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BCG Matrix

 What Is A BCG Matrix?

 

      The Boston Consulting Group (BCG) a growth-share matrix is a planning tool that uses graphical representations of a company’s products and services in an effort to help the company decide what it should keep, sell, or invest more in.

The matrix plots a company’s offerings in a four-square matrix, with the y-axis representing the rate of market growth and the x-axis representing market share. It was introduced by the Boston Consulting Group in 1970.

BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBU’s are in the same industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is set at the growth rate for the economy.

Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called stars, cash cows, question marks, and dogs. Each of these cells represents a particular type of business.



1. Stars- Stars represent business units having a large market share in a fast-growing industry. They may generate cash but because of fast-growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.

2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow-growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBU’s are the corporation’s key source of cash and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows lose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

3. Question Marks- Question marks represent business units having a low relative market share and located in a high growth industry. They require a huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy that can be adopted. If the firm thinks it has a dominant market share, then it can adopt an expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market share. If ignored, then question marks may become dogs, while if a huge investment is made, then they have the potential of becoming stars.

4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require a huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally, retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. The number of dogs should be avoided and minimized in an organization.


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