Encyclopaedic Dictionary of Strategic Management

Growth Share Matrix

The growth share matrix was developed by the Boston Consulting Group in the 1960s, and went
on to be one of the most popular strategic tools ever created. This was a time when the
conglomerate ruled, and the growth share matrix was a tool that allowed the potentially unweildly
organizations to categorise their business into an orderly two-by-two matrix. The matrix
categorized business on the market growth rate and the businesses relative market share.

high
Market Growth Rate Star Question Mark

low

Cash Cow Dog

high low
Relative Market Share

Essentially, the growth share was a tool that classified businesses into one of four categories and
prescribed advice by these categories. The advice was based on the dynamics of the learning
curve (another Boston Consulting Group idea, see experience and learning effects).

Cash Cow

A cash cow business is one which enjoys a high relative market share in an industry in which the
growth rate has slowed. Due to its high market share, it is argued that the business should have a
cost advantage both due to economies of scale (see economies of scale) and experience and
learning effects (see experience and learning effects). Cash cows tend to require minimal
investment and generate free cash flows that can be invested in other businesses such as stars and
question marks. With the exception of low future growth prospects, cash cows are beneficial to
any business portfolio.

Star Business

A star business is one with a high market share in a high growth market. As with cash cows, star
businesses are expected to have a lower cost structure than their lower market share competitors.
However, cashflow is expected to be either marginally positive or negative due to the investment
requirements of maintaining or growing market share in the growing market. Through this
continued investment in the business, it is hoped that the business will turn into a cash cow when
the market reaches maturity. It is important that this investment is undertaken to help this
transition to occur, otherwise share may be lost and the business turn into a question mark and
later a dog when the market matures and growth slows.

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high
Star Question Mark

Market Growth Rate

Success Disaster
route route

low
Cash Cow Dog

high low
Relative Market Share

Dog Business

A dog business is defined as one where the growth rate in the market is slow and the relative
market share is low compared to the leading competitor. Because of this low share, such
businesses are often expected to have a higher cost structure than industry leaders. Moreover, it is
difficult and often extremely expensive to gain share in a mature environment. The recommended
strategy for such dog businesses is therefore seen as divestment, rapid harvesting, or the
acquisition of other such businesses to gain scale (building a “kennel of dogs”).

With divestment or rapid harvesting, care should be taken to insure that the cashflow prospects
are as poor as the growth share matrix model suggests. Often, low capital intensity dog businesses
can be fruitful cash generators, and harvesting can be extended.

Question Mark

A question mark business is seen as an opportunity. With a question mark business, it is uncertain
whether increasing market share will be obtained, turning the business into a star, or the market
will mature and slow, turning the business into a dog. As a result, it is argued that the primary
objective of such businesses should be to gain share rather than maximize short-term profitability.
Indeed, starving such businesses of their capital needs is a major reason for failure in companies
operating such a strategy. This may result in poor financial performance – or even losses – and
cashflow will be considerable and negative. Many companies are very reluctant to tolerate such
poor performance and, as a consequence, fail to transform their question mark businesses to stars.

Due to the investment requirements of question mark businesses, few corporations can support
more than a small number of businesses of this type. It is therefore important to carefully select
from the range of new business opportunities that are available and to support those selected few
to the full.

As can be seen from the above, each of the categories has different characteristics and
requirements. It was generally advised that a “balanced portfolio” was required. This meaning
that there were cash cows generating free cash flows, and that these cash flows were being

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utilized on stars (to maintain their dominant position for when the market matures) and question
marks (to convert them into stars). Thus there is a balance between cash generating and cash
consuming businesses, as well as current and future opportunities.

While the logic of the growth share matrix appears sound, it has been heavily criticized in recent
times. On the surface it would appear easy to apply, but it is highly susceptible to industry
classifications. For example, is BMW’s North American auto business a “dog” as it holds only
about 1% of the total auto market, or a cash cow as it is the market leader in the luxury car
segment? (Grant, 1998).

Additionally, the claim that market share drives profitability is highly debatable. This was based
on PIMS data that only looked at the present profitability of products and firms, not taking into
account the investment (and losses) required to achieve this market position. Taking a net present
value approach to these situations yields very different outcomes, and therefore very different
advice.

Lastly, the growth share matrix also assumes that a firm’s resources and capabilities (see
resource-based view) are able to manage businesses equally well that operate in dynamic markets
as stable ones. Typically, it is found that very different managers and firm characteristics are
required for effective management of these different types of businesses.

Although the growth share matrix would not be found often in modern management practice, the
analytic language and assumptions that it espoused are still present in management speak. For
example, the use of the “cash cow” concept will often occur, along with an almost universally
accepted idea that a “balanced” portfolio is required.

References
Grant, R. M. 1998. Contemporary strategy analysis. Oxford: Blackwell.

Taman Powell

(993)

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