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S. V. INSTITUTE OF MANAGEMENT, KADI Page 57

13.1 BCG matrix

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic

position of the business brand portfolio and its potential. It classifies business portfolio into

four categories based on industry attractiveness (growth rate of that industry) andcompetitive

position (relative market share). These two dimensions reveal likely profitability of the

business portfolio in terms of cash needed to support that unit and cash generated by it.

The general purpose of the analysis is to help understand, which brands the firm should invest

in and which ones should be divested.1

Cash cows:

Cash Cows are where company has high market share in a slow-growing industry. These

units typically generate cash in excess of the amount of cash needed to maintain the business.

They are regarded as staid and boring, in a "mature" market, and every corporation would be

thrilled to own as many as possible. They are to be "milked" continuously with as little

investment as possible, since such investment would be wasted in an industry with low

growth.

Dogs

Dogs, more charitably called pets, are units with low market share in a mature, slow-growing

industry. These units typically "break even", generating barely enough cash to maintain the

business's market share. Though owning a break-even unit provides the social benefit of

providing jobs and possible synergies that assist other business units, from an accounting

point of view such a unit is worthless, not generating cash for the company. They depress a

profitable company's return on assets ratio, used by many investors to judge how well a

company is being managed. Dogs, it is thought, should be sold off.

Question marks

Question marks (also known as problem children) are business operating in a high market

growth, but having a low market share. They are a starting point for most businesses.

Question marks have a potential to gain market share and become stars, and eventually cash

cows when market growth slows. If question marks do not succeed in becoming a market

1http://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.html
http://www.strategicmanagementinsight.com/topics/competitive-advantage.htmlhttp://www.strategicmanagementinsight.com/topics/competitive-advantage.htmlhttp://en.wikipedia.org/wiki/Cash_cowhttp://en.wikipedia.org/wiki/Return_on_assetshttp://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.htmlhttp://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.htmlhttp://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.htmlhttp://en.wikipedia.org/wiki/Return_on_assetshttp://en.wikipedia.org/wiki/Cash_cowhttp://www.strategicmanagementinsight.com/topics/competitive-advantage.htmlhttp://www.strategicmanagementinsight.com/topics/competitive-advantage.html

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leader, then after perhaps years of cash consumption, they will degenerate into dogs when

market growth declines. Question marks must be analysed carefully in order to determine

whether they are worth the investment required to grow market share.

Stars

Stars are units with a high market share in a fast-growing industry. They are successful

question marks and become a market leader in a high growth sector. The hope is

that stars become next cash cows. Stars require high funding to fight competitions and

maintain a growth rate. When growth slows, if they have been able to maintain their category

leadership stars become cash cows, else they become dogs due to low relative market share.2

Company Name Sales Turnover

(2013) (Rs. Crore)

Relative Market

Share

HDFC 21112.50 1.00

Power Finance Corp. 17260.27 0.82

Rural Electricity Corp. 10337.59 0.49

Shriram Transport Finance 6558.13 0.31

Reliance Capital 3828 0.18

Indiabulls Financial Services 2929.26 0.14

M&M Financial 2767.70 0.13

Bajaj Holdings 743.68 0.04

Bajaj Finserv 141.47 0.01

Religare Enterprises 120.97 0.01

As on March 31, 2013, the total managed retail credit on NBFCs stood at Rs. 3.25 trillion and

registered a sharp fall in growth to 10% in FY2013. However, after adjusting the re-

classification of one NBFC the overall NBFC managed growth in FY2013 would have been

19%.3

2http://en.wikipedia.org/wiki/Growth%E2%80%93share_matrix

3http://icra.in/Files/ticker/SH-2013-Q3-1-ICRA-NBFC-Retail Comm Fin.pdf
http://en.wikipedia.org/wiki/Growth%E2%80%93share_matrixhttp://icra.in/Files/ticker/SH-2013-Q3-1-ICRA-NBFC-Retail%20Comm%20Fin.pdfhttp://icra.in/Files/ticker/SH-2013-Q3-1-ICRA-NBFC-Retail%20Comm%20Fin.pdfhttp://icra.in/Files/ticker/SH-2013-Q3-1-ICRA-NBFC-Retail%20Comm%20Fin.pdfhttp://en.wikipedia.org/wiki/Growth%E2%80%93share_matrix

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Symbols Name of Companies

HDFC

Power Finance Corp.

Rural Electricity Corp.

Shriram Transport Finance

Reliance Capital

Indiabulls Financial Services

M&M Financial

Bajaj Holdings

Bajaj Finserv

Religare Enterprises

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INTERPRETATION:

The growth rate of NBFC industry in 2013 is 19%. The HDFC is Leader Company

with the highest market share of the total market share so it falls in the star category.

The Power Finance Corp. has 0.82 percent relative market growth rate which also fall

in star category. It is a challenger of the NBFC industry.

Rural Electricity Corp. has 0.49, Shriram Transport Finance has 0.31, Reliance

Capital has 0.18, Indiabulls Financial Services has 0.14, M&M Financial has 0.13,

Bajaj Holdings has 0.04, Bajaj Finserv and Religare Enterprises have 0.01 relative

market shares in the market.

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29 Chap 13