The Boston Consulting Group Matrix (BCG Matrix)

The BCG Matrix, sometimes referred to as the Growth Share Matrix, was developed by Bruce Henderson (during 1970s), the founder of Boston Consultancy Group. The BCG Matrix is designed to help with long-term strategic planning and growth opportunities for businesses. This is done by portraying a company's brand portfolio based on their relative market shares and potential business growths. With this matrix, companies can now decide where to invest, harvest, or divest.

The BCG Matrix, also known as the Growth Share Matrix. Even after 50 years of its inception, BCG matrix is still a valuable tool for helping companies understand their potential.

How to create BCG Matrix

Plotting growth rates against market share relative to competitors yields the four quadrants of the Growth Share Matrix: Star, Question Mark, Cash Cow, and Dog.

Understanding BCG Matrix

The relative market share indicates incremental cash growth. Typically, units with a higher relative market share will bring higher profits and return on investments due to higher economies of scale.

Whereas 'Relative Market Growth' indicates high usage of money. A greater relative market growth rate means higher earnings (and sometimes profits) but it also consumes lots of cash, which can be used as investment to stimulate further growth.

Practical usage of BCG Matrix

Star: Products or business units with a high market share and high market growth rate fall into this category. These are our most promising entities as they have the potential for high returns. We should invest in stars to maintain their market share and capitalize on their growth potential.
Cash Cow: Products or business units with a high market share but a low market growth rate fall into this category. Cash cows generate substantial cash flows that can be used to support other products or business units. We should aim to maintain their market share and profitability while optimizing costs.
Question Mark: Products or business units with a low market share but a high market growth rate fall into this category. Question marks are also known as problem children or wildcats as they have an uncertain future. We need to carefully assess their potential and determine if they are worth investing in, or if they should be divested or discontinued.
Dog (Pet): Products or business units with a low market share and a low market growth rate fall into this category. Dogs are typically not profitable and may require substantial resources to maintain. We should evaluate their viability and consider divesting or discontinuing them if they do not align with our strategic goals.

Practical usage of BCG Matrix

Star: Products or business units with a high market share and high market growth rate fall into this category. These are our most promising entities as they have the potential for high returns. We should invest in stars to maintain their market share and capitalize on their growth potential.
Cash Cow: Products or business units with a high market share but a low market growth rate fall into this category. Cash cows generate substantial cash flows that can be used to support other products or business units. We should aim to maintain their market share and profitability while optimizing costs.
Question Mark: Products or business units with a low market share but a high market growth rate fall into this category. Question marks are also known as problem children or wildcats as they have an uncertain future. We need to carefully assess their potential and determine if they are worth investing in, or if they should be divested or discontinued.
Dog (Pet): Products or business units with a low market share and a low market growth rate fall into this category. Dogs are typically not profitable and may require substantial resources to maintain. We should evaluate their viability and consider divesting or discontinuing them if they do not align with our strategic goals.

In addition to classifying our products or business units, the BCG Matrix can be used for resource allocation decisions. For example, we can allocate more resources to stars to fuel their growth, while optimizing costs for cash cows to maximize profits. Question marks may require additional resources to capture market share, while dogs may need to be phased out to reduce costs and focus on more profitable areas.

Furthermore, the BCG Matrix can aid in strategic planning. By analyzing the position of our products or business units on the matrix, we can identify areas where we need to invest, divest, or maintain status quo. It helps us prioritize our efforts and resources based on the potential of each product or business unit in the context of the overall market dynamics.

Conclusion:

In conclusion, the BCG Matrix is a practical and effective tool for evaluating and managing our product or business unit portfolio. It provides valuable insights that can inform our decision-making processes related to resource allocation, strategic planning, and portfolio optimization. I encourage each team to utilize the BCG Matrix to analyze their respective portfolios and make informed decisions to drive our business success.