The Boston Consulting Group Matrix (BCG Matrix)

What is it?

High
The Boston Consulting Group (BCG) Matrix is a

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portfolio management tool created in 1970 by
Bruce Henderson. The purpose of the matrix is to
enable companies to ensure long-term revenues
by balancing products requiring investment with

Market Growth Rate

products that should be managed for remaining
profits. The BCG matrix has two axes: relative market
share (indicating profitability, through economies of
scale) and market growth rate (indicating market
attractiveness), which means assets can be classified
into 4 categories: Question Marks, Rising Stars, Cash
Cows or Dogs.

Low
Ideally, the path of an asset through the matrix is, first
to be launched into a growing market as a Question High Low
Relative Market Share
Mark, then grow share to become a Rising Star; as
market growth slows the asset maintains share to
Figure 1 The Boston Consulting Group Matrix
become a Cash Cow, and eventually if its share falls
it becomes a Dog. Executives need to make strategic
decisions that drive assets onto this path, in order to
maximise lifetime profitability. When to use it
The BCG matrix should be used as part of strategic
Question Marks: New assets enter the market as portfolio management to manage cashflow
Question Marks. Executives should focus on growing (McDonald, 1999). The matrix enables you to
market share to convert them to Rising Stars. determine which assets could produce future
revenues and make investment decisions that ensure
Rising Stars: Rising Stars generate significant funds are allocated to the right assets.
revenues and can generate profits, but they also
require investment and focused marketing in order to The tool can reveal portfolio weaknesses that may
maintain their positions in the market. threaten a company’s future cashflow. If a company
is not developing many Question Marks, it needs to
Cash Cows: Cash Cows are in a low growth market consider where income will come from in future.
which means market share is difficult to win and
margins are tight. Therefore they should be ‘milked’ How to use it
for remaining revenues and profits. Cash Cows are To classify your assets, the market growth rate and
often the main source of company profits, which can relative market share of the competitors need to
then be invested in Question Marks and Stars to be estimated accurately for each asset. Each asset
maintain profits in the future portfolio. should be represented by a circle, proportional to the
asset’s annual sales. Assets in high growth markets
Dogs: As assets with low market share in a slow- should then be allocated high levels of investment
growing market, Dogs usually represent the last to increase capacity and raise brand awareness
stage in an asset’s life and should be considered for (Johnson et al, 2008).
divestment.
The validity of the market information and the way
that the ‘market’ is defined is crucial for guaranteeing
that different assets are assigned correctly. Data on
growth and share may be available from analysts, or
an independent assessor may be appointed who can
judge the assets without bias.

1
 Size of market

Barriers to entry

Potential revenue

Potential profit
Market
Growth Competitor strength
Rate Risk profile

Regulations

Longevity

Figure 2 Market attractiveness factors beyond the market growth rate

Strengths and weaknesses

The simplicity of the BCG matrix makes it easy to There may also be interdependencies that the matrix
interpret by employees at a range of levels, which does not account for. For example, a software
means that it can form a useful basis for internal company may need to continue to support Dogs,
discussions. As well as products, it can be applied even though this is unprofitable, because consumers
to a wide range of areas, from managing a product will be unwilling to buy software that will soon be
portfolio to a portfolio of business units to a portfolio out of date. Likewise some companies may need to
of country divisions. keep some complementary assets in their portfolio to
support the Rising Stars and Cash Cows, or need to
The BCG matrix is based on market data, which present a full product range to the market.
makes it robust and relatively objective; however this
can be difficult to source and analyse if the relevant To find out more, contact Kay Sharpington
expertise is not available in-house. at [email protected].

In today’s business environment, other dimensions Further reading

of market attractiveness have become important as Johnson, G., Scholes, K. and Whittington, R. (2008)
well as the market growth rate, such as potential ‘Exploring corporate strategy’ Harlow: Prentice Hall
revenues and profits, risk profile and barriers to entry
McDonald, M. (1999) ‘Marketing plans’ Oxford: Butterworth-
(see Figure 2), and the commercial landscape is more Heinemann
unpredictable and diverse. Similarly, the importance of
Reeves, M., Moose, S. and Venema, T. (2014) ‘BCG Classics
market share has reduced; increased accessibility of
Revisited: The Growth Share Matrix’ Available at: https://www.
products means that customer loyalty has reduced, bcgperspectives.com/content/articles/corporate_strategy_
so there may not be a single leading competitor in portfolio_management_strategic_planning_growth_share_
the market (Reeves, Moose and Venema, 2014), matrix_bcg_classics_revisited/ [Accessed 7 May 2015]
while some premium providers such as Audi aim to
maximise profits rather than market share.