BCG Matrix and Growth Strategies for Business Portfolios

The Boston Consulting Group Approach

The Boston Consulting Group (BCG) growth-share matrix is a portfolio-planning method that evaluates a company's strategic business units (SBUs) in terms of market growth rate and relative market share. The SBUs are classified as follows:

Stars

High-growth, high-share businesses or products. They often need heavy investment to finance their rapid growth. Eventually, their growth will slow down, and they will turn into cash cows.

Cash Cows

Low-growth, high-share businesses or products. These are established and successful SBUs that need less investment to hold their market share. They produce a lot of cash that the company uses to pay its bills and support other SBUs that need investment.

Question Marks

Low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out.

Dogs

Low-growth, low-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.

Problems with Matrix Approaches

Matrix approaches can be difficult, time-consuming, and costly to implement. Management may find it challenging to define SBUs and measure market share and growth. Furthermore, these approaches focus on classifying current businesses but provide little advice for future planning.

Because of these problems, many companies now use more customized approaches that better suit their specific situations. Today’s strategic planning has been decentralized, with companies placing responsibility in the hands of cross-functional teams of divisional managers who are close to their markets.

Developing Strategies for Growth and Downsizing

Designing the business portfolio involves finding businesses and products the company should consider for the future. Companies need growth to compete more effectively, satisfy their stakeholders, and attract top talent. Therefore, a company’s objective must be to manage profitable growth.

Marketing plays a key role in identifying, evaluating, and selecting market opportunities and establishing strategies to capture them. A useful device for this is the product/market expansion grid, a portfolio-planning tool for identifying company growth opportunities through four main strategies:

Market Penetration

Company growth achieved by increasing sales of current products to current market segments without changing the product.

Market Development

Company growth achieved by identifying and developing new market segments for current company products.

Product Development

Company growth achieved by offering modified or new products to current market segments.

Diversification

Company growth achieved by starting up or acquiring businesses outside the company’s current products and markets.