The BCG Growth-Share Matrix

The Boston Consulting Group, a leading consulting firm, developed and popularized a product portfolio analysis framework in 1970 that helps managers develop organizational strategy based on the relative market share of businesses and the growth of respective markets. BCG Matrix helps firm to decide how much money to invest in its strategic business units (SBU).There are 2 axis and 4 quadrants in BCG Matrix. X-axis and Y-axis indicate relative market share and market growth rate respectively. Market growth rate is the projected rate of sales growth for the market being served by a particular business division. Relative market share is defined as the ratio of a division's own market share in a particular industry to the market share held by the largest rival firm in that industry.

In business, SBU is a profit center which focuses on product offering and market segment. SBU varies from company to company. In bigger organizations, a SBU could be a company division, a single product or a complete Product Line. In smaller organizations, it might be the entire company. After identifying the SBUs, the task is to categorize each SBU within one of the 4 matrix quadrants:

1.      Stars (High growth, high market share)- Star SBUs have a high market share in a high growth market and typically need substantial investment to maintain and support their rapid and significant growth. Stars also generate large amounts of cash for the organization. Business strategies for these SBUs could be market development, product development, and backward, forward and horizontal integration.

2.      Cash Cows (Low growth, high market share) - Cash cow SBUs have a large share of market in low-growth markets or industries. Because of their strong competitive positions and their minimal reinvestment requirements, these businesses often generate cash in excess of their needs. Cash cows are yesterday’s stars and the current foundation of corporate portfolios. Business strategies for these SBUs could be diversification, retrenchment, product development and ‘milk’ to fund other business.

3.      Dogs (Low growth, low market share) - Dog SBUs have a relatively small share in a low-growth market. They may barely support themselves. In some cases, they actually drain off cash resources generated by other SBUs. Best strategies for these SBUs could be liquidation, retrenchment or divest it as soon as they get the best price.

4.      Question Marks (High growth, low market share)-These SBUs have a low share in high-growth market. Question marks are cash guzzlers because their rapid growth results in high cash needs, while their small market share results in low cash generation. These are ‘Question marks’ because it is uncertain whether management should invest more cash in them to gain a larger share of the market or eliminate them. Business strategies for these SBUs could be market penetration, product development, and divestiture, keep it going and improve or sell it. 

Furthermore, we can understand the BCG position of a SBU with help of a product life cycle curve given below:

Contributed by:-

Padmanabh Upadhyay

Section B

Strategic Management