# BCG growth-share matrix

BCG growth-share matrix

BCG Growth-Share Matrix (also known as BCG model, Boston matrix, BCG matrix, BCG analysis, or Boston Box) was developed by Bruce Henderson in the early 1970s for Boston Consulting Group, world known management consulting company. The Boston Consulting Group matrix presents different business units or major product lines based on their relative market share and the growth rate of the market. The model is useful in brand marketing, strategic management and production management and business portfolio analysis.

## Content of the BCG growth share matrix

After using method of calculating the BCG matrix two main variables are placed along the axes (Fig. 1) describing bcg portfolio:

### Market growth - Y axis

Market growth is represented by the vertical axis. The axis is divided into two segments: more and less than 10 percent growth per year. A market growth above 10 percent is considered high Therefore, this variable symbolizes the attractiveness of the market.

### Relative market share - X axis

Relative market share is represented by the horizontal axis. It is company's market share divided by the share of its biggest competitor. Relative market share serves as a measure of the company's strength in the relevant market segment.

The limiting value is at 1: a value greater than 1 implies that a company has the largest relative market share and therefore is the market leader. A relative market share of 0.1 means that the company's sales volume is only 10 percent of the leader's sales volume; a relative share of 10 means that the company's strategic business unit (SBU) is the leader and has 10 times the sales of the next-strongest competitor in that market. The highest value typically is defined on the left, and the lowest on the right.

Fig. 1. BCG growth-share matrix

In portfolio matrix four types of products can be distinguished, depending on the placement of a product-market combination in one of the four quadrants:

### Stars

These are products with a high market share in a strongly growing market. The cash resources used for and the cash resources required by these products are both high and therefore in principle are in balance. After some time all growth slows. This is the reason, why stars become finally Cash Cows if they keep their market share. If they will not be able to hold the market share, they will become Dogs.

### Cash Cow

These are products with a high market share in a market that is not growing very much. As a result of the strong market position, they produce many cash resources, and they require few investments because of the limited market growth.

### Question Marks

These products (also called Problem Children or Wild Cats) have a small market share in a rapidly growing market. As the name indicates, they have unsure and questionable situation and can create problems: they produce little but require a lot of cash resources. If they are able to strengthen their position, they can become stars and over time, when market growth decreases, cash cows.

### Dogs

These are products with a low market share in a market that is growing very little. Therefore, they produce little but also require few investments. That means that the cash resources used for and the cash resources required by these products are both low and for that reason are in balance. Dogs are worthless cash traps, they do not bring sufficient profits for a company.

## Strategic recommendations based on product portfolio matrix

Based on the BCG analysis and above described product market matrix, company has to decide what objective, strategy, and budget should be assigned to each SBU. Several general investment strategies may be recommended.

### Growth (Build) - strategy

For some Question Marks a company may use a growth strategy financed by Cash Cows

The part of the Cash Cows' revenues would strengthen the positions of Question Marks that have the potential to become Stars. In that case, a company increases its market share substantially.

### Maintain position (Hold) - strategy

The strong positions of the Stars and the Cash Cows should be maintained.

Also, if the Dogs have a sound size, they may be an important part of a company's activities. In that case, a maintenance strategy appears also to be promising.

### Harvest or milk - strategy

The main aim of this strategy is to rise short-term cash flow despite the long-term consequences. Harvesting implies a decision of getting out of a business by executing a program of constant cost cutting. Companies use this strategy when they expect to reduce their cost at faster rate than potential fall in sales. This strategy is suitable for weak Cash Cows, Question Marks and Dogs. The recommendation for the Dogs is to milk them and remove them from the market.

### Liquidation (Terminate, Divest) - strategy

If a company runs a weak business, it should consider weather to harvest or divest its business units. The decision of liquidation gives a company the opportunity to reinvest its resources in a more prosperous business. This strategy is appropriate for the Dogs and the rest of the Question Marks, which are not financed by the Cash Cows.