BCG
Growth-Share Matrix
The
Boston Consulting Group (BCG) was the inventor of this
portfolio management matrix. Using this growth-share approach,
a company classifies all its Strategic Business Units
(SBUs).
Concept:
The concept is explained with the help of a grid, as shown
below. On the vertical axis, market growth rate provides
a measure of market attractiveness. On the horizontal
axis, relative market share gives an indication of the
company strength in the market.
| |
HIGH
|
LOW
|
|
HIGH
|
Stars
|
Question
Marks
|
|
LOW
|
Cash
Cows
|
Dogs
|
The
matrix is divided into four quadrants:
1.
Stars: High growth products that need heavy investment.
Over time, their growth slows down turning them to cash
cows.
2.
Cash Cows: These are low growth, high market share
products. They require less investment to hold onto their
market share. For instance, products from reputed companies
like J&J, P&G, etc. Cash Cows support other SBUs
because of their goodwill and market share.
3.
Question Marks: Low market share business units in
high growth markets. Investment is needed to hold their
share, building them into stars.
4.
Dogs: Low growth and low market share businesses and
products. They generate just enough cash to maintain themselves.
They are generally on their way out.
Four
strategies to determine what role each SBU will play in
the future:
1. Invest in one or more SBUs to build a share.
2. Invest just enough to maintain a share in the market.
3. Harvest the SBU just to generate profits.
4. Finally it can sell the SBU.
SBUs
can change their positions in the matrix. For instance,
question marks turn to stars, becoming cash cows if the
market growth falls, leading to dogs towards the end of
the cycle. It is also not necessary that the SBUs have
to follow this order. A star may turn into a dog, or a
question mark into a dog, or even a cash cow back into
a star with a change in the marketplace.
