In This Article

  1. Introduction
  2. The Four Quadrants
  3. Strategic Implications
  4. Constructing the Matrix
  5. Limitations
  6. Conclusion

Introduction

The BCG Growth-Share Matrix, developed by Boston Consulting Group in 1970, is a portfolio planning tool that helps companies allocate resources across their business units or products. It classifies businesses based on market growth rate and relative market share.

The underlying logic: high market share leads to higher profits (due to economies of scale and experience curve effects), and high-growth markets require investment to capture share.

The Four Quadrants

QuadrantCharacteristicsCash Flow
Stars ⭐
(High Growth, High Share)		Market leaders in growing markets. Require investment to maintain position.Neutral (invest to grow)
Cash Cows 🐄
(Low Growth, High Share)		Market leaders in mature markets. Generate excess cash.Positive (milk)
Question Marks ❓
(High Growth, Low Share)		Low share in growing markets. Uncertain future—could become Stars or Dogs.Negative (invest or divest)
Dogs 🐕
(Low Growth, Low Share)		Low share in mature markets. Often cash traps.Neutral to negative (divest)

Strategic Implications

Stars

  • Strategy: Invest heavily to maintain/increase share
  • Goal: Become Cash Cows as market matures
  • Example: iPhone in early smartphone era

Cash Cows

  • Strategy: Harvest—maximize cash generation with minimal investment
  • Goal: Fund Stars and select Question Marks
  • Example: Microsoft Windows, Coca-Cola

Question Marks

  • Strategy: Selective investment—either build into Stars or divest
  • Goal: Make tough choices about which to support
  • Example: New product launches, market entries

Dogs

  • Strategy: Divest, liquidate, or reposition
  • Goal: Free up resources for better opportunities
  • Exception: Keep if provides synergies or fills product line
The Ideal Portfolio: A balanced portfolio includes Cash Cows (funding), Stars (future Cash Cows), and select Question Marks (future Stars). Too many Dogs drain resources.

Constructing the Matrix

Step-by-Step

  1. Define SBUs: Identify strategic business units or products
  2. Calculate market growth rate: Industry growth rate (%)
  3. Calculate relative market share: Your share ÷ Largest competitor's share
  4. Plot on matrix: Position each SBU
  5. Determine strategy: Based on quadrant position

Relative Market Share = Your Market Share / Largest Competitor's Share

Example: If your share is 20% and leader has 40%, RMS = 0.5

RMS > 1 means you are the market leader

Limitations of BCG Matrix

  • Oversimplification: Only two dimensions; ignores many factors
  • Growth assumption: High growth doesn't always mean attractive
  • Share assumption: High share doesn't guarantee profitability
  • Definition issues: How to define the market?
  • Ignores synergies: Doesn't consider connections between SBUs
  • Static view: Snapshot in time; markets change

Conclusion

Key Takeaways

  • BCG Matrix plots products on growth rate vs. relative market share
  • Stars: Invest to maintain leadership in growing markets
  • Cash Cows: Harvest cash to fund other opportunities
  • Question Marks: Selectively invest or divest
  • Dogs: Usually divest unless strategic reasons to keep
  • Goal is a balanced portfolio with sustainable cash flow
  • Consider limitations—use with other tools