academics for its limitations and underlying assumptions. Henderson, a senior partner of the management consulting firm BCG, the concept has been widely applied since then and can be seen as a foundation for similar tools. Based on that, the optimal combination of individual business strategies is developed to manage a company's business portfolio in such a way, that it can make the most out of its opportunities. Depending on the growth rate and market share, each business is individually assigned to one of the four clusters inside the two-dimensional matrix. The Boston Consulting Group (BCG) matrix, also known as growth share matrix, is a tool to manage a company's business portfolio and derive appropriate actions towards a higher total performance.

Which of the following is true of the bcg matrix approach