BCG matrix
The BCG Matrix is a method used by businesses to identify market growth and market shares for organizations. It was developed by Bruce Henderson of the Boston Consultant’s Group in the early 1970s. To establish long term value creation, a company should have a portfolio of products that contain both high growth products in need of cash inputs and low growth products that generate a lot of cash and use this information to improve it. The basic idea behind it is that the bigger the market share a product has or the faster the product’s market grows, the best it is for the company.
Placing products in the BCG matrix results in 4 categories in a portfolio of a company:
Stars (High growth and high market share)
Use large amounts of cash.
Leaders in the business.
Generates large amounts of cash.
Cash Cows (Low growth and high market share)
Profits and cash generation is high.
Because of low growth, investments needed should be low.
Keeps profits high.
Foundation of a company.
Dogs (Low growth and low market share)
Avoid and minimize the number of dogs in a company.
Beware of expensive ‘turn plans’
Deliver cash, otherwise liquidate
Question Marks (High growth and low market share)
Has the worst cash characteristics of all due to high demands and low returns from low market share
If nothing is done to change the market share, Question marks will simply just consume large amounts of cash and later become a Dog
Either invest heavily or self-off or invest nothing
Using the BCG Matrix is quite useful for companies because you are able to determine the profitability of a product judging by the position of its market share and market growth. For example, just by looking at the position of a product’s market share you are able to determine whether you should invest heavily on something or if you should sell it off. You will be able to tell how much you want to invest in something, how much money you should spend and what to improve or eliminate.
Placing products in the BCG matrix results in 4 categories in a portfolio of a company:
Stars (High growth and high market share)
Use large amounts of cash.
Leaders in the business.
Generates large amounts of cash.
Cash Cows (Low growth and high market share)
Profits and cash generation is high.
Because of low growth, investments needed should be low.
Keeps profits high.
Foundation of a company.
Dogs (Low growth and low market share)
Avoid and minimize the number of dogs in a company.
Beware of expensive ‘turn plans’
Deliver cash, otherwise liquidate
Question Marks (High growth and low market share)
Has the worst cash characteristics of all due to high demands and low returns from low market share
If nothing is done to change the market share, Question marks will simply just consume large amounts of cash and later become a Dog
Either invest heavily or self-off or invest nothing
Using the BCG Matrix is quite useful for companies because you are able to determine the profitability of a product judging by the position of its market share and market growth. For example, just by looking at the position of a product’s market share you are able to determine whether you should invest heavily on something or if you should sell it off. You will be able to tell how much you want to invest in something, how much money you should spend and what to improve or eliminate.