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Ansoff Matrix
To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below:

Ansoff Matrix Existing Products Existing Markets New Products

Market Penetration

Product Development

New Markets

Market Development

Diversification

Ansoff's matrix provides four different growth strategies:

y y y y

Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.

Strategic Management > BCG Matrix

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share". Market growth

serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability. BCG Growth-Share Matrix
Strat egic Man age men t> BCG Mat rix

The BC G Gro wt hSha re Ma trix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Gro 1970's. It is based on the observation that a company's business units can be classified into four categories based on com growth and market share relative to the largest competitor, hence the name "growth-share". Market growth serves as a attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus ma positions within these two important determinants of profitability.

B C G G r o w t h -

S h a r e M a t r i x
B C G G r o w t h S h a r e M a t r i x

This framework assumes that an increase in relative market share will result in an increase in the generation of cash. Thi is true because of the experience curve; increased relative market share implies that the firm is moving forward on the e relative to its competitors, thus developing a cost advantage. A second assumption is that a growing market requires inv to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-sha an indication of its cash generation and its cash consumption. Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business

unit could move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-Share Matrix was born. T h e fo ur ca te g or ie s ar e: Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture.

Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they hav do not generate much cash. The result is a large net cash comsumption. A question mark (also known as a "problem chil gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark do becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the marke Question marks must be analyzed carefully in order to determine whether they are worth the investment required to gro Stars - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.

Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growt more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash a provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a rel value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted Under the growth-share matrix model, as an industry matures and its growth rate declines, a business unit will become either a cash cow or a dog, determined soley by whether it had become the market leader during the period of high growth.

While originally developed as a model for resource allocation among the various business units in a corporation, the growth-share matrix also can be used for resource allocation among products within a single business unit. Its simplicity is its strength - the relative positions of the firm's entire business portfolio can be displayed in a single diagram.

L i m i t a t i o n s
The growth-share matrix once was used widely, but has since faded from popularity as more comprehensive models have been developed. Some of its weaknesses are: Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The growth-share matrix overlooks many other factors in these two important determinants of profitability. The framework assumes that each business unit is independent of the others. In some cases, a business unit that is a "dog" may be helping other business units gain a competitive advantage. The matrix depends heavily upon the breadth of the definition of the market. A business unit may dominate its small niche, but have very low market share in the overall industry. In such a case, the definition of the market can make the difference between a dog and a cash cow. While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing a

corporation's business portfolio at a glance, and may serve as a starting point for discussing resource allocation among strategic business units. Strat egic Man age men t> BCG Mat rix Home | About | Privacy | Reprints | Terms of Use Copyrigh t 20022010 NetMBA. com. All rights reserved. This web site is oper ated by the Internet Center for Manageme nt and Business Administrat ion, Inc. S e

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