karmabta.blogg.se - Bcg matrix explained

It is essential to understand this historic context. With this in mind, the Boston Box has the objective to help corporations to decide in which businesses or products to invest. Low-growth products should generate excess cash. High-growth products require cash input to grow. The portfolio composition is a function of the balance between cash flows. To be successful, a company should have a portfolio of products with different growth rates and different market shares. The objective was a balanced mix of products or activities in different phases of their lifecycle with different levels of cash generation or absorption. Under these conditions, businesses needed a tool that enabled them to find the optimal composition of their product portfolio.

Businesses were focused at stable growth.

Innovation cycles and economic cycles were much longer even competitors’ moves were predictable to some extent. External conditions were fairly stable, compared to our times. That was the time of expansion strategies and portfolio management. The Boston Box model was developed in the early 70s of the 20 th century. In order to achieve valid results under the current economic conditions, we have to think a step further. It dates back to the early 70s – at time when external conditions were fairly stable and growth was the objective. However, we have to remember the historical context of this management model.

The best known strategy derived from the Boston box probably is that the cash generated from Cash Cows should be invested into the Question Marks in order to increase their relative market share.

Norm strategies can be derived for all four clusters. In Henderson’s terms, cash generation is the ultimate measure of success for any product or business unit. This, in turn, indicates a products ability to generate cash or their need for cash. The four clusters indicate how valuable a product is now (market share) and in future (market growth).