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The BCG Growth-Share Matrix

Updated on February 12, 2009

The most famous and simple portfolio planning matrix.

The current economy is in a downward spiral. Unemployment is at its highest and retail sales are at the lowest. In these bad economic times, companies should turn to the Boston Consulting Group (BCG) Growth-Share Matrix to analyze business units or product lines.

The BCG Growth-Sharing Matrix is the most famous and simple portfolio-planning matrix. Bruce Henderson for the Boston Consulting Group developed the BCG Growth-Share Matrix in 1970. It is based on the observation that a company's business units can be classified into four categories based on combination of market growth and market share relative to the largest competitor, hence the name "growth-share".

Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher the market share, the higher proportion of the market you control.

Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market share available is exapanding, and there's plenty of opportunity for everyone to make money.

The BCG Matrix has four quadrants called:

Question Marks Stars Cash Cows Dogs

Question Marks

High Growth, Low Market Share

Most businesses start as question marks (also known as problem child)They will absorb great amounts of cash if market share remains unchanged (low)Have the potential to become star and eventually Cash Cow, but can also become DogMust be analyzed carefully in order to determine whether they are worth the investment required to grow market share.Tip: Grow sales by increasing market share. Use cash from Cash Cows to support required investments.Question Mark examples:Apple = Mac Book AirCoca-Cola = FUZE Healthy Infusions

Stars

High Growth, High Market Share

Stars are leaders in business.Require heavy investment to remain its large marketshare.Leads to large amounts of cash consumption and cash generationAttempts should be made to hold the marketshare otherwise the Star will become the next Cash Cow.Tips: Invest for sales growth and market share. Use cash from Cash Cows to support required investments.Star examples:Apple = iPhoneCoca-Cola = Vitamin Water

Cash Cows

Low Growth, High Market Share

Foundation of the company and Stars of yesterdayGenerate more cash than requiredExtract profits by investing as little cash as possiblelocated in an industry that is mature and not growing or decliningTips: Maintain the strong market position and defend your market share. Take advantage of sales volume and leverage the size of operations. Support other businesses.Cash Cow examples:Apple = iPodsCoca-Cola = Coca-Cola Classic

Dogs

Low Growth, Low Market Share

Cash trapsDo not have potential to bring in much cashNumber of dogs in country should be minimalizedBusiness is situated at a declining stageTips: Optimize your current operations. Get rid of all non value added activities and features. Reposition your offering to generate positive cash flow or sell this business.Dog examples:Apple = Since good company should not have any dogsCoca-Cola = New Coke

Get rid of your Dog company or products now!

Now you try!

What part of the BCG Growth-Share Matrix do you think Squidoo is in?

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Limitations

The growth-share matrix once was used widely, but has since faded from popularity as more comprehensive models have been developed. Some of its weaknesses are:

BCG Matrix uses only two dimensions and overlooks many other factors.The framework assumes that each business unit is independent of the others.The matrix depends heavily upon the breadth of the definition of the market. Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too.While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing a corporation's business portfolio at a glance, and may serve as a starting point for discussing resource allocation among strategic business units.

Watch a quick explanation

Warning, this video can make you dizzy, but it's a good explanation!

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