BCG Matrix
Definition
The BCG Matrix, or Boston Consulting Group Growth-Share Matrix, is a
strategic tool designed to help organizations categorize and prioritize
different business units or product lines by evaluating their market growth
rate and relative market share.
The matrix consists of four quadrants:
Stars,
Cash Cows,
Question Marks,
and Dogs.
History
The BCG Matrix was introduced by the Boston Consulting Group in the
early 1970s, specifically by BCG founder Bruce Henderson.
It was initially created to help corporations analyze their business units or
product lines to allocate resources effectively and attain a balance in the
portfolio, ensuring sustainability and profitability in the long term.
How to Use the BCG Matrix
Step 1: Plotting the Matrix
● Define the market and identify all products or business units to be
plotted.
● Determine the relative market share and market growth rate for each,
placing them on the matrix.
Step 2: Analyze Quadrants
● Stars: High market growth and high market share. May need
investment to sustain growth.
● CashCows: Low market growth but high market share. Generate steady
cash flow.
● Question Marks: High market growth but low market share. Potential
stars or failures.
● Dogs: Low market growth and low market share. Consider
discontinuation.
Step 3: Develop Strategies
● Decide on how to allocate resources among business units.
● Identify units to invest in, to maintain, or to divest.
Practical Example Imagine a company that manufactures a range of
electronic products.
● Stars: Their innovative smart home devices are gaining rapid market
share in a growing market.
● CashCows: Their well-established line of kitchen appliances has
dominant market share but slow growth.
● Question Marks: A newly introduced line of wearables is growing but
has not captured significant market share.
● Dogs: Their older models of smartphones have low market share and
are in a declining market.
This analysis helps the company decide where to invest, perhaps to
convert question marks into stars and ensure cash cows continue to
provide steady income, while possibly divesting dogs.
Pro Tips Data Accuracy: Ensure accurate and relevant data to accurately
plot the matrix.
Dynamic Approach: The matrix should be updated regularly to reflect
changes in the market and the relative positions of business units.
Consider Other Factors: While allocating resources, also consider factors
like potential synergies between units and future market trends.
Main Takeaways
● TheBCGMatrix allows businesses to visualize and evaluate the strategic
position of their product portfolio in the market.
● Through effective categorization, organizations can make informed
decisions regarding investment and resource allocation across different
business units.
● Continual revision and analysis using the BCG Matrix are crucial to
adapting to evolving markets and ensuring sustained business growth.
