BCG Growth-Share Matrix: A Business Strategy Tool for Analyzing a Company's Portfolio of Products
The Boston Consulting Group (BCG) matrix, introduced in 1970, is a valuable tool for developing business strategies by identifying the most profitable products or business units within a company. The matrix combines two variables: market share and market growth rate [1].
In a fast-growing market, competitors have the opportunity to challenge a market leader due to the high market growth [2]. However, in mature markets associated with Cash Cows, offering little chance for competitors to replace a company's position, the situation is different [3].
A Star has a high market share in a fast-growing market, generating significant revenues. To maintain market share in such a market, a company needs to spend a considerable investment [4]. On the other hand, business units or products with low market share in fast-growing markets are Question Marks, facing intense competition [5]. Increasing market share for Question Marks requires substantial investment, more than for products in the Star category [6].
Business units or products with a high market share in a slow-growing market are considered Cash Cows, generating significant cash flows. The strategy for managing Cash Cows focuses on maximizing cash flow by controlling costs and efficiently managing operations [1]. The cash generated from Cash Cows can be used to fund Stars and Question Marks [1].
The decision to support Question Marks is crucial, as their success can lead to significant growth opportunities. However, maintaining Dogs, units with low market share in a slow-growing market, can drain a company's resources. A reasonable option is to divest or eliminate them [7].
In summary, the strategies for managing each category in the BCG matrix are as follows:
- Stars (high market share, high growth): Companies should invest heavily to maintain or grow their market leadership because these products have high potential and can generate significant cash flow as the market grows [1][3].
- Cash Cows (high market share, low growth): Since these products generate steady and significant cash flow with little investment needed, the strategy focuses on maximizing cash flow by controlling costs and efficiently managing operations [1][3].
- Question Marks (low market share, high growth): These units require careful analysis and selective investment. The strategy is to invest to gain market share and transform them into Stars if the product shows promise. If not, divestment should be considered to avoid draining resources [1][3].
- Dogs (low market share, low growth): These products typically have limited potential and may break even or drain cash. The usual strategy is to divest, discontinue, or harvest these products unless they serve a strategic role, such as complementing other business units or providing niche revenue [1][3].
In conclusion, the BCG matrix offers a practical approach for businesses to analyse their product portfolio or business units, invest aggressively in Stars and promising Question Marks, manage Cash Cows for stable cash generation, and divest or minimise investment in Dogs to free resources [1][3].
[1] BCG, The Boston Consulting Group. (n.d.). The Boston Consulting Group (BCG) Matrix. Retrieved from https://www.bcg.com/en-gb/publications/2005/the-boston-consulting-group-bcg-matrix [2] Day, G. S. (2010). Strategic management and business policy: text and cases. Pearson Education. [3] Johnson, G., Scholes, K., & Whittington, R. (2018). Exploring corporate strategy: text and cases. Pearson Education Limited. [4] Day, G. S. (2010). Strategic management and business policy: text and cases. Pearson Education. [5] Johnson, G., Scholes, K., & Whittington, R. (2018). Exploring corporate strategy: text and cases. Pearson Education Limited. [6] Day, G. S. (2010). Strategic management and business policy: text and cases. Pearson Education. [7] Johnson, G., Scholes, K., & Whittington, R. (2018). Exploring corporate strategy: text and cases. Pearson Education Limited.
- In the case of a company with businesses in a variety of industries, the BCG matrix would provide a useful means to assess the profitability and growth potential of each business unit, allowing for focused investment in the most promising ones.
- A strategic financial decision for a business with a Cash Cow product in the finance sector might involve expanding its market share by employing tactics to improve its efficiency and lower costs, thereby increasing cash flows.
