BCG Matrix

The BCG matrix ( Boston Consulting Group analysis) is a chart that had been created by Bruce
Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing
their business units or product lines. This helps the company allocate resources and is used as
an analytical tool in brand marketing, product management,strategic management, and portfolio
analysis .
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the
basis of their relative market shares and growth rates.
 Cash cows are units with high market share in a slow-growing industry. These units
typically generate cash in excess of the amount of cash needed to maintain the business.
They are regarded as staid and boring, in a "mature" market, and every corporation would be
thrilled to own as many as possible. They are to be "milked" continuously with as little
investment as possible, since such investment would be wasted in an industry with low
growth.
 Dogs, or more charitably called pets, are units with low market share in a mature, slow-
growing industry. These units typically "break even", generating barely enough cash to
maintain the business's market share. Though owning a break-even unit provides the social
benefit of providing jobs and possible synergies that assist other business units, from an
accounting point of view such a unit is worthless, not generating cash for the company. They
depress a profitable company's return on assets ratio, used by many investors to judge how
well a company is being managed.Dogs, it is thought, should be sold off.
 Question marks (also known as problem child) are growing rapidly and thus consume
large amounts of cash, but because they have low market shares they do not generate
much cash. The result is a large net cash consumption. A question mark has the potential to
gain market share and become a star, and eventually a cash cow when the market growth
slows. If the question mark does not succeed in becoming the market leader, then after
perhaps years of cash consumption it will degenerate into a dog when the market growth
declines. Question marks must be analyzed carefully in order to determine whether they are
worth the investment required to grow market share.
 Stars are units with a high market share in a fast-growing industry. The hope is
that stars become the next cash cows. Sustaining the business unit's market leadership may
require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader.
When growth slows, stars become cash cows if they have been able to maintain their
category leadership, or they move from brief stardom to dogdom.[citation needed]
As a particular industry matures and its growth slows, all business units become either cash
cows or dogs. The natural cycle for most business units is that they start as question marks, then
turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow.
At the end of the cycle the cash cow turns into a dog.
The overall goal of this ranking was to help corporate analysts decide which of their business
units to fund, and how much; and which units to sell. Managers were supposed to gain
perspective from this analysis that allowed them to plan with confidence to use money generated
by the cash cows to fund the stars and, possibly, the question marks. As the BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its strengths to truly
capitalize on its growth opportunities. The balanced portfolio has:
 stars whose high share and high growth assure the future;
 cash cows that supply funds for that future growth; and
 question marks to be converted into stars with the added funds.
Practical Use of the BCG Matrix

For each product or service, the 'area' of the circle represents the value of its sales. The BCG
Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and
weaknesses, at least in terms of current profitability, as well as the likely cashflows.
The need which prompted this idea was, indeed, that of managing cash-flow. It was reasoned
that one of the main indicators of cash generation was relative market share, and one which
pointed to cash usage was that of market growth rate.
Derivatives can also be used to create a 'product portfolio' analysis of services. So Information
System services can be treated accordingly
Drawbacks
The growth-share matrix once was used widely, but has since faded from popularity as more
comprehensive models have been developed. Some of its weaknesses are: • Market growth rate
is only one factor in industry attractiveness, and relative market share is only one factor in
competitive advantage. The growth-share matrix overlooks many other factors in these two
important determinants of profitability. • The framework assumes that each business unit is
independent of the others. In some cases, a business unit that is a "dog" may be helping other
business units gain a competitive advantage. • The matrix depends heavily upon the breadth of
the definition of the market. A business unit may dominate its small niche, but have very low
market share in the overall industry. In such a case, the definition of the market can make the
difference between a dog and a cash cow. While its importance has diminished, the BCG matrix
still can serve as a simple tool for viewing a corporation's business portfolio at a glance, and may
serve as a starting point for discussing resource allocation among strategic business units.

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The BCG matrix ( Boston Consulting Group analysis) is a chart that had been created by Bruce

Practical Use of the BCG Matrix

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