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Limitations of the bcg model composition

The BCG model is criticised for having a number of restrictions (Kotler 2003; McDonald 2003):

➢There are other reasons apart from relative business and market growth that may influence the allocation of resources to a product or perhaps SBU: reasons such as the dependence on strong brand and merchandise positioning could compel useful resource allocation to a SBU or perhaps product (Drummond & Ensor 2004).

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➢What is more, the model rests on net funds consumption or perhaps generation as the fundamental stock portfolio balancing requirements. That is suitable only within a capital limited environment.

In modern financial systems, with comparatively frictionless capital flows, this may not be the appropriate metric to apply – rather, risk-adjusted discounted funds flows must be used (ManyWorlds 2005).

➢Also, the matrix assumes products/business units happen to be independent of every other, and independent of assets outside the business. Basically, there is no dotacion for synergy among products/business units. This can be rarely realistic.

➢The romantic relationship between cash flow and business may be weakened due to numerous factors which include (Cipher 2006): competitors may have access to lower cost materials unrelated to their relative share location; low market share producers might be on steeper experience curves due to excellent production technology; and proper factors apart from relative market share may influence profit margins.

➢In addition, the growth-share matrix is based on the assumption that high rates of growth use significant cash methods and that maturity of the lifestyle cycle may result in the predicted profit results. This may be wrong due to several reasons (Cipher 2006): capital intensity could possibly be low plus the business/product could be grown without major funds outlay; excessive entry obstacles may can be found so margins may be environmentally friendly and big enough to produce a confident cash flow and a growth concurrently; and industry overcapacity and price competition may depress prices in maturity.

➢Furthermore, market expansion is certainly not the only element or automatically the most important component when determining the appeal of a market. A fast growing market is not necessarily an attractive one. Growth marketplaces attract new entrants and if capacity surpasses demand then a market could become a low perimeter one and thus unattractive. An increased growth industry may lack size and stability.

Presented the aforementioned weaknesses, the BCG Growth-Share matrix must be used properly; however, this can be a best-known organization portfolio analysis model (Kotler 2003).

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