Question

Describe BCG growth share matrix, and show its strengths and weaknesses. Use Zara to illustrate how this model can help an organization craft its strategy. Please elaborate and provide insightful analysis.

Answer 1

Benefits of the BCG-Matrix:

• The BCG-Matrix is helpful for managers to evaluate balance in the companies’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.
• BCG-Matrix is applicable to large companies that seek volume and experience effects.
• The model is simple and easy to understand.
• It provides a base for management to decide and prepare for future actions.
• If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.

Limitations of the BCG-Matrix:

• It neglects the effects of synergies between business units.
• High market share is not the only success factor.
• Market growth is not the only indicator for attractiveness of a market.
• Sometimes Dogs can earn even more cash as Cash Cows.
• The problems of getting data on the market share and market growth.
• There is no clear definition of what constitutes a “market”.
• A high market share does not necessarily lead to profitability all the time.
• The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or todivest prematurely.
• A business with a low market share can be profitable too.
• The model neglects small competitors that have fast growing market shares.