Published by MBA Skool Team, Last Updated: May 16, 2020
What is BCG Matrix?
BCG Matrix is a performance measurement tool for the products of a company. Developed by Bruce Henderson of Boston Consulting Group in the early 1970s, BCG Matrix is a strategic tool to analyse a business’s portfolio on the basis of relative market share and industry growth rate. BCG Matrix is a 2x2 matrix bifurcating products based on high and low growth rate and market share.
Importance of BCG Matrix
Market share is an importance parameters used in evaluation a companies performance. BCG Matrix identifies and bifurcates products base on their relative market share as well as the market growth rate,
Relative market share= SBU Sales/ Leading competitors sales
Market growth rate=Industry sales this year/Industry sales last year
BCG Matrix is a 2*2 matrix which provides a detailed analysis of each of the SBUs based on the above 2 metrics.
BCG matrix has 4 cells with different levels of market share and industry performance. Accordingly the 4 cells are calls are cells are called as Stars, Dogs, Question marks and Cash cows.
BCG matrix helps to determine the resource allocation to be done to each of the SBU depending on its location on the BCG Matrix.
BCG Matrix 4 Quadrants
BCG matrix is divided into four quadrants or categories based on the market share and the growth rate of products. These classifications in the BCG Matrix are known as Stars, Cash Cows, Question Marks and Dogs.
They are explained as below:
The SBUs in this cell have a high market share and survive in a highly growing industry. They also require huge investments to maintain their competitiveness and businesses try to convert them into cash cows.
2. Cash Cows
These SBUs command a huge market share but in a slow growing or a mature industry. They require little investments and generate huge returns. They act as the stable income generating resource of the firm.
3. Question Marks
These SBUs have low market share but are present highly growing industries. They generally demand huge investments to maintain their market share and the firm has to be very vigilant to analyze these SBUs and accordingly take decisions. If the firm sees potential in developing these, then they can get converted into stars and then into cash cows over the period of time.
These SBUs have low market share and are present in slowly growing markets. Instead of providing returns, they consume a lot of cash and provide cost disadvantages to the firm. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/.rival firms. If the firm does not sees it useful, they should be liquidated and the returns invested in either question marks or stars.
Hence, this concludes the definition of BCG Matrix along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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