The BCG (Boston Consulting Group) Matrix is a two-by-two matrix which helps you to understand the relative importance of various products that your organisation produces. Products are categorised according to their market share and their market growth rate.
- Stars are products with high growth and high market share. Stars produce a lot of cash and may become cash cows if they can continue to maintain a high market share when the growth slows down.
- Question marks (also known as problem children) are products with high growth, but low market share. These require a lot of investment to help with their rapid growth, but as yet are not paying for themselves due to their low market share. Question marks can be a risk and should be chosen for greater investment with due care.
- Cash cows are products with low growth and high market share. While not growing quickly, cash cows are market leaders and usually bring in a lot of money.
- Dogs have neither high growth nor a high market share. These can be a drain on resources because they often do not bring in much income and have little potential.
What is it used for?
This model has three main applications.
- Strategy evaluation – if the company’s portfolio of products are analysed in this way, it is easier to see where product development is required. Dogs should perhaps be liquidated. If you invest in a star, it may become a cash cow.
- Resource allocation – for example, time and money should not be invested in dogs, since they are not likely to provide a return on investment. However, investment in question marks may be a good idea
- Creating growth – when you can see where income is coming from, it is possible to recognise that more of a certain type of product, such as stars, may be required.
How do I use it?
The BCG Matrix is fairly simple to use: simply plot the products of your company in the matrix according to their market share and market growth. You can then more easily identify where money should be invested and stop putting time and resources into products that are no longer providing a good return.
What are its limitations?
The BCG matrix has a number of limitations.
The BCG matrix can provide an over-simplified way of looking at things, because it assumes that high market share is the only success factor and that high growth rate is the only indicator that a market is attractive.
The model leads you to the assumption that all dogs are ‘bad’ but, for example, a dog may be providing an essential service that allows the cash cows and stars to thrive. Also, a change in the marketplace might lead to a dog increasing its market share to move into a star position.
Solutions not always clear
The model does not provide clear cut solutions in all instances. It cannot, for example, tell you what to do about question marks. You could still invest a lot of money in a question mark that quickly becomes a dog.
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