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BCG Matrix: Strategic Management

The BCG matrix is a tool created by the Boston Consulting Group in 1968 to help companies analyze their business units and allocate resources. It uses a 2x2 grid to categorize business units based on their market share and growth rate as stars, cash cows, question marks, or dogs. Stars are high share in high growth markets and should receive investment. Cash cows are high share in low growth markets and should be "milked" for cash. Question marks are low share in high growth markets and require analysis. Dogs are low share in low growth markets and should be divested. The matrix provides a simple way to visualize opportunities and balance across a product portfolio. However, it is limited by oversimplifying markets and other

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CANAN HART REGO SDM COLLEGE OF BUSINESS MANAGEMENT POST GRADUATE CENTRE
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125 views3 pages

BCG Matrix: Strategic Management

The BCG matrix is a tool created by the Boston Consulting Group in 1968 to help companies analyze their business units and allocate resources. It uses a 2x2 grid to categorize business units based on their market share and growth rate as stars, cash cows, question marks, or dogs. Stars are high share in high growth markets and should receive investment. Cash cows are high share in low growth markets and should be "milked" for cash. Question marks are low share in high growth markets and require analysis. Dogs are low share in low growth markets and should be divested. The matrix provides a simple way to visualize opportunities and balance across a product portfolio. However, it is limited by oversimplifying markets and other

Uploaded by

CANAN HART REGO SDM COLLEGE OF BUSINESS MANAGEMENT POST GRADUATE CENTRE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Strategic Management

BCG Matrix
The growth share matrix was created in 1968 by BCG’s founder, Bruce
Henderson. It was published in one of BCG’s short, provocative essays, called
Perspectives. At the height of its success, the growth share matrix was used by
about half of all Fortune 500 companies; today, it is still central in business school
teachings on strategy.

The Boston Consulting Group (BCG) 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.

Dogs (or Pets)

If a company’s product has a low market share and is at a low rate of growth, it
is considered a “dog” and should be sold, liquidated, or repositioned. Dogs, found
in the lower right quadrant of the grid, don't generate much cash for the company
since they have low market share and little to no growth. Because of this, dogs

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Strategic Management

can turn out to be cash traps, tying up company funds for long periods of time.
For this reason, they are prime candidates for divestiture.

Cash Cows

Products that are in low-growth areas but for which the company has a relatively
large market share are considered “cash cows,” and the company should thus milk
the cash cow for as long as it can. Cash cows, seen in the lower left quadrant, are
typically leading products in markets that are mature. Generally, these products
generate returns that are higher than the market's growth rate and sustain itself
from a cash flow perspective. These products should be taken advantage of for as
long as possible. The value of cash cows can be easily calculated since their cash
flow patterns are highly predictable. In effect, low-growth, high-share cash cows
should be milked for cash to reinvest in high-growth, high-share “stars” with high
future potential.

Stars

Products that are in high growth markets and that make up a sizable portion of
that market are considered “stars” and should be invested in more. In the upper
left quadrant are stars, which generate high income but also consume large
amounts of company cash. If a star can remain a market leader, it eventually
becomes a cash cow when the market's overall growth rate declines.

Question Marks

Questionable opportunities are those in high growth rate markets but in which the
company does not maintain a large market share. Question marks are in the upper
right portion of the grid. They typically grow fast but consume large amounts of

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Strategic Management

company resources. Products in this quadrant should be analyzed frequently and


closely to see if they are worth maintaining.

Advantages of BCG Matrix

 It provides a high-level way to see the opportunities for each product in


your portfolio.
 It enables you to think about how to allocate your limited resources to the
portfolio so that profit is maximized over the long-term.
 It shows if your portfolio is balanced. For example, if you have too few
products in your portfolio then you could be in the dangerous position of
having all your eggs in one basket.
 The tool is very simple to use and understand.

Limitations of BCG Matrix

 BCG matrix classifies businesses as low and high, but generally businesses
can be medium also.
 Market is not clearly defined in this model.
 High market share does not always leads to high profits. There are high
costs also involved with high market share.
 This four-celled approach is considered as to be too simplistic.
 Growth rate and relative market share are not the only indicators of
profitability. This model ignores and overlooks other indicators of
profitability.

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