Limitations
 of the BCG model Essay

The BCG model is criticised for having a number of limitations (Kotler 2003 McDonald 2003)There are other reasons other than relative market place share and market ontogenesis that could influence the allocation of resources to a product or SBU reasons such as the need for strong brand name and product positioning could compel resource allocation to an SBU or product (Drummond & Ensor 2004).What is more, the model rests on net hard currency consumption or generation as the fundamental portfolio balancing criterion. That is distinguish only in a capital constrained environment. In modern economies, with relatively frictionless capital flows, this is non the appropriate metric to apply rather, risk-adjusted discounted cash flows should be used (ManyWorlds 2005).Also, the intercellular substance assumes products/business units are independent of each other, and independent of assets outside of the business. In other words, there is no provision for synergy among products/business units. This is rarely realistic.The relationship between cash flow and market share may be weak due to a number of factors including (Cipher 2006) competitors may have access to lower cost materials unrelated to their relative share position low market share producers may be on precipitous experience curves due to superior production technology and strategic factors other than relative market share may affect lettuce margins.In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that maturity of the life cycle brings about the expected profit returns. This may be incorrect due to various reasons (Cipher 2006) capital intensity may be low and the business/product could be grown without major cash outlay high entry barriers may exist so margins may be sustainable and big enough to produce a peremptory cash flow and a growth at the same time and industry overcapacity and price competition may depress prices in maturi ty.Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market. A fast growing market is not necessarily an attractive champion. Growth markets attract new entrants and if capacity exceeds demand then the market may become a low margin one and therefore unattractive. A high growth market may lack size and stability.Given the aforementioned weaknesses, the BCG Growth-Share matrix must be used with cautiousness nonetheless, it is a best-known business portfolio evaluation model (Kotler 2003).