BCG MATRIX – ESSENTIAL STRATEGIC TOOL IN THE COMPANY
Matrix BCG or the growth matrix – participation is a graphical methodology used in the analysis of the business portfolio of a company and was developed by the Boston Consulting Group in the 70’s and was published by the president of that company , Bruce D. Henderson, in the year of 1973. This tool consists of performing a strategic analysis of the company’s portfolio based on two factors, the rate of market growth and the market share. Due to its close relationship with the marketing world, it tends to be considered to be exclusively related to strategic marketing. Its purpose is to help in making decisions about the different approaches directed to different types of businesses or their Strategic Units (UEN), in other words, it tells us in which companies or areas we should invest, stop doing it or simply give up the deal.
Description of the BCG matrix
The matrix is essentially composed of four quadrants, which in turn have different strategies to develop. Each of these quadrants is symbolized by a caricature.
The methodology used uses a double entry matrix (2 x 2) to group the different types of business that a particular company has. The growth of the market is defined in the vertical axis of the matrix, while the market share is shown on the horizontal axis. Therefore, the business units must be placed in one of these quadrants according to their importance of their strategic value.
These quadrants are the following:
Star
The “stars” operate in high-growth industries with a high market share. Stars are essentially cash generators (with some investment). They are the primary units in which the company must invest their money, since they are expected to become cows (generators of positive cash flows). However, not all stars become cash flows. This is especially true in fast-changing industries, where new innovative products can soon be displaced by new technological advances, so that a star instead of becoming a source of income, becomes a dog.
Question mark
The “question marks” are the UENs that require much more thorough consideration. They have reduced market share and are fast-growing markets that consume large amounts of cash. It can incur losses. It has the potential to gain market share and become a star, which would later become a source of income. The question marks are not always successful and even after a lot of investments that struggle to gain market share can finally become dogs. Therefore, they require a lot of consideration to decide whether it is worth investing or not.
Cow
The “cows” are the most profitable products or UEN and must be “milked” to provide as much money as possible. The money obtained from the “cows” should be invested in the stars to support their growth. According to the growth-participation matrix, companies should not invest in cash sources to induce growth, they should only support them to maintain their current market share. Again, this is not always the case. Cows are usually given in large corporations or business units that are able to innovate in new products or processes, which can become new stars. If there would be no support for cash cows, they would not be capable of such innovations.
Dog
The quadrant of “dogs” have low market share compared to competitors and operate in a slow growing market. In general, it is not worth investing in them, as they generate low or lost returns. But this is not so categorical. Some “dogs” can be profitable for the long term, or they can provide synergies with other brands or business units or as a defense or counter-attack against competitive movements. Therefore, it is always important to carry out a deeper analysis of each UEN to make sure it is worth investing or not.