THE BOSTON CONSULTING GROUP MATRIX MODEL (CROWN AS KING)
Use to identify specific strategies you can use when considering the value of products and services to your organisation.
The Boston Consulting Group (BCG) created a matrix to assist organisations in deciding how to allocate investment among their products or services. By dividing the matrix into quadrants, four groups of products can be identified using as descriptors their position relative to market share and market growth rate.
Source: Adapted from Key Management Models, 2nd edn, Pearson Education (van Assen, M., van der Berg, G. and Pietersma, P. 2009) p. 9. The BCG Portfolio Matrix from the Product Portfolio Matrix
© (The Boston Consulting Group, 1970).
When faced with the findings from a BCG matrix there are four possible strategies that organisations can adopt:
- Build share: Invest to increase market share, for example turning a question mark into a star or a dog into a cash cow.
- Hold: Invest just enough to keep the product in its present position.
- Harvest: Reduce the amount of investment in the product in order to maximise its short-term cash flows and profits.
- Divest: Get rid of a product by selling or phasing it out. Question marks and dogs are the most likely to be sold off and the funds used to invest in potentially successful question marks and stars.
HOW TO USE IT
- Use the Pareto Principle (see Theory 91) to identify the products and services that are the most and least profitable.
- Stars are high-growth products or services competing in markets where they are relatively strong compared with the competition. Stars are the most important category because they are your future. You need to invest heavily in them to maintain their growth and maximise returns.
- Cash cows consist of low-growth products or services with a relatively high market share. These are mature, successful products with relatively little need for investment. Milk your cash cows but also look after them and don’t take them or their customers for granted.
- Question marks are products or services with low market share but which operate in high-growth markets. They may have potential, but will require substantial investment in order to increase market share. It’s with question marks that you really earn your money. You have to decide which to back and which to abandon.
- Dogs refers to products that have a low relative share in a low-growth market. Dogs may generate enough cash to break even, but they are rarely worth investing in. If you work solely on a product which is classified as a dog then either get out or increase the product’s market share. If you are responsible for deciding which products and units to keep you will have to decide which dogs to put down.
QUESTIONS TO ASK
- Do I know which of my products are stars, cash cows, question marks and dogs?
- Am I emotionally attached to a particular product or service, for example, the first product I developed? Does my attachment cloud my judgement?