CandleFocus Glossary Editor
The BCG Growth-Share matrix is a tool used by management to evaluate the current state of a firm’s business units or products. Developed by the Boston Consulting Group, a well-renowned management consultancy firm, the Growth-Share matrix aids a firm in the decision of which of its products or units to invest in, maintain, or divest.
The matrix, represented as a square four-box layout, sorts a company’s products into one of four categories: “dogs,” “cash cows,” “stars,” and “question marks.” The interpretation of the Growth-Share matrix helps a firm's management decide which business activities should receive priority.
To understand the four categories, let’s talk about the Growth-Share matrix’s axes. The ‘market growth’ rate is depicted on the vertical axis, whilst the ‘market share’ of the business unit is shown on the horizontal. This gives us insight into the market competitiveness which a business must battle with in order to gain higher market share.
Firstly, the “dogs” are those products that have a low market growth and a low market share, symbolizing a low potential for the product’s growth. Despite the low potential, such products may be in and of itself profitable, generating cash through its low overhead costs, and may therefore be maintained to help pay the overhead costs of more-successful business areas.
Following, “cash cows” are those products that have a low market growth rate but boast a high market share. These products serve the purpose of creating consistent cash flow for the firm and help fund the activities of other business units. Hence, the firm may choose to maintain and sustain such business units.
Next, “stars” maintain a high market share and growth rate, representing an opportune chance for a firm to increase market share by potentially expanding and thriving. However, high growth also requires a large cash investment to ensure the product’s success and competitiveness, hence the firm should consider the feasibility of such investments and maintain the stars that offer the greatest returns.
Lastly, the “question marks”, those products with a high growth rate but a low market share, symbolize a high risk probability of success and require a fresh look into the potential investments required to increase market share. The firm should use its business acumen to determine whether the investment in such a question mark will be wise and offer good returns.
Overall, the BCG growth-share matrix is an invaluable tool for management decisions in helping prioritize business activities, and it should be used to structure the decisions regarding the firm’s products, creating a framework to pursue potential business opportunities. The Growth-Share matrix serves as an effective guide for the decisions a firm makes, allowing it to be proactive instead of reactive to the ever-changing business environment.
The matrix, represented as a square four-box layout, sorts a company’s products into one of four categories: “dogs,” “cash cows,” “stars,” and “question marks.” The interpretation of the Growth-Share matrix helps a firm's management decide which business activities should receive priority.
To understand the four categories, let’s talk about the Growth-Share matrix’s axes. The ‘market growth’ rate is depicted on the vertical axis, whilst the ‘market share’ of the business unit is shown on the horizontal. This gives us insight into the market competitiveness which a business must battle with in order to gain higher market share.
Firstly, the “dogs” are those products that have a low market growth and a low market share, symbolizing a low potential for the product’s growth. Despite the low potential, such products may be in and of itself profitable, generating cash through its low overhead costs, and may therefore be maintained to help pay the overhead costs of more-successful business areas.
Following, “cash cows” are those products that have a low market growth rate but boast a high market share. These products serve the purpose of creating consistent cash flow for the firm and help fund the activities of other business units. Hence, the firm may choose to maintain and sustain such business units.
Next, “stars” maintain a high market share and growth rate, representing an opportune chance for a firm to increase market share by potentially expanding and thriving. However, high growth also requires a large cash investment to ensure the product’s success and competitiveness, hence the firm should consider the feasibility of such investments and maintain the stars that offer the greatest returns.
Lastly, the “question marks”, those products with a high growth rate but a low market share, symbolize a high risk probability of success and require a fresh look into the potential investments required to increase market share. The firm should use its business acumen to determine whether the investment in such a question mark will be wise and offer good returns.
Overall, the BCG growth-share matrix is an invaluable tool for management decisions in helping prioritize business activities, and it should be used to structure the decisions regarding the firm’s products, creating a framework to pursue potential business opportunities. The Growth-Share matrix serves as an effective guide for the decisions a firm makes, allowing it to be proactive instead of reactive to the ever-changing business environment.