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What is the BCG Matrix?

 
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The BCG Matrix is a very useful and popular way of evaluating the portfolio of businesses or products in a business unit. The BCG matrix can be used to determine what priorities should be given to different products in a portfolio, and which strategies may be feasible to apply to given products or businesses.

By maintaining a product portfolio that contain products with great future growth, and products that generate a lot of cash in more stagnating markets, companies can seek to balance the products in its portfolio, so that the company can secure long-term growth.

Below, a short description of each quadrant in the matrix is presented

Stars
A star is a product or a business unit that has a high market share in a growing market. This product or business unit normally requires a lot of funding to maintain its market share, and profits may thus not be very high. Companies should however normally seek to maintain a high rate of investment in this product or business unit, because this will turn the star into a cash cow, if the market share is kept during the consolidation of the market.

Cash Cows
A cash cow is a product or a business unit with a high market share in a mature market. Because the market is mature and market conditions are more stable, there is less need for heavy investments such as marketing, R&D etc. Companies should therefore try to exploit their cash cows to the maximum, because these normally serve as cash suppliers and as the financial fundament of the company.

Question Marks
A question mark is a product or a business unit in a growing market, but without a high market share. Question marks normally do not generate a lot of cash due to low profit margins and low market shares. Companies may choose to invest heavily in creating a greater market share, and thus strengthen cash flow. Otherwise, companies could seek to sell or divest the question marks, so that they will not drain the company's resources. If market share is not increased, question marks will potentially only absorb great amounts of funds, and lastly become dogs when growth stops.

Dogs
Dogs are products or business units with a low share in static markets. Therefore, dogs are the worst products or business units imaginable. Companies should therefore avoid having too many dogs in their portfolio, and perhaps try to liquidate these dogs if they are not contributing with any positive cash flows.

A mentioned above, dogs are seen as the worst quadrant of the BCG Matrix. However, some dogs may be beneficial to a company. They may be necessary to complete a full portfolio of products in a product range or to keep a credible presence in the market. Likewise, dogs could be used defensively to keep new competitors from entering the market, or may be kept in the portfolio for later rejuvenation.

 
 
 
 
 
Date Created: 2009-12-21
Posted by: Admin
 
 
 

Related resources:

What is Michael Porter's 5 forces?
Internationalization of Multinational Corporations 
Global strategies for MNCs: Christopher A. Bartlett & Sumantra Ghoshal 
What is the Balanced Scorecard? 
What is the PESTEL Framework?
What is a SWOT analysis?
What is Michael Porter's Value Chain?
What is Michael Porter's Diamond Model?

Reference(s)
 
Exploring Corporate Strategy
Johnson, Gerry. Scholes, Kevin Richard Whittington: (2006); Prentice Hall
Keywords:
Online MBA, Online MBA Courses, BCG Matrix, Boston Qonsulting Group, Stars, Cash cows, Question Marks, dogs, business strategy

 


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