Understanding the Boston Mix
Also known as the BCG Matrix, the Growth-Share Matrix and Portfolio Analysis)Focusing effort to give the greatest returns. If you enjoy visual representations and vivid descriptions of your business then you’ll love the Boston Matrix!
It provides a useful way of looking at the opportunities open to you, so that you can pick the ones that will give you the best results.
Understanding the Model
Market Share and Market Growth
To understand the Boston Matrix you need to understand how market share and market growth interrelate.
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 your market share, the higher proportion of the market you control.
The Boston Matrix assumes that if you enjoy a high market share you will normally be making money (this assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that give you an advantage).
The question it asks is, “Should you be investing your resources into that product line just because it is making you money?” The answer is, “not necessarily.”
This is where market growth comes into play. 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 expanding, and there’s plenty of opportunity for everyone to make money.
By contrast, competition in low growth markets is often bitter, and while you might have high market share now, what will the situation look like in a few months or a few years? This makes low growth markets less attractive.
The origin of the Boston Matrix lies with the Boston Consulting Group in the early 1970s. It was devised as a clear and simple method for helping corporations decide which parts of their business they should allocate cash to. Since the 1970s, it’s become much easier to borrow money cheaply (in many parts of the world) making this less of an issue.
However the Boston Matrix is still a good tool for thinking about where to apply resources (of effort as well as money) and that’s how we use it here.
The Matrix itself the Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:
These groups are explained below:
- Low Market Share / Low Market Growth:
In these areas, your market presence is weak, so it’s going to take a lot of hard work to get noticed. Also, you won’t enjoy the scale economies of the larger players, so it’s going to be difficult to make a profit.
- High Market Share / Low Market Growth:
Here, you’re well-established, so it’s easy to get attention and exploit new opportunities. However it’s only worth expending a certain amount of effort, because the market isn’t growing and your opportunities are limited.
- High Market Share / High Market Growth:
Here you’re well-established, and growth is exciting! These are fantastic opportunities, and you should work hard to realize them.
Question Marks (Problem Child)
- Low Market Share / High Market Growth:
These are the opportunities no one knows what to do with. They aren’t generating much revenue right now because you don’t have a large market share. But, they are in high growth markets so the potential to make money is there.
Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted.