What Is BCG Growth-Share Matrix

BCG stands for Boston Consulting Group. BCG employees created a chart to represent business units and analyze the allocation of resources of a company. The main aim is to allocate resources driving maximum profits related to product management, marketing, sales, or any other service the company provides. Alan Zakon created the first draft of this matrix and then later refined it with his colleagues. Alan later became the CEO of the firm as well. After the refinement, BCG’s cofounder popularised the concept of the BCG growth-share matrix in the essay “The Product Portfolio” in BCG’s publication Perspectives in 1970. In this article, I will try to explain what is BCG growth-share matrix. You will also see how companies use this analytical tool for running their businesses. At a particular time, about half of the 500 fortune companies were using the BCG growth-share matrix.

What Is BCG Growth-Share Matrix

So, in simple terms, it is a planning tool. As discussed above, it was created by the employees of Boston Consulting Group. The growth-share matrix helps to analyze the products and services of the company. The analysis would allow us to understand and have a better picture of what the company should focus on in terms of selling, buying, or resource allocation. As a tool, it uses charts or a graphical representation of the company’s product or service.

BCG growth-share matrix is a table. We split the table into four quadrants. Each quadrant has its own symbol and represents a degree of profitability. The company can put different products in the four quadrants. Post that, the company can use the matrix to decide where to focus for maximum profits and minimum losses.

Here is what a BCG growth-share matrix infographic looks like

What Is BCG Growth-Share Matrix - Infographic by ActualSimple.com

Source: Boston Consulting Group(BCG)

How Does A BCG Growth-Share Matrix Work?

Let us understand how this matrix works. We need to first understand each quadrant and how it represents how different business elements.

Cash Cow

Cash cow is a business jargon. It refers to the business product that generates excess cash and money as compared to what is required to start this product. It is a business product producing excess profits with only the initial investment. The term cash cow is a metaphor. It refers to the cows providing milk and dairy business to people despite having low investments. It provides value due to its high cash-generating capacity that can be used to fund other aspects of the business.

Pets

More commonly they are termed dogs. They do not generate decent cash flows as compared to their maintenance levels. They have a low market share. As per the technicalities of finance and accounting, they are worthless to the company. They do not generate enough cash to be under profit elements of the business. The return on assets ratio is reduced due to this business element as they do not generate enough cash or profit.

Question Marks

They are also called a problem child or wild dogs. They are business elements currently having a low market share in a high-growth industry. You can think of this as a starting phase of any business. If worked on properly, it has the potential to become a star or a cash cow. As they are the initial phase of any business, you need to analyze them properly. Investment should be made only after proper assessment. You do not want to waste resources on a business element that is not growing well or has low potential in the current industry,

Star

A star as implied by its name has a high market share in a high-growth industry. These business elements are the market leaders. They are market front runners having unique selling propositions or a monopoly in the market. You may think of a star as a question mark that progressed profitably in the right direction. Stars are aimed to become cash cows. The reason is that stars require high investments to be driven as market leaders. Once we progress correctly, it becomes a cash cow and becomes more profitable for the company.

If we summarize the four quadrants, we can find four business elements to focus on.

Low Growth, Low Market Share

These are the “pets”. They do not return well as of now as per the above explanation. The company can either liquidate, divest or even reposition them.

Low Growth, High Market Share

These are the “cows”. Companies should milk these cows and support them. They generate excess cash and support various business functions.

High Growth, High Market Share

These are the “stars”. They have high future potential that the company should utilize. They can become the next high return on investment element for the company.

High Growth, Low Market Share

These are the “question marks”. They have the potential to become cash cows or stars. It would depend on how well this business element is analyzed and worked upon.

Example Of A BCG-Growth Share Matrix

To understand further, let us see an example of Apple and try to put apple products in the four quadrants.

BCG Growth-Share Matrix Of Apple by ActualSimple.com

Apple Stars

In the “stars” category, you can think of the Apple iPhone. It is doing well and has growth opportunities as well. So it is high growth and high market share.

Apple Question Marks

In the “question mark” category, we can put the Apple TV product. They need to be analyzed. They are in the initial phase of business and not clear what opportunities lie ahead.

Apple Cash Cows

In the “cash cow,” you can put the MacBook and desktop products of Apple. They are doing well in limited opportunities too. They are the oldest and the most profitable product line of Apple. Basically, ensuring excess cash flow for the company.

Apple Pets

In the “pets” category, you can put the iPod product of Apple. They are not that strong in the current market. Moreover, the market growth opportunities are also not that promising. Need to thoroughly research before investing in this.

Bottom Line

The BCG Growth-Share matrix is a great planning framework devised by the Boston Consulting Group. Many companies still use this matrix as a tool to plan for their business strategies. Not only this, but many startups also use this matrix to analyze their growth and their opportunities. Although there are other business tools already present, the BCG growth-share matrix does provide a simple graphical representation of your business. This is what makes it easier to implement and deduce conclusions. The BCG growth-share matrix does help in strategic planning. However, in some situations, you may want to use some other tools as well. One should not limit to one tool and take strategic decisions. Every business is unique and complex. It may require more than one tool or method to analyze the business needs.