Boston Consulting Group (BCG) Growth-Share Matrix

How do entities survive and sustain in the business environment? 

The answer is simple, they identify their business units and make their investment plans accordingly, though to bring this into action is as challenging as it can possibly get. 

Understanding the business environment is not a child’s play, it requires extensive knowledge of the business environment. You need to closely observe each ups and downs in the market, carefully identify the market trends and take quick yet effective decisions at various levels of the entity regarding your product, investments and your business units.

OR, you can use the BCG matrix.

BCG matrix basically guides you in identifying the business units and framing the investment plan as per the situation of the market, the product and the business units.

 It is also known as portfolio analysis. BCG guides in plotting investment on the basis of the performance of the business unit or product and industry. It helps the business organization to allocate the resources based on the product or SBU.

How does the BCG matrix work?

Cutting to the chase, BCG matrix is a chart which analyses the business units and product line. 

The BCG growth-share matrix shows the portfolio of the organization’s investment. It classifies the different businesses on a two-dimensional growth-share matrix. 

The vertical axis shows the market growth and provides a measure of market attractiveness.

The horizontal axis represents relative market share and serves as a measure of company strength in the market.

On the basis of BCG matrix you can identify your SBU and by using the matrix, organisations can identify four different types of products or SBU as follows

Star:

Its name itself shows that your SBUs or products are good at position and are operating in an  growing industry having large market share. Since they have wide market coverage, it may require heavy investment to maintain their market position and to make a investment for the growth potential. So, stars may be cash user or cash generator. It provides you with the best opportunities for expansion.

Cash Cow:

Cash cows are the products or SBUs which have low growth and high market shares. They generate cash and require low investment costs. They are established, successful, and need less investment to maintain their market share. In long run when the growth rate slows down, stars become cash cows. Thus, Cash Cow gives you a profit, revenues and it can make the money for you.

Question mark: 

Question Marks are low market share business in high-growth markets. They require a lot of Question marks if left unattended are capable of becoming cash traps. Since growth rate is high, increasing it should be relatively easier. It is for business organisations to turn them stars and then to cash cows when the growth rate reduces. In high market growth you have to make investment in this question mark otherwise it may become dog

Dog:

Dogs represents the strategic business unit or product having low growth rate and low market share. The dog can provides you a revenue and it there is not sure that you can be hold for foreseeable future. Some of dog units may require further investment for the survival. If you find that dog is not beneficial to hold and further investment is not fruitful, then you should minimize it through liquidation. Thus, the organization has to consider the conditions and make the decisions regarding to hold or harvest or divest the business and product. 

The BCG growth share matrix helps lot in strategic planning. However, there are problems and limitations with the method. BCG matrix can be difficult, time-consuming, and costly to implement. Its main focuses is on classifying current businesses. They can lead the company to placing too much emphasis on market-share growth or growth through entry into attractive new markets.