Boston Consulting Group(BCG) Growth-Share Matrix

BCG growth share matrix is based on the observation that a company’s business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name “growth-share”. The BCG growth share matrix thus maps the business unit positions within these two important determinants of profitability.

The relative market share serves as a measure of SBU strength in the market. The market growth rate provides a measure of market attractiveness.

Each of the corporation’s product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share.

The Boston Consulting Group (BCG) Portfolio Matrix

  1. Stars – Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. They are typically at the peak of their product life cycle. Stars generate large amounts of cash because of their strong   relative market share, but also consume large amounts of cash because of their high growth rate. Often they need heavy investment to sustain their growth. Eventually their growth will slow and will become cash cows.
  2. Cash Cows – Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They typically bring in far more money than is needed to maintain their market share. In this decline stage of their life cycle, these products are “milked” for cash that will be invested in new question marks.
  3. Question marks – Question marks are businesses or products with low market share but which operate in higher growth markets. Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. A question mark (also known as a “problem child”) has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after years of cash consumption it will degenerate into a dog when the market growth declines. Management have to think hard about “question marks” – which ones should they invest in? Which ones should they allow to fail or shrink?
  4. Dogs – Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential.  Such businesses are candidates for divestiture.

The Boston Consulting Group(BCG) Portfolio Matrix simplicity is its strength – the relative positions of the firm’s entire business portfolio can be displayed in a single diagram. Its limitation is market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The  BCG growth share matrix overlooks many other factors in these two important determinants of profitability