BCG Matrix

Portfolio Management based on Market Share and Market Growth. Explanation of BCG Matrix. ('70)

The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company.

The four segments of the BCG Matrix

Placing products in the BCG matrix provides 4 categories in a portfolio of a company:

Stars (high growth, high market share)
- Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash.
- Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.
Cash Cows (low growth, high market share)
- Profits and cash generation should be high. Because of the low growth, investments which are needed should be low.
- Cash Cows are often the stars of yesterday and they are the foundation of a company.
Dogs (low growth, low market share)
- Avoid and minimize the number of Dogs in a company.
- Watch out for expensive ‘rescue plans’.
- Dogs must deliver cash, otherwise they must be liquidated.
Question Marks (high growth, low market share)
- Question Marks have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low market share.
- If the market share remains unchanged, Question Marks will simply absorb great amounts of cash.
- Either invest heavily, or sell off, or invest nothing and generate any cash that you can.

the BCG Matrix and one size fits all strategies

The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation.

In such a scenario:

Cash Cows Business Units will reach their profit target easily. Their management have an easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses.
Dogs Business Units are fighting an impossible battle and, even worse, now and then investments are made. These are hopeless attempts to "turn the business around".
As a result all Question Marks and Stars receive only mediocre investment funds. In this way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any possible cash from the Question Marks that were not selected.

Other uses and benefits of the BCG Matrix

If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.
BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.
BCG method is applicable to large companies that seek volume and experience effects.
The model is simple and easy to understand.
It provides a base for management to decide and prepare for future actions.

Limitations of the BCG Matrix

Some limitations of the Boston Consulting Group Matrix include:

It neglects the effects of synergy between business units.
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.
The problems of getting data on the market share and market growth.
There is no clear definition of what constitutes a "market".
A high market share does not necessarily lead to profitability all the time.
The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or to divest prematurely.
A business with a low market share can be profitable too.
The model neglects small competitors that have fast growing market shares.

Book: Carl W. Stern, George Stalk - Perspectives on Strategy from The Boston Consulting Group -

BCG Matrix Forum (23)

BCG Matrix: How to Research the Market Share and the Market Growth for each Business?
"I am a management student at SWOSU in Oklahoma. I am having trouble on how to research companies to determine where they fit in the BCG Matrix.
What information do I need to look for and where to find a company's market share and the market growth? What information do I need to look for and where do I find that information?"

BCG Matrix: Dog or Cash Cow?
"Can someone support this statement with an example or a case study?
"Sometimes dogs can earn even more cash as cash cows"."

Distinction Between PLC and BCG Matrix?
"What are the similarities and differences between the product life cycle and the BCG Matrix?"

How Do I Place my Products / Services in the BCG?
"Currently I'm trying to place the services of my company in the BCG matrix, and I have problems in theses aspects:
1. Should the products be placed by their relation of cost-benefit?
2. My core business moves around the handycapped people, and it's very hard to know what is the growth of the "market", so I don't know the effectiveness of placing my services if the data is wrong.
3. About the stars. In the explanation is said that star products have an aggressive cash flow movement. My core service hardly reaches a profit, depending on the season, but it's the service with generates more income... is this a star?
Please help me... Thanks."

Application of BCG Matrix in Forestry
"Hello everyone, does anybody can help me with application of BCG matrix in forestry?
Currently I am working on a project and got a task to use BCG model to analize business portfolio of a forest company. From my point of view, the BCG model is not applicable in forestry, as life-cycle of forest products (wood) is not defined and forest company does not have much room for changing products in its portfolio (it is limited by quantity and structure of wood).
Please share your opinion... Thanks in advance!"

How to do BCG Plotting?
"Hello everyone, I'm a little bit confused about how to plot products on to the BCG matrix? Should I:
[1] Look at the definitions of the animals and place products on to the graph depending upon what animal they most feel like
[2] Look at the X and Y axis and place products on the graph and plot depending upon market share and growth and completely ignore the animals during the plotting process.
I assume that [2] is the right approach.
If [2] is the right approach then how do I determine market share and growth?
Lets say there are 100 people who want a TV. 10 of them have my TV at the end of one year. And 50 of them have someone elses' TV.
What is my market share and what is my growth? Do I have high growth and low share? Thanks..."

Cash Cows Should Fund Stars in BCG Matrix
"I think the cash cows should fund stars if they are cash hungry."

BCG in Emerging or Fragmented Markets
"The tool is really great, but how to use it in fragmented industries where there is a lack of information making almost impossible to make intelligent decisions.
For instance how would market growth rate or market share be calculated under such conditions?"

BCG Matrix: not in All Cases
"The matrix does not consider the place of traditional/generic products that companies maintain in their product lines that may have had high market share and market growth in time past, but currently do not. Sometimes, companies just can keep the dogs (low growth, low market share) due to some intangible factors.
What needs to be done may not necessarily be to let go but to invest more in such products in repackaging (innovation). This is because market expansion is a dynamic process that responds to identified opportunities and there are other basic factors that influence investment decisions and market expansion. The cost element is for instance an essential determinant."

Advantages and Disadvantages of Portfolio Planning Tools
"What are the pros and cons of portfolio planning tools like the BCG Matrix or the GE/McKinsey matrix?"

BCG Matrix and Continous Evaluation
"Due to the highly dynamic environment in markets, the shelf life of any product or service is limited more by external factors than internal ones. Based on the above model, continuous evaluation of all products and services vs. the changing market scenarios leads to better understanding of dynamic changes that take place in the segmentation of products and services."

Why the Quadrants of BCG Matrix are Named as Star, Dog, Cow, Problem Child
"The BCG matrix's underlying assumptions are these:
(i) High market growth rate, by virtue of attracting competition, entails high resource usage for the firm;
(ii) High relative market share, by virtue of economies of scale, experience curve and power vis-a-vis channels and supplier of raw materials enables the firm to generate more resources.
Hence, the two axes can be better understood as "resource use" and "resource generation".
This makes it easy to understand that:
- A high-use low-generation is a problem child (or question mark, as called in many textbooks) that requires hand-holding and nurturing;
- A high use high-generation is a star that warrants continued support;
- A low use low-generation is a dog that can either be left alone or be divested; and
- A low-use high-generation is a cash cow that can be harvested.
Unfortunately, not many textbooks explain why the four quadrants are named so."

Were is BCG Matrix Applicable?
"Is the BCG Matrix applicable to every business?"

Not Useful for A Company Having Only One Product
"A company entering the market with one product only, how they can use it for planning their strategies to promote its product or to compete with competitors having variety of products in the same industry? "

Direction of Arrow between Cash Cow and Star Incorrect?
"I think the Cash Cow (with excess dollars) should fund the star which is cash hungry (high working capital needs). So I think the arrow should flow from the cash cow to the star."

Use of BCG Matrix in India
"Which industries or Firms in India are using the BCG Matrix?"

Not useful for Competitive Analysis
"i am not sure if this matrix works to create a competition map, it does not work like swot chart. It's merely plotting the products you have within your company for evaluation purpose... It will depend on your analysis though where you'll take it forward but for most cases it's totally junk for competition mapping."

Stages may be Different
"It's not alway mandatory that a product goes through all of these four stages; there are many examples where a product comes up for launching and after that goes away as a 'Dog'."

10% limit in BCG Matrix
"Generally in the BCG Matrix, when the market growth is more than 10%, it would be considered a star. Can anyone explain why they have chosen the (fairly high) limit of 10%??"

BCG Matrix is useless!
"Totally useless (as a contemporary business tool)."

Lack of Question Marks?
"If a business has no Question Marks (or just one), what should it do?"

The BCG Matrix: Reloaded
"(How) could the the BCG Matrix be adapted to include synergy effects between business units?"

Example BCG Matrix: Coca Cola & Pepsi Cola
"The matrix is misrepresenting in some cases. Example: Coca cola and Pepsi. Coca Cola is market leader, as a result of which the relative market share of Pepsi is always smaller than 1.
When the relative market share is smaller than 1, you will be at the right-hand side of the matrix. In that case, Pepsi will automatically be a Question Mark or a Dog.
Everyone understands that Pepsi is a Cash Cow!"

New topic | Join our management network