BCG Matrix Assignment: A Theory Of The Product Life Cycle (Essay Sample)

The BCG Matrix
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Abstract
The BCG matrix is a theory of the product life cycle that was developed by the Boston Consulting Group. It aims at identifying the high growth prospects of different products offered by different organizations. The products are categorized according to their growth rate and market share. This categorization enables the organizations to allocate efficiently allocate resources to budgeted for marketing. Although the matrix was mainly developed for marketing, it has over the years been used in the entire business operations in allocating the resources to the different business functions (Arline, 2015). It is a simple way of analyzing the operations and making a decision on how much resources should be allocated to each function. The matrix classifies business functions into four categories (quadrants) namely the stars, the question marks, the cash cows and the dogs. It was developed based on the assumption that the more the market share a product enjoys, the more cash it generates. This paper discusses the model, how it is applied in real business situations and examples of global organizations that have successfully used it in their operations.
The BCG Quadrants
The Stars-This quadrant represents a business unit in a fast growing industry. Being in a fast growing industry, the stars generate a lot of cash, but a lot of cash is equally needed to maintain the unit. According to Oakley (2014), this may eventually lead to netting off of investments and if not checked, the investment may no register the anticipated results. Investors in this category of business are advised to invest in stars since they have the potential to generate a lot of cash until a point when the market growth rate declines.
The Cash Cows- These are business units that have a large market share but operate in slow growing industries that are considered to have matured. They generate more cash than investments that are required to maintain them. The extra cash so generated can be invested in other units. The cash generated by cash cows could be used to cover other costs of running the business such as research and development. Arline (2015) advises companies to invest in such kind of products.
The Question Marks-These are units that enjoy high growth rates but very low market shares. They therefore do not generate a lot of cash than the investments required to keep them running. However, they have the potential of gaining more market share and turning into stars and eventually cash cows. However, if unsuccessful, question marks may degenerate as growth slows down. This may lead to total loss of investment. The term “question marks” was probably coined because investors in this category are not sure whether investment will succeed or not.
The Dogs-This a business that enjoys a low market share and operates in a slow growing industry. The business does not require a lot of cash to make it operational, neither does it generate a lot of cash. Unless it is kept for a specific strategic purpose, investors are advised to liquidate such business to realize their cash before the business becomes obsolete (Oakley, 2014).
The BCG matrix may be used by organizations with multiple brands or business operations to make decisions on how much to invest in which units. Despite its simplicity, the model has been criticized for the following reasons:
a).There is no clear link between market share and profitability. Since businesses are run with the purpose of gaining profits, it does not make sense when an investor is advised to invest in a business unit whose profitability is uncertain.
b).The model may overlook the potential of declining markets. It fails to take into account that there are clients who will alw...