The growth-share matrix, also known as the BCG growth-share matrix or the Boston Consulting Group growth-share matrix, is a strategic planning tool that helps businesses assess and manage their portfolio of products or business units.
Developed by the Boston Consulting Group in the 1970s, this matrix provides a framework for analyzing the potential of various business units and making informed decisions about resource allocation and strategic focus.
Understanding the Growth-Share Matrix
At the heart of the growth-share matrix is the concept of market growth and market share.
The matrix divides a company’s products or business units into four quadrants:
- Stars
- Cash Cows
- Question Marks, and
- Dogs
Each quadrant represents a different combination of market growth and market share, which indicates the relative position and potential of the respective products or business units.
Stars: High Market Growth, High Market Share
Stars are products or business units that operate in high-growth markets and have a significant market share.
They typically require substantial investments to maintain their growth rate and market dominance.
Stars have the potential to become cash cows in the future if they can sustain their growth and capture a larger market share.
Strategic focus should be on nurturing and supporting stars to maximize their growth potential.
Cash Cows: Low Market Growth, High Market Share
Cash cows are products or business units that operate in mature, low-growth markets but maintain a high market share.
They generate substantial cash flow and profits for the company, often exceeding the investment required to maintain their market position.
Cash cows should be managed to optimize profitability and cash generation.
Resources from cash cows can be allocated to support other units in the portfolio.
Question Marks: High Market Growth, Low Market Share
Question marks, also known as problem children or wildcats, are products or business units that operate in high-growth markets but have a low market share.
They require significant investments to increase their market share and reach their full potential.
Question marks have an uncertain future and can become either stars or dogs, depending on their ability to gain market share.
Decisions regarding resource allocation and strategic direction for question marks are critical and require careful evaluation.
Dogs: Low Market Growth, Low Market Share
Dogs are products or business units that operate in low-growth markets and have a low market share.
They do not generate significant profits and often require resources to sustain their existence.
Dogs may be candidates for divestment or discontinuation unless they provide strategic benefits such as synergies with other products or support the overall brand image.
BCG Matrix (Growth-Share Matrix) EXPLAINED
Applying the Growth-Share Matrix: Serena’s Burger Joint
Let’s apply the growth-share matrix to Serena’s Burger Joint to illustrate its practical application.
Suppose Serena’s Burger Joint operates in a highly competitive market with various product offerings.
Based on the growth-share matrix, the classification of Serena’s Burger Joint would depend on the market growth and market share of its different product lines.
Star
If Serena’s Burger Joint has a product line that operates in a high-growth market and holds a significant market share, it would be classified as a “Star.”
This product line has the potential to be a future cash cow and should be nurtured and supported to maintain its growth trajectory.
Question Mark
On the other hand, if Serena’s Burger Joint has a product line that operates in a high-growth market but holds a low market share, it would be considered a “Question Mark.”
Strategic decisions should be made to evaluate the potential of this product line and determine whether to invest in increasing its market share or consider alternative options.
Cash Cow
If Serena’s Burger Joint has a product line that operates in a low-growth market but still maintains a high market share, it would fall under the category of “Cash Cow.”
This product line generates consistent profits and cash flow, which can be used to support other areas of the business.
Dog
Finally, if Serena’s Burger Joint has a product line that operates in a low-growth market and holds a low market share, it would be classified as a “Dog.”
This product line requires careful evaluation to determine if it should be divested or repositioned within the market.
How to Invest – The BCG Matrix
Examples of the Growth-Share Matrix
The growth-share matrix provides a valuable framework for analyzing and understanding a company’s product portfolio.
Here are a few examples of well-known companies and their product lines classified according to the growth-share matrix:
- Apple Inc.: The iPhone product line can be classified as a “Star” due to its high market growth and significant market share. Meanwhile, the iPod product line, which operates in a declining market, would be categorized as a “Dog.”
- Google: Google’s search engine and related advertising services fall under the “Cash Cow” category, generating substantial profits. However, emerging projects like self-driving cars or smart home devices may be considered “Question Marks” due to their high-growth potential and uncertain market share.
- Coca-Cola: The Coca-Cola brand itself can be considered a “Cash Cow” due to its established market position and consistent revenue generation. However, new beverage offerings or acquisitions in the energy drink market could be classified as “Question Marks.”
These examples highlight how different products within a company’s portfolio can fall into distinct categories based on their market growth and market share, enabling strategic decision-making and resource allocation.
Limitations of the Growth-Share Matrix
While the growth-share matrix provides valuable insights, it is not without limitations.
Here are some considerations to keep in mind when using the matrix:
- Simplistic View: The growth-share matrix relies on a simplified view of market growth and market share, neglecting other important factors like industry dynamics, competitive landscape, and customer preferences.
- Market Definitions: Defining markets accurately can be challenging, especially in industries with overlapping product categories or evolving customer demands.
- Future Uncertainty: The growth-share matrix assumes that market conditions will remain constant, which may not always be the case. External factors, such as technological advancements or regulatory changes, can significantly impact market growth and market share.
- Lack of Strategic Guidance: The matrix provides a descriptive analysis of the current portfolio but does not offer specific guidance on strategic actions or detailed implementation plans.
Despite these limitations, the growth-share matrix remains a useful tool for initial portfolio assessment and strategic planning, providing a starting point for discussions and decision-making.
Conclusion
The growth-share matrix, also known as the BCG growth-share matrix, is a strategic planning tool that helps businesses assess their product portfolio and make informed decisions about resource allocation.
By analyzing the relative market growth and market share of products or business units, the matrix classifies them into Stars, Cash Cows, Question Marks, and Dogs, guiding strategic focus and resource allocation.
While the growth-share matrix provides a valuable framework, it is important to consider its limitations and supplement it with a comprehensive understanding of the industry, market dynamics, and customer preferences.
The growth-share matrix should be used as a starting point for strategic discussions, allowing businesses to evaluate their portfolio and make informed decisions to drive growth and profitability.
Related
FAQs – Growth-Share Matrix
1. What is the Growth-Share Matrix?
The Growth-Share Matrix, also known as the BCG (Boston Consulting Group) Growth-Share Matrix, is a strategic management tool that helps analyze a company’s portfolio of products or business units.
It provides a framework for categorizing these units based on their market growth rate and relative market share.
2. What are “Stars” in the Growth-Share Matrix?
In the Growth-Share Matrix, “Stars” refer to products or business units that have a high market growth rate and a high relative market share.
Stars are typically leaders in growing markets and require significant investments to maintain their market position.
3. According to the BCG’s Growth-Share Matrix, what would Serena’s Burger Joint be classified as?
The classification of Serena’s Burger Joint in the BCG Growth-Share Matrix would depend on its market growth rate and relative market share.
Without specific information, it is difficult to determine its classification accurately.
4. Can you provide some examples of the Growth-Share Matrix in action?
Here are a few examples of companies and their corresponding classifications in the Growth-Share Matrix:
- Apple: iPhone (Star), MacBook (Cash Cow), iPod (Dog)
- Google: Google Search (Star), Google Maps (Cash Cow), Google Glass (Question Mark -> Dog)
- Amazon: Amazon Prime (Star), Amazon Echo (Cash Cow), Amazon Fire Phone (Dog)
Please note that these classifications are hypothetical and can vary based on actual market data.
5. What do “Question Marks” represent in the BCG Growth-Share Matrix?
In the BCG Growth-Share Matrix, “Question Marks” refer to products or business units with a high market growth rate but a low relative market share.
These entities require careful consideration to determine if they have the potential to become Stars or if they should be divested.
6. Which businesses or products hold the small market share in a low-growth market, according to the BCG Growth-Share Matrix?
In the BCG Growth-Share Matrix, “Dogs” represent businesses or products that hold a small market share in a low-growth market.
Dogs typically generate low profits and have limited growth potential.
7. What does the BCG Growth-Market Share Matrix measure?
The BCG Growth-Market Share Matrix measures the relative market share and market growth rate of a company’s products or business units.
It helps assess their position within the market and provides insights into their strategic implications.
8. What is the suggested strategy for “Stars” in the BCG Growth-Share Matrix?
The suggested strategy for “Stars” in the BCG Growth-Share Matrix is to invest in these products or business units to maintain their market leadership and future growth.
Companies should allocate resources to support Stars and seize the opportunity for continued success.
9. How are “Dogs” defined in the Growth-Share Matrix?
In the Growth-Share Matrix, “Dogs” are defined as products or business units with a low market growth rate and a low relative market share.
These entities typically generate limited profits and require careful evaluation for potential divestment.
10. What are the limitations of the BCG Growth-Share Matrix?
Some limitations of the BCG Growth-Share Matrix include:
- Simplified Model: The matrix oversimplifies complex business dynamics and may not capture all relevant factors.
- Limited Factors: It primarily focuses on market growth rate and market share, neglecting other vital aspects like competition, industry trends, and customer behavior.
- Lack of Precision: The matrix provides broad classifications, but the boundaries between categories can be subjective and vary across industries.
- Time Sensitivity: The matrix assumes that market growth rates and market shares remain constant, which may not reflect the dynamic nature of markets.
Please note that these limitations do not invalidate the matrix’s usefulness but should be considered when applying it.
