The Bcg Matrix
THE BCG MATRIX
INTRODUCTION
The BCG Matrix and strategic portfolio planning in general grew up during a time (1970s) when conglomerates of unrelated businesses were common among U.S.
corporations. Strategists needed some way to understand the sometimes complex (maybe even bizarre??) combinations of businesses within their purview. How should these combinations be evaluated? How does one determine whether one should keep a business in the portfolio or divest it? The Boston Consulting Group (BCG) came up with an easy to understand tool to address this issue. The tool has come to be known as the BCG matrix. The matrix is structured along two dimensions. The first dimension summarizes an industrys attractiveness in terms of its rate of growth. The second dimension indexes the strength of a business units position within an industry in terms of the units market share. Four cells within the matrix are thus defined: business units having high market share within a high growth industry (“stars”), units having low share within a high growth industry (“question marks”), units having high share in slow growth industries (“cash cows”), and units having low share in slow growth industries (“dogs”).
The logic behind this segmentation was that industry attractiveness and competitive
dominance within an industry are two crucial metrics that must be evaluated when
assessing the viability of a business units future. By classifying firms into categories
defined by these two dimensions, strategists were given a clear strategic mandate: divest “dogs” with no future, and use “cash cows” to fund the further growth of “stars” and “question marks.”
An Overview of The Boston Consulting Group Growth/Share Matrix
BCG Growth Matrix
PROBLEM CHILD
Market
Growth
CASH COW
HIGH
Relative Market Share
Stars œ High growth rate, High market share
Earnings: high, stable, growing
Cash: neutral
Strategy: invest for growth
The high growth rate of stars requires heavy cash investment although they should also generate a strong cash flow due to their strong market share position.