Various limitations and criticisms have been made of the BCG matrix especially as it was the first of a number of matrices developed to assist in strategic planning. Many have published comprehensive summaries of these limitations. He says that numerous factors must be taken into consideration with the growth-share matrix, which depends on the relationship between cash flow and the two variables of relative market share and market growth.
Market Share may not be Correlated with Cash Flow begging the fact that the BCG calls for the desirability of high market shares. The relationship between cash flow and market share may be weak due to a number of factors including:
Experience effects may be very small
Competitors may have access to lower cost materials unrelated to their relative share position
Low market share producers may be on steeper experience curves due to superior production technology
Differences in experience on costs may have little impact on costs being reduced as other companies may easily and quickly adopt innovations in production technology
Strategic factors other than relative market share may affect profit margins.
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:
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 positive cash flow and a growth at the same time.
Industry overcapacity and price competition may depress prices in maturity.
Legal restrictions may reduce profitability
Seasonal or cyclical patterns could cause imbalances in profitability and cash flow
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 one. 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.
High market share is only one measure of the strength of a business/product. Other factors may be more important
If the market is defined too narrowly the business inevitably ends up being a market leader on the matrix and if it is defined too broadly the business is represented as being weak. Proper market definition is essential.