Title: The BCG Growth‑Share Matrix — what it is, how to use it, and its limits
What it is (short definition)
– The BCG growth‑share matrix is a strategic planning diagram, created by the Boston Consulting Group in 1970, that helps managers allocate resources among a company’s products or business units.
– It maps each offering on a 2×2 grid: market growth rate (vertical axis) versus relative market share (horizontal axis). Each cell suggests a high‑level management action.
Key terms (defined)
– Market growth rate: the annual percentage growth of the relevant market (demand expansion).
– Relative market share: a company’s market share divided by the largest competitor’s market share (so the leader has a relative share ≥ 1).
– Cash flow: net cash generated by the product or business unit.
– Divestiture: selling or closing a business unit.
The four quadrants and recommended actions
1. Stars (high growth, high relative share)
– Characteristics: large share in a growing market; high revenue potential but often high investment requirements.
– Typical action: invest to sustain leadership; if market growth slows and leadership holds, a star can become a cash cow.
2. Cash cows (low growth, high relative share)
– Characteristics: market leader in a mature, slow‑growing market; produces steady, often high, cash flows.
– Typical action: harvest cash to fund growth opportunities elsewhere while maintaining competitive position.
3. Question marks (high growth, low relative share)
– Characteristics: niche or new offerings in fast‑growing markets but with small share; resource‑hungry and high uncertainty.
– Typical action: evaluate carefully—invest aggressively to try to convert winners into stars, or divest if prospects are poor.
4. Dogs (low growth, low relative share)
– Characteristics: small share in slow markets; limited cash generation and growth prospects.
– Typical action: consider divestiture, liquidation, or niche repositioning.
How to use the matrix — step‑by‑step checklist
1. Define the business unit or product scope and the relevant market for each item.
2. Measure the market growth rate for each market (annualized percentage). Choose a consistent period (e.g., last 3 years).
3. Calculate relative market share = (your unit’s market share) / (largest competitor’s market share).
4. Place each unit on the 2×2 grid using a threshold for “high” vs “low” growth and “high” vs “low” share (commonly the median or an industry benchmark; relative share >1 usually counts as “high”).
5. Assign a preliminary action: invest, maintain, harvest, or divest.
6. Run a second‑level analysis that includes costs to gain share, synergies among units, lifecycle stage, and strategic fit.
7. Revisit assignments regularly (every 6–12 months) because market dynamics change.
Worked numeric example
– Suppose Product X operates in a market growing at 10% per year. You decide that “high” growth = market growth > 5%.
– Your market share for Product X