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BCG Growth-Share Matrix:
The Boston Consulting Group, a leading consulting firm, developed and popularized
a portfoilo analysis tools that helps managers develop organizational strategy
based on market share of businesses and the growth of markets in which
businesses exist
The !st step in using this model is identifying the organization"s strategic business
units #$B%s& ' $trategic business %nit is a significant organization segment that is
analysed to develop organizational strategy aimed at generating future business or
revenue
(xactly what constitutes as $B% varies from company to company )n bigger
organizations, and $B% could be a company division, a single product or a
complete *roduct +ine
)n smaller organizations, it might be the entire company
(venthough they vary drastically in form each $B% has the following
characteristics:
! )t is a single business or collection of related businesses
, )t has its own competitors
- )t has a manager who is accountable for its operation
. )t is an area that can be independently planned for within the organization
'fter identifying the $B%s, the next step is to categorize each $B% within one of
the . /atrix 0uadrants:
1. STARS 1 $tar $B%s have a high share of a high growth market and typically
need large amounts of cash to support their rapid and significant growth
$tars also generate large amounts of cash for the organization and are usually
segments in which management can make additional investments and earn
attractive returns
2. CASH COS: $B%s that are Cash Cows have a large share of a market that is
growing only slightly 2aturally, these $B%s provide the organization with
large amounts of Cash, but since their market is not growing significantly,
the cash is generally used to meet the financial demands of the organization
in other areas, such as the expansion of a $T'3 $B%
3. !"#ST$O% MAR&S: These category of $B%s have a small share of a high
growth market These are 45uestion marks6 because it is uncertain whether
management should invest more cash in them to gain a larger share of the
market or deemphasize or eliminate them /anagement will choose the !st
option when it believes it can turn the 5uestion mark into a star, and the ,nd
option when it thinks that future investments would be fruitless
4. 'OGS : $B%s that are dogs have a relatively small share of a low1growth
market They may barely support themselves7 in some cases, they actually
drain off cash resources generated by other $B%s These are the $B%s which
are likely to be shortlisted for deemphasize or elimination
($T)A**S o+ the BCG Growth Matrix Mode,:
The matrix does not consider factors like:
8arious types of 3isk associated with product development
Threats that inflation and other economic conditions can create in the
future
$ocial,*olitical and (cological *ressures
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BCG growth-share matrix
Definition
1. BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to
portra firm!s brand portfolio or "B#s on a $uadrant along relati%e mar&et share axis
(hori'ontal axis) and speed of mar&et growth (%ertical axis) axis()
*( Growth-share matrix is a business tool, which uses relati%e mar&et share and
industr growth rate factors to e%aluate the potential of business brand portfolio and
suggest further in%estment strategies()
#nderstanding the tool
BCG matrix is a framewor& created b Boston Consulting Group to e%aluate the strategic
position of the business brand portfolio and its potential( +t classifies business portfolio into
four categories based on industr attracti%eness (growth rate of that industr)
and competiti%e position (relati%e mar&et share)( ,hese two dimensions re%eal li&el
profitabilit of the business portfolio in terms of cash needed to support that unit and cash
generated b it( ,he general purpose of the analsis is to help understand, which brands
the firmshould invest in and which ones should be divested(
Relative market share. -ne of the dimensions used to e%aluate business portfolio is relati%e
mar&et share( .igher corporate!s mar&et share results in higher cash returns( ,his is
because a firm that produces more, benefits from higher economies of scale and experience
cur%e, which results in higher profits( /onetheless, it is worth to note that some firms ma
experience the same benefits with lower production outputs and lower mar&et share(
Market growth rate. .igh mar&et growth rate means higher earnings and sometimes profits
but it also consumes lots of cash, which is used as in%estment to stimulate further growth(
,herefore, business units that operate in rapid growth industries are cash users and are
worth in%esting in onl when the are expected to grow or maintain mar&et share in the
future(
,here are four $uadrants into which firms brands are classified0
Dogs. Dogs hold low mar&et share compared to competitors and operate in a slowl growing
mar&et( +n general, the are not worth in%esting in because the generate low or negati%e
cash returns( But this is not alwas the truth( "ome dogs ma be profitable for long period of
time, the ma pro%ide snergies for other brands or "B#s or simple act as a defense to
counter competitors mo%es( ,herefore, it is alwas important to perform deeper analsis of
each brand or "B# to ma&e sure the are not worth in%esting in or ha%e to be di%ested(
"trategic choices0 1etrenchment, di%estiture, li$uidation
Cash cows. Cash cows are the most profitable brands and should be mil&ed) to pro%ide as
much cash as possible( ,he cash gained from cows) should be in%ested into stars to
support their further growth( According to growth-share matrix, corporates should not in%est
into cash cows to induce growth but onl to support them so the can maintain their current
mar&et share( Again, this is not alwas the truth( Cash cows are usuall large corporations or
"B#s that are capable of inno%ating new products or processes, which ma become new
stars( +f there would be no support for cash cows, the would not be capable of such
inno%ations(
"trategic choices0 2roduct de%elopment, di%ersification, di%estiture, retrenchment
Stars. "tars operate in high growth industries and maintain high mar&et share( "tars are
both cash generators and cash users( ,he are the primar units in which the compan
should in%est its mone, because stars are expected to become cash cows and generate
positi%e cash flows( 3et, not all stars become cash flows( ,his is especiall true in rapidl
changing industries, where new inno%ati%e products can soon be outcompeted b new
technological ad%ancements, so a star instead of becoming a cash cow, becomes a dog(
"trategic choices0 4ertical integration, hori'ontal integration, mar&et penetration, mar&et
de%elopment, product de%elopment
uestion marks. 5uestion mar&s are the brands that re$uire much closer consideration(
,he hold low mar&et share in fast growing mar&ets consuming large amount of cash and
incurring losses( +t has potential to gain mar&et share and become a star, which would later
become cash cow( 5uestion mar&s do not alwas succeed and e%en after large amount of
in%estments the struggle to gain mar&et share and e%entuall become dogs( ,herefore, the
re$uire %er close consideration to decide if the are worth in%esting in or not(
"trategic choices0 6ar&et penetration, mar&et de%elopment, product de%elopment,
di%estiture
BCG matrix $uadrants are simplified %ersions of the realit and cannot be applied blindl(
,he can help as general in%estment guidelines but should not change strategic thin&ing(
Business should rel on management 7udgment, business unit strengths and
wea&nesses and external en%ironment factors to ma&e more reasonable in%estment
decisions(
Ad%antages and disad%antages
Benefits of the matrix0
8as to perform9
.elps to understand the strategic positions of business portfolio9
+t!s a good starting point for further more thorough analsis(
Growth-share analsis has been hea%il critici'ed for its o%ersimplification and lac& of useful
application( :ollowing are the main limitations of the analsis0
Business can onl be classified to four $uadrants( +t can be confusing to classif an
"B# that falls right in the middle(
+t does not define what ;mar&et! is( Businesses can be classified as cash cows, while
the are actuall dogs, or %ice %ersa(
Does not include other external factors that ma change the situation completel(
6ar&et share and industr growth are not the onl factors of profitabilit( Besides,
high mar&et share does not necessaril mean high profits(
+t denies that snergies between different units exist( Dogs can be as important as
cash cows to businesses if it helps to achie%e competiti%e ad%antage for the rest of the
compan(
.ow to perform BCG matrix analsis<
Although BCG analsis has lost its importance due to man limitations, it can still be a useful
tool if performed b following these steps0
"tep =( Choose the unit
"tep *( Define the mar&et
"tep >( Calculate relati%e mar&et share
"tep ?( :ind out mar&et growth rate
"tep @( Draw the circles on a matrix
Step !. Choose the unit. BCG matrix can be used to anal'e "B#s, separate brands,
products or a firm as a unit itself( Ahich unit will be chosen will ha%e an impact on the whole
analsis( ,herefore, it is essential to define the unit for which ou!ll do the analsis(
Step ". De#ine the market. Defining the mar&et is one of the most important things to do in
this analsis( ,his is because incorrectl defined mar&et ma lead to poor classification( :or
example, if we would do the analsis for the Daimler!s 6ercedes-Ben' car brand in the
passenger %ehicle mar&et it would end up as a dog (it holds less than *BC relati%e mar&et
share), but it would be a cash cow in the luxur car mar&et( +t is important to clearl define
the mar&et to better understand firm!s portfolio position(
Step $. Calculate relative market share. 1elati%e mar&et share can be calculated in terms
of re%enues or mar&et share( +t is calculated b di%iding our own brand!s mar&et share
(re%enues) b the mar&et share (or re%enues) of our largest competitor in that industr( :or
example, if our competitor!s mar&et share in refrigerator!s industr was *@C and our firm!s
brand mar&et share was =BC in the same ear, our relati%e mar&et share would be onl
B(?( 1elati%e mar&et share is gi%en on x-axis( +t!s top left corner is set at =, midpoint at B(@
and top right corner at B (see the example below for
this)(
Step %. &ind out market growth rate. ,he industr growth rate can be found in industr
reports, which are usuall a%ailable online for free( +t can also be calculated b loo&ing at
a%erage re%enue growth of the leading industr firms( 6ar&et growth rate is measured in
percentage terms( ,he midpoint of the -axis is usuall set at =BC growth rate, but this can
%ar( "ome industries grow for ears but at a%erage rate of = or *C per ear( ,herefore,
when doing the analsis ou should find out what growth rate is seen as significant
(midpoint) to separate cash cows from stars and $uestion mar&s from dogs(
Step '. Draw the circles on a matrix. After calculating all the measures, ou should be able
to map our brands on the matrix( 3ou should do this b drawing a circle for each brand( ,he
si'e of the circle should correspond to the proportion of business re%enue generated b that
brand(
8xamples
Corporate ;A! BCG matrix
Brands 1e%enues
C of
corporate
re%enues
Dargest
competitor!s
mar&et share
3our brand!s
mar&et share
1elati%e
6ar&et
"hare
6ar&et
Growth
1ate
= E@BB,BBB @?C *@C *@C = >C
* E>@B,BBB >FC >BC @C B(=G =*C
> E@B,BBB HC ?@C >BC B(HG =>C
? E*B,BBB *C =BC =C B(= =@C
,his example was created to show how to deal with a relati%e mar&et share higher than
=BBC and with negati%e mar&et growth(
Corporate ;B! BCG matrix
Brands 1e%enues
C of
corporate
re%enues
Dargest
competitor!s
mar&et share
3our brand!s
mar&et share
1elati%e
6ar&et
"hare
6ar&et
Growth
1ate
= E@BB,BBB @@C =@C HBC = >C
* E>@B,BBB >=C >BC @C B(=G -=@C
> E@B,BBB =BC ?@C >BC B(HG -?C
? E*B,BBB ?C =BC =C B(= FC
BCG Matrix
The purpose of the BCG Matrix is to determine investment priorities for a
company with a portfolio of productsB!s.
SmartNotes
1.
fig. 1
BCG Matrix
This is the BCG Matrix.
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"#$ %&'(T)
According to the BCG Matrix, there are four different possible outcomes
for a BU: cash co, dog, !uestion mar", or star.
According to the principles behind the BCG Matrix, as an industr# gros,
all business units become cos or dogs. Usuall# a BU ill go from being a
!uestion mar", to a star, then a co, and finall# a dog.
$ther possible uses for the BCG Matrix are determining relati%e mar*et
share and the mar"et groth rate of a product line.
T#+M)
product life cycle
The process herein a product is introduced to a mar"et, gros in popularit#,
and is then remo%ed as demand drops graduall# to &ero.
+ate these )mart(otes,
Full text
BCG Matrix
The BCG Matrix as created in 1'() b# Bruce *enderson and the Boston
Consulting Group. The purpose of the BCG Matrix is to determine in%estment
priorities for a compan# ith a portfolio of products+BUs. A scatter graph is used
to sho ho a product+BU ran"s according to mar"et share and groth rates.
,igure 1
Four Outcomes
According to the BCG Matrix, there are four different possible states for a
product+BU:
Cash Co
-og
.uestion Mar"
/tar
A cash co is a product+BU that has high mar"et share and is in a slo groing
industr#. 0t is bringing in a# more mone# than is being in%ested in it and the
main idea is to ride it out as long as possible. A compan# shouldn1t in%est an#
more mone# in a cash co because the industr# c#cle is at its end, but it is still
a via-le product+BU hile the profits last.
A dog has a lo mar"et share in a mature industr#. There is no room for groth
so no more funds should be in%ested in the product or product+BU. 0f it is a BU,
then the consensus is to sell it off.
A !uestion mar" is a product+BU groing rapidl# in a groing industr#. 0t is
consuming %ast amounts of financing at this point and creating a lo rate of
return. A !uestion mar" does ha%e the potential to become a star, hoe%er, so it
should be monitored to determine its groth potential.
A star has a high mar"et share in a high groing industr#. This is a product line
or BU a compan# should focus its efforts on in the hopes that it ill become a
cash co before the end of its life c#cle. According to the principles behind the
BCG Matrix, as an industr# gros, all business units become cos or dogs.
Usuall# a BU ill go from being a !uestion mar", to a star, then a co, and finall#
a dog.
Other Uses for the BCG Matrix
$ther possible uses for the BCG Matrix are determining relati%e mar"et share
and the mar"et groth rate of a product line. The BCG Matrix can help determine
here a product is in its product life cycle and if there is a possibilit# of groth for
the mar"et or product.