BCG Model

The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps the mo
st famous 2x2 matrix. The matrix measures a company’s relative market share on the
horizontal axis and its growth rate on the vertical axis.

THE GROWTH SHARE MATRIX-

• The market growth rate on the vertical axis indicates the annual growth rate of
the market in which the business operates.
• It ranges from 0 to 20 percent. A market growth rate above 10 percent is conside
red high.
• Relative market share, which is measured on the horizontal axis, refers to the S
BU’s market share relative to that of its largest competitor in the segment.
• A relative market share of 0.1 means that the company’s sales volume is only 10 pe
rcent of the leader’s; a relative share of 10 means that the company’s SBU is the le
ader and has 10 times the sales of the next-strongest competitor in the market.
The growth share matrix is divided into four cells, each indicating a different
type of business:
1. Question Mark (Problem Child) –
• Businesses that operate in high-growth markets but have low relative market shar
es.
• A question mark requires a lot of cash because the company has to spend money on
plant, equipment and personnel to keep up with the fast-growing market, and bec
ause it wants to overtake the market leader.
• The company has to decide whether to keep pouring money into the business or not
.
2. Stars –
• The market leaders in the high growth market.
• A star does not necessarily produce a positive cash flow for the company.
• The company must spend substantial funds to keep up with the high market growth
and to fight off competitors’ attacks.
3. Cash Cows –
• Stars with falling growth rates that still have the largest relative market shar
e and produce a lot of cash for the company.
• The company does not have to finance expansion because the market’s growth rate ha
s slowed.
• Because the business is the market leader, it enjoys economies of scale and high
er profit margins.
• The company uses its cash cows to pay bills and support other businesses.
• If the cash cow starts losing relative market share, the company will have to pu
mp money back into it to maintain market leadership.
4. Dogs –
• Businesses that have weak market share in low growth markets.
• A dog may not require substantial cash, but it ties up capital that could better
be deployed elsewhere.
• The company should consider whether it is holding on to these businesses for goo
d reasons or not.
• After plotting its various businesses in the growth-share matrix, a company must
determine whether its portfolio is healthy.
• An unbalanced portfolio would have too many dogs or question marks and too few s
tars and cash cows.
Dogs
These are products with a low share of a low growth market. These are the canine
version of ‘real turkeys!’ They do not generate cash for the company rather they te
nd to absorb it. Get rid of these products.
Cash Cows
These are products with a high share of a slow growth market. Cash Cows generate
more than is invested in them. So keep them in your portfolio of products for t
he time being.
Problem Children
These are products with a low share of a high growth market. They consume resour
ces and generate little in return. They absorb most money as you attempt to incr
ease market share.

Stars
These are products that are in high growth markets with a relatively high share
of that market. Stars tend to generate high amounts of income. Keep and build yo
ur stars.
Features of BCG matrix:
1. The Boston Consulting Group matrix lets a firm classify each SBU in term
s of market share relative to key competitors and annual industry growth.
2. With the matrix, it can be determined which SBUs are dominant and whethe
r their industries are growing, stable, or declining.
3. The matrix’s major assumption is that the higher an SBU’s market share, the
lower its per-unit costs and the higher its profitability.
4. The Boston Consulting Group matrix identifies four types of SBUs shown i
n the figure.
o A star is a leading SBU in an expanding industry. The major goal is to s
ustain differential advantages in the face of rising competition. It generates s
ubstantial profits but requires large amounts of resources to finance growth.
o A cash cow is a leading SBU in a mature or declining industry. It genera
tes funds that can be used for other SBUs.
o A question mark is an SBU that has had little impact (low market share)
in an expanding industry (high growth). It needs substantial cash to improve its
position.
o A dog is an SBU with limited sales (low market share) in a mature or dec
lining industry (low growth). It has cost disadvantages and few growth opportuni
ties.

STRATEGIC BUSINESS UNITS STRATEGIES

1) Build –
• This strategy is appropriate for question marks whose market shares must grow if
they are to become stars. As they are in a growing market, an inflow of resourc
es would work wonders for them.
• But if the company is doubtful about its growth even in a growing market then it
divesting it would be a better decision.
• An early decision to divest is likely to produce fairly good bids if the busines
s is in relatively good shape now.
2) Hold –
• This strategy is appropriate for stars. As they are the market leaders with high
est relative market share and in a rapidly growing market, it is important for t
he firm to hold on to its current position for long.
• In this stage the firm would be required to pump in resources in order to mainta
in its position as a star.
• In order to reap the benefits from this star the firm would be required to conti
nuously support it with resources.
3) Harvest –
• This strategy is appropriate for cash cows.
• The objective of harvest strategy is to increase short term cash flow regardless
of long term effect. In other words it involves “milking the businesses”.
• In this position the firm does not spend money on R&D activities, reduces advert
ising expenditure and undertakes other cost cutting measures for the concerned S
BU.
• Harvesting can be also used for weak cows, question marks and dogs which show so
me promise for future potential.
4) Divest –
• The objective is to sell or liquidate the business because resources can be bett
er used elsewhere.
• This strategy is appropriate for dogs and question marks that are acting as a dr
ag on the company’s profits.
• In this strategy the firm does not plough resources into the business but just t
ry to sell it off at a good price.
Mistakes
i. Leaving cash cows with too little in retained funds in which case they grow w
eak.
ii. Leaving the cash cows with too much in retained funds in which the company f
ails to invest enough in new businesses with growth potential.
iii. Making major investments in dogs in hopes of turning them around but failin
g each time.
iv. Maintaining too many questions marks and underinvesting in each. Question ma
rks should either receive enough support to achieve segment dominance or be drop
ped.