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.

INTRODUCTION 

WHAT IS THE BCG GROWTH-SHARE MATRIX? 

To begin with, BCG is the acronym for Boston Consulting Group—a 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 organisationdeveloped 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 organisation’s 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 organisation’s 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. Let’s look at the following components of the model:
Figure 1

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 product’s 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 Computer’s 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, Dell’s 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

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 organisation’s 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. ConsiderHewlett-Packard’s small share of the digital

camera market, behind industry leader Canon’s 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 Pfizer’s 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 industry’s 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 samePfizer 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 ofPfizer'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 SBU’s or product’s market share equals that of its largest

competitor’s 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.
Figure 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.

Figure 4
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 SBU’s 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 SBU’s 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 company’s 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).