Boston Consulting Group Matrix

Credits: Professional academy

A growth-share matrix is an analytic tool created by Boston Consulting Group’s founder, Bruce Henderson. It was published in their essay, called ‘perspectives’ in 1968. The matrix is formulated to analyze the products’ portfolio, investment strategy, and growth. It helps organizations to improve their performance.

· It is a 2-Dimensional matrix of market growth rate (X-axis) vs relative market share (Y-axis). It varies from the market’s high growth to low growth and high relative share to low relative share.

· Market growth rate is the ratio of total sales in the market for this year to total sales in the market for last year

· Relative market share is the ratio of the market share of the company to the market share of the highest competitor.

· There are four quadrants in the matrix which are devised for strategic management. The products are categorized in each quadrant based on their accomplishments in the market.

1. If a product has a high growth rate and a high relative market share, it is placed in the star category.

2. If a product has a low growth rate but a high relative market share, then it comes under the cash cow category.

3. If a product has a relatively low market share but a high growth rate, it is called a question mark or problem child category.

4. If a product has both a low growth rate and low market share, it is called the dog category.

· Star category: The product has a very high growth market with a high market share. It holds a dominant position in the market and generates lots of revenue. Since it is a growing market, more new business competitors will come and invest. To withstand the competition, the company must have more investments in marketing and facilities to create more products. So, it has a high cash inflow along with high cash outflow.

· Cash cow category: The product of this category has already diffused in the market. Hence it has less market growth with relatively high market share. The cash inflow is higher than the cash outflow. since the market has already matured with no competitors, there is no need to take steps for sustaining it. There will be continuous cash flow. This surplus cash can be used to help star products to sustain in the market. Because the start products may fall to the cash cow category due to its high growth rate.

· Problem child category: The product’s market is growing at a very fast rate but less market share. This causes low revenue returns. If the market’s opportunity is very high, we should invest and increase its market share. This will help the product to move to the star category. If the market share cannot be increased, it is in a risk zone. The product will eventually move to the dog category.

· Dog category: The product has very less market growth and very less profit. It is an inactive investment. Either we can modify the product to retarget in different markets or eliminate the product after selling out.

We can analyze this matrix on Google products.

• YouTube: The evolution of the internet and smartphones increased the market for online video platforms. As YouTube has high market growth, it generates a relatively high market share. Hence, we can place this product in a star category.
• Google search engine: It dominates the search engine market share worldwide. So, it has high cash flow with sufficient growth in the market. It is a well-established product. Thus, it comes under the cash cow category.
• Google Drive and Docs: The demand for data storage and protection increased the cloud storage market. Google Drive and Docs have potential and high market growth but faces less money return due to their competitor's high market share. so, it is placed in the problem child category. Google can increase its market share in this product and push them to star category or else it will start depreciating.
• Orkut: It had a low market share and low growth as it was overtaken by other social networks. Google decommissioned the product and planned to spend their investment on their other ventures. Hence, it comes under the dog category.

Consequently, a company can make a decision on a product based on where it is placed in the BCG matrix. Four actions can be taken by the organization from the result.

• Sustain: If the product lies in the star category, we aim to hold it in the market while conserving the market share. Because when the market growth reduces, we can convert the product into a cash cow and start yielding the revenue.
• Procure: If the product lies in the cash cow category, we must generate and procure the money as much as possible. It tallies the overall profit of the organization.
• Build: If the product lies in the question mark category, we should build the business by increasing the market share with more investments and upgrade it to the star category.
• Terminate: If the product lies in the dog category, it is best to bring an end to the product after selling out the stock. This releases the money which is stuck in the business.

BCG matrix is a popular matrix which is effective in business management by simplifying the resource allocation, strategy creation, and decision making. But it has some limitations like the market growth and market share are not the only mark of profitability. The matrix can be increased so that more factors can be introduced as elements to define the profit of a product.