January 16, 2023

BCG Matrix

BCG matrix: Helps companies analyze their portfolio of products or business units, and determine which ones to invest in, which ones to maintain, and which ones to divest.

BCG Matrix Online
BCG Matrix Online

What is the BCG Matrix

A BCG matrix is a strategic planning tool used to evaluate the relative market position of a company's business units or product lines. It plots a company's business units or products on a matrix based on their relative market share and market growth rate. The matrix is divided into four quadrants:

  1. Stars: These are business units or products that have a high market share in a high-growth market. They are considered "cash cows" because they generate a lot of cash for the company and require little investment to maintain their market position.
  2. Dogs: These are business units or products that have a low market share in a low-growth market. They are considered "dogs" because they do not generate much cash for the company and require a lot of investment to maintain their market position.
  3. Question marks: These are business units or products that have a low market share in a high-growth market. They are considered "question marks" because they have the potential to become stars if the company can increase their market share.
  4. Cash cows: These are business units or products that have a high market share in a low-growth market. They are considered "cash cows" because they generate a lot of cash for the company but have little potential for future growth.

⭐️ Stars

A Star in the BCG matrix is a business unit or product that has a high market share in a high-growth market. They are considered "cash cows" because they generate a lot of cash for the company and require little investment to maintain their market position.

Examples of stars in the BCG matrix could be a product line that has a high market share and operates in a high-growth industry, such as a smartphone in a market where the demand for smartphones is increasing rapidly. Another example could be a business unit that operates in a growing market and has a large market share such as a fast food chain in a booming city.

Another example of Star could be a software as a service (SaaS) company that has a high market share in a fast-growing cloud computing market. High-demand products such as electric vehicles in the automobile industry, or renewable energy solutions in the energy industry are some other examples.

In summary, a star represents a business unit or product that generates a lot of cash flow for the company and has a high growth potential with a relatively low investment required to maintain its position in the market.

🐕 Dogs

A Dog in the BCG matrix is a business unit or product that has a low market share in a low-growth market. They are considered "dogs" because they do not generate much cash for the company and require a lot of investment to maintain their market position.

Examples of dogs in the BCG matrix could be a product line that has a low market share and operates in a low-growth industry, such as a DVD player in a market where streaming services are dominant. Another example could be a business unit that operates in a mature market with little growth potential and has a small market share such as a retail store in a declining shopping mall.

Another example of a Dog could be a brick and mortar bookstore in a market where e-commerce and digital books are prevalent, or a traditional phone company in a market where smartphones and internet-based calling services are popular.

In summary, a dog represents a business unit or product that generates low cash flow for the company and has a low growth potential with a relatively high investment required to maintain its position in the market. These products or business units may not be core to the company's strategic goals and may require divestment or reallocation of resources.

❓ Question Marks

A Question Mark in the BCG matrix is a business unit or product that has a low market share in a high-growth market. They are considered "question marks" because they have the potential to become stars if the company can increase their market share.

Examples of question marks in the BCG matrix could be a product line that has a low market share but operates in a high-growth industry, such as a new technology that is gaining popularity but still has low market share. Another example could be a business unit that operates in a growing market but has a small market share such as a start-up company that is entering a booming market with a new innovative product.

Another example of a Question mark could be a company that has developed a new technology or product that has the potential to disrupt an existing market, such as a new transportation service that uses autonomous vehicles, or a new type of renewable energy technology.

In summary, a question mark represents a business unit or product that has a low market share in a high-growth market, hence it requires significant investment to increase its market share, but also have a potential to become a star. These products or business units may need additional resources to grow and gain market share, but they also have the potential to become a cash cow if they succeed.

🐄 Cash Cows

A Cash Cow in the BCG matrix is a business unit or product that has a high market share in a low-growth market. They are considered "cash cows" because they generate a lot of cash for the company but have little potential for future growth.

Examples of cash cows in the BCG matrix could be a product line that has a high market share and operates in a low-growth industry, such as a mature product with a large customer base and little competition. Another example could be a business unit that operates in a mature market with little growth potential and has a large market share such as a leading brand in a stable industry.

Another example of a Cash Cow could be a utility company that has a large customer base and a strong position in a regulated and low-growth market, or a consumer packaged goods company that has a dominant market share in a mature category.

In summary, a cash cow represents a business unit or product that generates a lot of cash flow for the company, but has little potential for future growth. These products or business units may generate significant cash flow, but they require little investment to maintain their position in the market. Cash cows are important to maintain the company's current position and generate cash flow, but they may not be the drivers of growth for the company's future.

How to Perform a Team BCG Matrix

Teams use the BCG matrix to evaluate the performance of their business units or products and make strategic decisions. The matrix is typically used by teams in the following ways:

  1. Identifying "dogs": Business units or products that have low market share and operate in low-growth markets are considered "dogs." These units or products are typically not worth investing in and may be candidates for divestiture.
  2. Identifying "cash cows": Business units or products that have high market share and operate in low-growth markets are considered "cash cows." These units or products are typically cash generators and may be used to fund other business units or products.
  3. Identifying "question marks": Business units or products that have low market share but operate in high-growth markets are considered "question marks." These units or products may be worth investing in if they can be grown into "stars."
  4. Identifying "stars": Business units or products that have high market share and operate in high-growth markets are considered "stars." These units or products are typically worth investing in to maintain their market position.

Once the matrix is complete, teams can use it to prioritize their investments in different business units or products and make strategic decisions about which units or products to divest, hold steady, or invest in.

Example BCG Matrix Template

BCG Matrix Online Template

Considered One of The Best Frameworks

The BCG matrix is considered one of the best frameworks for strategic management because of its simplicity and effectiveness. It is easy to understand and use, and provides a clear visual representation of the performance of a company's business units or products. This makes it easy for teams to quickly identify which business units or products are worth investing in, divesting from, or holding steady.

Additionally, the BCG matrix helps teams to balance their portfolio of products or businesses. It helps teams to identify the business units or products that are cash generators and can be used to fund other business units or products, and it helps teams to identify the business units or products that have the potential to be "stars" in the future.

The BCG matrix also forces teams to think about their market position and the growth potential of their markets, which are important factors in making strategic decisions. It also forces teams to think about how they can increase their market share, which is a key driver of profitability.

Overall, the BCG matrix is a powerful tool that can help teams to make strategic decisions that can positively impact the performance of their company.

Create your strategy using:
BCG Matrix Online
Try this template
BCG Matrix Online
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