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How to Make Appropriate Strategy Using Boston Consulting Group (BCG) Growth Share Matrix?

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Boston Consulting Group (BGS) matrix is a corporate portfolio analysis tool developed by Boston Consulting Group (BGS), USA, that helps companies decide how to prioritize their different businesses. It uses graphical representation of a company’s products and services in a way to help the management decide what it should keep, sell or invest more in.

It is a two by two matrix which categorize the company’s business units as high or low according to their industry growth rate and relative market share. As per this tool, there are four categories in which the businesses of a company can be classified:

The BCG matrix for analyzing a firm’s product lines.

Let us now understand each category in detail:

Cash Cows

Cash cows represent the business units having a large market share in a mature, slow moving industry. Cash cows are profitable business units which require little investment to maintain them and the profit generated from these businesses can be utilized for investment in other business units of the company. These are the core business units which are the main source of revenue for the company and these units provide the stability to the company. Cash cows are placed in the lower left quadrant of the matrix.

Dogs

Dogs are the business units having low market share in a low growing market. It can easily be understood that these business units do not generate case and they do not require huge investment to maintain as they operate in a low growth industry. These business units have a low market share because of high costs, poor quality, ineffective marketing, etc. Unless these units are having some strategic goal, it is always better to liquidate these business units if there are few chances of these to gain market share again. The ‘Dog Business Units’ should be kept as minimum as possible in an organization.

Question Marks

These business units have a low market share in a high growth industry. As these business units operate in a high growth industry, hence they require a huge investment to maintain or gain the market share. These business units require special attention of the management to make these businesses profitable. The ‘Question Marks’ are generally new goods or services which have a good growth potential in future. There is no specific strategy for these units. If the management finds that these business units have potential to be dominant in the market an expansion strategy may be adopted else retrenchment strategy can be adopted. Generally, most businesses are ‘Question Marks’ at the initial level as they try to enter in a high growth market share in which many big players are already present with a large market share. These business units require special attention. If they are ignored, there are many chances that they may be converted into ‘Dogs’, and if huge investments are made in these businesses followed by a good strategy, then these have a potential to become ‘Star’.

Stars

Stars are the business units having large market share in a fast growing industry. These businesses can generate revenue but due to the fast growing industry in which they exist, they have to maintain their pace of growth and hence they require huge amount of investments at the same time. The revenue generated from these units is utilized to maintain the growth of these business units, even some outside investment may also be required. If successful, these business units may become ‘Cash Cows’ in future when the industry matures. The management should therefore pay special attention to these business units for the future growth and profitability of the company.

Limitations of BCG Matrix

The BCG Matrix is an excellent tool which provide a broad view of all the businesses of a company according to the market share and type of industry in which they exist. This overview of the business units helps the company to decide allocation of resources and future course of action to be taken for these units. But besides the advantages, there are also some limitations of this tool.

One limitation of using this tool is that it doesn’t account for any factors beyond market share and industry growth. It won’t present the reasons why the products are succeeding or failing. In many cases, it does not provide enough information for handling complex business problems.

Benefits of BCG Matrix

This matrix is very simple and easy to understand. It provides you a bird’s eye view of all of your business units in a simple matrix and helps taking appropriate decisions regarding the business units. You can easily decide which units has to be allocated more resources and which units has to be discarded.

How to Make Appropriate Strategy Using BCG Matrix?

Once you have determined the position of all of your businesses in the matrix, you can evaluate them and make appropriate strategy regarding these business units. Here are some ways to use the BSG matrix in order make proper strategy for your businesses:

  • If your goal is to focus on innovation, allocate more resources to ‘Stars’ and ‘Question Marks’. By doing so you may convert ‘Stars’ and ‘Question Marks’ into ‘Cash Cows’ in future.
  • If you are not in a position to invest in a product or business unit, then try to maintain it into the same quadrant. In case of ‘Cash Cows’, they are well established business units and require less efforts and resources to maintain.
  • Try to convert most of your business units into ‘cash cows’ as they are profit making businesses and will earn revenue for other units and will provide stability to the company.
  • Divest the ‘Dog’ business units and invest that money into other business units.

BGS Matrix Examples

Below are given few companies which has diversified businesses and different products of these companies may be classified in the different quadrants of BCG matrix.

Samsung

Samsung has strong presence in the electronics consumer goods industry as well as in the mobile phone industry. Its electronic goods business is very stable and Samsung has substantial market share in this industry. So products of this category such as TV, refrigerator, washing machines, etc. are the cash cows. Samsung is growing in the mobile phones and computer industry so these products are the Stars. Samsung printers can be placed in question mark quadrant as this industry is high growing but Samsung has low market share in this industry. Electronic watches of Samsung are example of Dogs as this industry is low growing and Samsung has low market share in this category.

Coca- cola

Coca- cola is an excellent example of BCG matrix company. The products of Coca- cola are diversified across all quadrants of the BCG matrix. Its popular drinks like Coca- cola and Limca are cash cows. The products like Thumps- up, Kinley, Maaza are stars as they have high market share in a high growing industry. Fanta and Sprite are examples of star; Diet Coke & Minute Maid Pulpy can be put in Dogs quadrant.

Nestle

Nestle is also a diversified portfolio company whose different products may be classified according to four quadrants of the BCG matrix. Nestle makes a wide range of products which are mainly consumer goods. Its most popular product Maggi is cash cow as it commands early 60% share if instant noodle market in India, which is a slow moving industry in India. This business accounts for about 23% revenue of the company. Nescafe, which is a popular coffee brand can be categorize as star because it has grabbed about 35% market in India in the fast growing industry. The brand Kitkat is a question mark and MILO can be classified as dog.

Apple

If we talk about BCG matrix of apple, then it can be clearly seen that its laptops (MacBooks) and desktops (iMac) are cash cows as they hold substantial share in a slow moving industry. Apple iPads are stars as Apple takes 31% share of the global tablet market which is a fast growing industry. Its Apple TV plus, a streaming service is question mark and iPhones can be classified as dogs.

Unilever

Unilever is a multinational company which makes a wide range of consumer goods. Its brands like Lipton, Knor, surf Excel are cash cows. Lux, Fair & Lovely can be classified as stars. Some of its products like Wheel, Lifebuoy are question marks and the brands like Clear and Comfort are dogs.

Conclusion

In today’s uncertain scenario, it is very difficult to predict the long term growth of any business. It is therefore necessary to regularly check the profile of your businesses as per the BSC Matrix and adopt appropriate strategy accordingly. For e.g., the business unit in ‘Question Mark’ has chances to turn into ‘Dog’, so it need to be paid special attention. Similarly, the business unit which already is ‘Cow’ is a stable business and hence requires less resources and efforts to maintain. Therefore, you should try to maintain it and invest the revenue earned from ‘Cow’ to other businesses.

The important point to remember is that the goal should be to create a diversified portfolio. You should have businesses in every quadrant so that you can get regular stream of revenue from some business units and at the same time invest the revenue earned from stable businesses in those units which are in the high growth industry. The BSG matrix can really help you achieving this goal.

Also read: Blue Ocean Strategy: From Cut-Throat Competition to Creating New Market“>Blue Ocean Strategy: From Cut-Throat Competition to Creating New Market

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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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