BCG Matrix Tool
BCG Matrix also known as Growth-Share Matrix is strategic tool for portfolio planning and analysis. BCG Matrix is used for current portfolio analysis, portfolio planning and development, and new strategy development – developing and positioning new businesses and repositioning your current businesses.
The overall goal of using the BCG Matrix is understanding the marketplace, portfolio optimization, and effective resource allocation. It is generally used for strategic portfolio planning and analysis of strategic business units (SBUs) and product/service offerings.
The BCG Chart used for portfolio visualization shows three variables: market share, market growth rate, and business size or sales. This allows decision makers to compare different business units and analyze their strengths, weaknesses, and develop appropriate strategies.
The bubble size of each SBU or product/service offering shows the size of the business or sales/revenues. Each business unit is positioned in the BCG Matrix based on its market share and the market growth rate where the business operates.
The BCG Matrix approach has been developed by the Boston Consulting Group.
BCG Positions and Strategy
There are four alternative positions for any business – the BCG Chart has four quadrants called:
- Question Marks
- Cash Cows
1. Question Marks:
The business unit has low market share compared to competitors, however it is doing business in high-growth market. Most of the new businesses start in this quadrant. There are well established businesses in this market and new businesses try to grow and capture more market share. This market is growing and there are opportunities for new businesses. At the same time there is risk involved with investing in this business – because of that these businesses are called question marks. Question Marks have to develop and grow by investing and continuously improving their business.
Grow sales by increasing market share. Use cash from Cash Cows to support required investments.
The business has high market share compared to competitors and it is doing business in high-growth market. This business is a market leader. Successful Question Marks will grow their business and capture more market share and will hopefully become Stars (move from the Question Marks quadrant to the Stars quadrant). Successful and competitive organizations have at least one star business unit or product. Stars have to improve their business continuously in order to keep their position in the marketplace. As long as this market is growing new question marks will try to capture new business.
Invest for sales growth and market share. Use cash from Cash Cows to support required investments.
3. Cash Cows:
The market is not very attractive – low market growth rate, however the business has high market share compared to competitors. This business generates a lot of cash and helps the organization invest in other businesses. Since the market does not attract new players, this business does not need substantial investments to keep the market share. Cash Cows have to protect and keep the market share and maximize cash flow.
Maintain the strong market position and defend your market share. Take advantage of sales volume and leverage the size of operations. Support other businesses.
This business has low market share and operates in low-growth market. It is unlikely that this business is very profitable – more likely this business is a loser. Such a business needs consideration and new strategy development. Potential strategies are withdrawal, selling the business, repositioning the current business, and operating cost reduction.
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.
More on Analytics