The article explains the main aspects of the BCG Growth Matrix, its significance to strategic planning and

the situations
where it is appropriate to employ this approach. It also give useful pointers on how to carry out a BGC analysis.

INTRODUCTION
No strategic management or marketing text appears to be complete without the inclusion of the Boston Consulting Group
(BCG) growth-share matrix. When used effectively, this model provides guidance for resource allocation. And despite its
inherent weaknesses, is probably one of the most widely used management instrument as far as portfolio management is
concern. For instant, each SBU (strategic business unit) of large companies such as General Electric, Siemens, and Centrica
require different strategies to compete effectively and efficiently. It is not a question of one strategy fits all SBUs since the
likelihood for each of them experiencing the same market growth rate, industry-threats and leverage is very slim. This is where
the BCG model comes into play as a management analytical tool. The ensuing examines the underpinnings of the model, for
what it is used, how to use it and why it is used.
WHAT IS THE BCG GROWTH-SHARE MATRIX?
To begin with, BCG is the acronym for Boston Consulting Groupa general management consulting firm highly respected in
business strategy consulting. BCG Growth-Share Matrix (see figure 1) happens to be one of many of BCG's strategic concepts
the organisation developed in the late 1970s, and is being taught at leading business schools and executive education
programmes around the world.
It is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003; Cipher 2006): it can be used to
classify product portfolio in four business types based on four graphic labels including Stars, Cash Cows, Question Marks and
Dogs; it can be used to determine what priorities should be given in the product portfolio of a company; to classify an
organisations product portfolio according to their cash usage and generation; and offers management available strategies to
tackle various product lines. Consider companies like Apple Computer, General Electric, Unilever, Siemens, Centrica and many
more, engaging in diversified product lines. The BCG model therefore becomes an invaluable analytical tool to evaluate an
organisations diversified product lines as later seen in the ensuing sections.
WHAT ARE THE MAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIX?
The BCG Growth-Share Matrix is based on two dimensional variables: relative market share and market growth. They often are
pointers to healthiness of a business (Kotler 2003; McDonald 2003). In other words, products with greater market share or
within a fast growing market are expected to wield relatively greater profit margins. The reverse is also true. Lets look at the
following components of the model:
Fig. 1: Source: 12manage.com 2006

Relative Market Share

According to the proponents of the BCG (Herndemson 1972), It captures the relative market share of a business unit or
product. But that is not all! It allows the analysed business unit be pitted against its competitors. As earlier emphasized above,
this is due to the sometime correlation between relative market share and the products cash generation. This phenomenon is
often likened to the experience curve paradigm that when an organisation enjoys lower costs, improved efficiency from
conducting business operations overtime. The basic tenet of this postulation is that the more an organisation performs a task
often; it tends to develop new ways in performing those tasks better which results in lower operating cost (Cipher 2006). What
that suggests is that the experience curve effect requires that market share is increased to be able to drive down costs in the
long run and at the same time a company with a dominant market share will inevitably have a cost advantage over competitor

companies because they have the greater share of the market. Hence, market share is correlated with experience.
A case in point is Apple Computers flagship product called the iPod, which occupies a dominant 73% share the portable music
player market (Cantrell 2006). Analysts believe it is the impetus for Apple's financial rebirth 40% of Apple's sales is attributed
to the iPod product line (Cantrell 2006). Similarly, Dells PC line shares the same market dominance theory as the iPod. The PC
manufacture giant occupies a worldwide market share of 18.1%, which is commensurate to its large market revenue above its
competitors (see figure 2).
Figure 2: Source: Reuters 2006

Market Growth
Market growth axis, correlates with the product life cycle paradigm, and predicates the cash requirement a product needs
relative to the growth of that market. A fast growing market is generally considered attractive, and pulls a lot of organisations
resources in an effort to increase gains. A case in point is the technological market widely consider by experts as a fast
growing market, and tends to attract a lot of competition. Therefore, a product life cycle and its associated market play a key
role in decision-making.
Cash Cows
These products are said to have high profitability, and require low investment for the fact that they are market leaders in a
low-growth market. This viewpoint is captured by the founders themselves thus:
The cash cows fund their own growth. They pay the corporate dividend. They pay the corporate overhead. They pay the
corporate interest charges. They supply the funds for R&D. They supply the investment resource for other products. They
justify the debt capacity for the whole company. Protect them (Henderson 1976).
According to experts (Drummond & Ensor 2004; Kotler 2003; McDonald 2003), surplus cash from cash cow products should be
channelled into Stars and Questions in order to create the future Cash Cows.
Stars
Stars are leaders in high growth markets. They tend to/should generate large amounts of cash but also use a lot of cash
because of growth market conditions. For example, Apple Computer has a large share in the rapidly growing market for
portable digital music players (Cantrell 2006).
Question Marks
Question Marks have not achieved a dominant market position, and hence do not generate much cash. They tend to use a lot
of cash because of growth market conditions. Consider Hewlett-Packards small share of the digital camera market, behind
industry leader Canons 21% (Canon 2006). However, this is a rapidly growing market.
Dogs
Dogs often have little future and are big cash drainers on the company as they generate very little cash by virtue of their low
market share in a highly low growth market.
Consider Pfizers Inspra (Gibson 2006):
Pfizer launched this drug in Q4 2003 and continues to pump money into this problem child, despite anaemic sales of roughly
$40 million in the $2.7 billion heart-failure market dominated by Toprol-XL (metoprolol). It was thought to gain market share
and become a star, and eventually a cash cow when the market growth slowed. But, according to industrys experts, Inspra is
likely to remain a dog, despite any amount of promotion, given its perceived safety issues and a cheaper, more effective
spironolactone in the same Pfizer portfolio. Because Pfizer invested heavily in promotion early on with Inspra, the drug's
earnings potential and positive cash flow is elusive at best. A portfolio analysis of Pfizer's cardiovascular franchise would
suggest redeploying promotional spend on Inspra to up-and-coming stars like Caduet (amlodipine/atorvastatin) or torcetrapib
to ensure those drugs reach their sales potential.

HOW TO DEVELOP GOOD BCG GROWTH-SHARE MATRIX OF A COMPANY?

SBUs or products are represented on the model by circles and fall into one of the four cells of the matrix already described
above. Mathematically, the mid-point of the axis on the scale of Low-High is represented by 1.0 (Drummond & Ensor 2004;
Kotler 2003). At this point, the SBUs or products market share equals that of its largest competitors market share
(Drummond & Ensor 2004; Kotler 2003). Next, calculate the relative market share and market growth for each SBU and
product. Figure 3 depicts the formulas to calculate the relative market share and market growth.
Fig 3

Oftentimes, if you are versed with a particular industry and companies operating in it, you could draw up a BCG matrix for any
company without necessarily computing figures for the relative market share and market growth. Figure 4 depicts a fairly
accurate BCG growth-share matrix for Apple Computer developed in the spring of 2005 without the author calculating the
relative market share and market growth.
Fig. 4 Source: Asong (2005)

Once the products or SBUs have been plotted, the planner then has to decide on the objective, strategy and budget for the
business lines. Basically, at this juncture the organisations should strive to maintain a balanced portfolio. Cash generated from
Cash Cows should flow into Stars and Question Marks in an effort to create future Cash Cows. Moreover, there are 4 major
strategies that can be pursued at this stage as described in the ensuing section.
AVAILABLE STRATEGIES TO PURSUE

Build
The product or SBUs market share needs to be increased to strengthen its position. Short-term earnings and profits are
deliberately forfeited because it is hoped that the long-term gains will be higher than this. This strategy is suited to Question
Marks if they are to become stars.
Hold
The objective is to maintain the current share position and this strategy is often used for Cash Cows so that they continue to
generate large amounts of cash.
Harvest
Here management tries to increase short-term cash flows as far as possible (e.g. price increase, cutting costs) even at the
expense of the products or SBUs longer-term future. It is a strategy suited to weak Cash Cows or Cash Cows that are in a
market with a limited future. Harvesting is also used for Question Marks where there is no possibility of turning them into
Stars, and for Dogs.
Divest
The objective of this strategy is to rid the organisation of the products or SBUs that are a drain on profits and to utilize these
resources elsewhere in the business where they will be of greater benefit. This strategy is typically used for Question Marks
that will not become Stars and for Dogs.
WHERE TO FIND INFORMATION FOR THE BCG GROWTH-SHARE MATRIX?
Information for the BCG Growth-Share matrix is generated from multiple sources including companys annual reports, sec
fillings and a host of specialised research organisations such as IDC, Hoover, Edgar, Forrester and many more. Armed with this
information, developing a BCG growth-share matrix should pose less of a problem.
Limitations
The BCG model is criticised for having a number of limitations (Kotler 2003; McDonald 2003):
There are other reasons other than relative market share and market growth that could influence the allocation of resources
to a product or SBU: reasons such as the need for strong brand name and product positioning could compel resource allocation
to an SBU or product (Drummond & Ensor 2004).
What is more, the model rests on net cash consumption or generation as the fundamental portfolio balancing criterion. That
is appropriate only in a capital constrained environment. In modern economies, with relatively frictionless capital flows, this is
not the appropriate metric to apply rather, risk-adjusted discounted cash flows should be used (ManyWorlds 2005).
Also, the matrix assumes products/business units are independent of each other, and independent of assets outside of the
business. In other words, there is no provision for synergy among products/business units. This is rarely realistic.
The relationship between cash flow and market share may be weak due to a number of factors including (Cipher 2006):
competitors may have access to lower cost materials unrelated to their relative share position; low market share producers
may be on steeper experience curves due to superior production technology; and strategic factors other than relative market
share may affect profit margins.
In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that
maturity of the life cycle brings about the expected profit returns. This may be incorrect due to various reasons (Cipher 2006):
capital intensity may be low and the business/product could be grown without major cash outlay; high entry barriers may exist
so margins may be sustainable and big enough to produce a positive cash flow and a growth at the same time; and industry
overcapacity and price competition may depress prices in maturity.
Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness
of a market. A fast growing market is not necessarily an attractive one. Growth markets attract new entrants and if capacity
exceeds demand then the market may become a low margin one and therefore unattractive. A high growth market may lack
size and stability.
Given the aforementioned weaknesses, the BCG Growth-Share matrix must be used with care; nonetheless, it is a best-known
business portfolio evaluation model (Kotler 2003).
If you found this article useful please have a look at the other articles we have written: PEST analysis, Porter's 5 Forces
analysis, Ansoff analysis, SWOT analysis, Porter's Generic Strategies, Scenario Planning, Value chain analysis.

REFERENCE
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BCG (2006). The Growth-Share Matrix. www.bcg.com [Accessed: September 20, 2006]
Canon (2006). InfoSource research puts Canon No.1 in the UK & Ireland. [Accessed: September 28, 2006]
Cantrell, A. (2006). Apples Remarkable Comeback Story. [Accessed: September 28, 2006]
Drummond, G. & Ensor, J. (2004). Strategic Marketing: Planning & Control. 2nd Ed. Butterworth-Heinemann: MA, pp. 96-100.
Henderson, B. (1976). Anatomy of the Cash Cow. Accessed: September 21, 2006]
Lane, S. (2006). Overall Mac OS usage market share declining? [Accessed: September 28, 2006]
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MindTools (2006). The Boston Matrix. www.mindtools.com/pages/article/newTED_97.htm [Accessed: September 28, 2006]
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