The Boston Consulting Group matrix can help managers evaluate products and services or a portfolio of businesses. Strategic decisions on investment can then be made.
Each product, service or business unit is assessed on two criteria:
- Market Growth Rate. The model assumes that a high market growth rate will require higher investment in the product or service to compete.
- Relative Market Share. The model assumes that earnings will grow faster if the product or service has a greater relative market share.
This gives a four quadrant matrix where each product, service or business unit can be rated as either or low market share, and high or low market growth rate. Additionally, each product is drawn on the quadrant as a circle where the size of the circle is proportional to the value of sales.
BCG Problem Child or Question Mark
A problem child product (also called a question mark) with a low market share and in a market with high growth is placed in the top right quadrant. Typically these are recently launched products that aren’t delivering profits as market share is too low and they require significant investment to gain higher market share.
Boston Consulting Group Stars
A star product has a relatively high market share in a market with high growth and is placed in the top left quadrant. Although stars can generate growth they will probably require investment to achieve it.
Product Life Cycle Cash Cows
Cash cows have high market share in a low growth market and are placed in the bottom left quadrant. For these mature products, growth has slowed down (possibly because they dominate the market) so no significant investment is usually necessary. The cash they generate can be used to fund other investment.
Boston Matrix Dogs
A product with a low market share in a market with low growth is a dog and is placed in the bottom right quadrant. Although these products may not be making a loss any investment funds may give a better return elsewhere.
Business Strategy Decisions
Evaluating products, services, business units and other elements of the portfolio in this way will give a high level representation of the current state of the business.
It also gives an indication of the product position in relation to the product life cycle; whether the product is in the introductory, growth, maturity or decline stage. An accurate assessment of a product’s current position and a forecast of the future market can help to prolong a product’s profitable life or alternatively, to remove investment promptly when a more promising product and/or market situation arrives.
The information generated from a BCG matrix can be used as the basis for strategic decisions about which products should attract further investment, forming part of the resource allocation strategy.
Dawn Brewer - I have a portfolio career - as a writer, management consultant, instructor and coach - after twenty years in the corporate world. My ...
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