Boston Matrix (aim of portfolio analysis)

Question 1

Portfolio analysis

Answer 1

A method of categorising all the product of a firm to decide where each one fits within the strategic plans

Question 2

Boston Matrix

Answer 2

A tool for portfolio analysis

Made up 4 different areas:
Stars 
Cash cows 
Question marks 
Dogs 

These areas are mainly based on market growth and market share

Question 3

Stars

Answer 3

High-growth products that are strong compared to those of competitors.

Require heavy investment to maintain growth

Eventually growth slows and assuming they keep their market share, they become cash cows

Question 4

Cash cows

Answer 4

Low-growth products with a high marker share.

Mature/ successful products with relatively little need for investment

Generate more cash than they consume, hence can provide a return for investors

Can also afford to fund investments in other areas

They need to be managed for continued profit so they can keep generating strong cashflows needed for stars

Question 5

Question marks

Answer 5

Products with low market shares operating in high-growth markets.

Consume a lot of cash with little return

However, have potential to turn into stars, but will require substantial investments to grow market share.

Managers have to consider whether to invest in them or allow them to fail.

Question 6

Dogs

Answer 6

Products with low market share operating in (unattractive) low-growth markets.

May generate enough cash to break-even but are rarely ever worth investing in.

Usually sold or closed

Question 7

Boston matrix uses in strategic planning

Answer 7

Boston matrix can also help a business in deciding a strategy to adopt.

A firm with a ‘Star’ may decide to adopt a market penetration strategy.

So that it can increase sales revenue and maximise market share while the product is competitive.

Firms could also use this to identify ‘Dogs’ that need to be discontinued.

This will help cut costs and follow their strategy to cost leadership.