BCG matrix – definition and how to use BCG Matrix

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What is BCG matrix?

BCG matrix is an important strategic planning  tool. It was developed by Bruce D. Henderson for the Boston Consulting Group (BCG) in the early 1970’s. BCG Matrix helps companies manage a portfolio of different business units (or major product lines) as they sometimes face challenges to allocate resources among their strategic business units. It should be noted that BCG Matrix is also known as Growth-share matrix, Boston matrix, and Portfolio diagram.

How does the BCG growth-share matrix work?

The BCG matrix considers two variables i.e. relative market share and market growth rate. It also considers two assumptions. First assumption is that an increase in relative market share of a company will result in an increase in the generation of its cash. The second assumption is that a growing market requires substantial investment to increase capacity which results in the consumption of its cash. These assumptions imply that just high market growth or high market share does not give an overall picture of a business unit.

How to use the BCG growth-share matrix?

The BCG growth-share matrix is divided into 4 quadrants based on market growth and relative market share, as shown in the diagram above. The four quadrants or categories are as follows:

Stars

Stars are those businesses or products that have high market shares and high market growth. As they have a high market growth, they need heavy investment as well. Eventually, their growth will slow down and they may turn into cash cows. For example, many would argue that iPhone is a start product for Apple.

Cash Cows

Cash cows are those products that have a low market growth; however, they have high a market share. These are mature and successful businesses which require a limited amount of investment. For example, many would argue that iPod is a cash cow for Apple as the product has a high market share and certainly, a low market growth.

Question marks

Question marks are also called problem children. These are the businesses or products which have a low market share but a high market growth. For example, many would argue that Apple TV is a question mark as it makes a bit of money; however, it has a high growth potential.

Dogs

Dogs are those businesses or products which have a low market share and a low market growth. Apple Pippin was launched in Japan in 1995 and in the USA in 1996. However, the product flopped extremely miserably. Apple Pippin is an example of dogs.

Limitations of the BCG growth-share matrix

As with all other models, BCG matrix has some limitations as well. The matrix focuses on two strategic factors only: market share and growth. More factors/variables should have been considered. Likewise, high or low market growth is not very clearly defined. However, putting limitations aside, BCG matrix is a very useful tool for strategic planners.

The article publication date: 23 June 2017

Further reading/references

Johnson, G, Scholes, k, & Whittington, R. (2006) Exploring Corporate Strategy, 7th edition, Prentice Hall

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Author: M Rahman

M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.