The belief is that when the company produces more products, it benefits from higher economies of scale and the experience curve which in turn result in higher profits.This chart was created with the purpose of helping companies analyze their different business units or product lines.The analysis helps these companies to allocate resources where they are most appropriate as well as to use the results in brand marketing, product management, strategic management, and portfolio analyses.
These decisions include whether to keep a particular business unit, sell it or to invest more in it. The y-axis of the graph represents rate of market growth while the x-axis represents market share. The tool is not predictive and also doesnt take into account any new or disruptive products that may enter and change the market, nor does it account for shifts in consumer demand. A product line of a business unit is plotted based on its relative market share and rate of growth in the market and falls within one of these categories. This means that they are able to generate revenues in greater amounts than the investment required to maintain their business. The product line may be considered boring and settled in a mature market, with the company holding it to continue to generate revenues. The company will attempt to milk these as much as possible with as little investment as possible. Usually, these product lines manage to earn what is put into them, breaking-even and maintaining the market share. Generally this unit is largely worthless to the company in terms of earning potential but may afford other benefits to the company such as the creation of jobs as well as synergies that assist other business units. ![]() However, dogs can negatively affect how investors judge the management of a company and it is suggested that these product lines be sold off. These product lines have a clearly visible market or niche leading path and require large amounts of funding to ensure that they can fight of competitors and maintain their growth rate. Companies aim to turn stars into their next cash cows with the inevitable decline in the growth of the industry. This can happen potentially if they are able to maintain their position as a market leader. This is where most businesses will start from and at this point the business unit has the potential to grow market share and turn into a star or lose further marker share and turn into dogs when the growth of the market itself declines. Careful study and analysis is required for business units in this category to assess their potential and worth. If any potential is seen then further investment can be made into them. When the market growth slows down, they turn into cash cows and at the end of the cycle, the cash cow turns into a dog. According to the Boston Consulting Group, a diversified company with a balanced portfolio is in the ideal position to use its strengths to capitalize on its growth opportunities and potential. The idea that prompted this grid as a while was the need to manage cash flows. The model assumes that one of the main indicators for cash generation is relative market share and the one for cash usage was the market growth rate. The reason behind the selection of this metric is based on its relationship with the experience curve.
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