Are you a management student whose study curriculum includes case studies and business simulations? If yes, there’s a high chance of you coming across the Boston Consulting Group Matrix. The tool was conceptualised by BCG (one of the leading management consulting firms in the world) in 1968. What is BCG Matrix all about? Let’s find out.
BCG Matrix computes the optimum allocation of resources across different functions in a business. The matrix is an important component of the ‘Strategy’ curriculum in business schools across the globe. It was also named as one of the five ‘frameworks that changed the world’ by Harvard Business Review, thereby making it a ‘must-learn’ for any management student.
Also known as the growth-share matrix (among many other AKAs), the BCG Matrix identifies high-growth prospects by categorizing the company’s business units and products according to their growth rate and market share.
The matrix is a square graph with four quadrants. Cash generation or market share takes up the horizontal area, along the top of the square. Vertically, along the left side of the square graph, are markings of cash use or market growth rate. The top left is ‘High’ while the bottom left and top right are marked as ‘Low’.
Each quadrant is thematic, and this is where the fun starts! Cows, Dogs, Question Marks and Stars – each one with its unique characteristics, represent the themes for each quadrant.
Cows, despite the labouring image in your head, are Cash Cows. These units or products have matured within the current market and are a guaranteed source of revenue. They do not require much investment to guarantee returns. Cash Cows firmly cement their spot in the bottom left of the BCG matrix – with high cash generation and low market growth.
Dogs! These business units or products have typically matured years ago and have a low-market share in a slow-growing industry. They break even and generate enough revenue to sustain the market. They are the tools which provide jobs and assist other business units. Dogs take up the bottom right area of the BCG matrix. Dogs do not offer much value as far as cash generation is concerned and are first in line to be put down if the business faces decreasing revenues.
Question Marks are where most business units or products begin their growth journey. With a low market share in a fast-growing industry, Question Marks work towards negating the very name they stand for. If they do not succeed in leading the market after years, they are likely to move down the food chain, just like dogs! Question Marks are at the top right of the BCG Matrix, with the possibility of a high market share in a growing market.
Stars are the current blue-eyed units and products of a business. They generate cash and have a high-market share in a fast-growing industry. However, stars require high investment to sustain the market and maintain their growth rate.
Let’s take Adidas as an example. Go through your wardrobe and shoe rack, and divide your Adidas belongings under the following categories – Question Marks, Cows, Dogs and Stars. You see that pair of sneakers, which you wear on every possible occasion? That’s a Star for Adidas. How about that football you purchased, which lies deflated in a corner before being used a few times? That’s still a Question Mark. What about those frequently used Adidas T-shirts, shorts and your favourite hoodie? Apparel is the Cash Cow for Adidas. And the beanie that you have never worn? When you dress up your dog next Christmas, make sure you use it.
The BCG Matrix is constantly undergoing changes due to the unpredictability and ever-changing nature of the business. At its core, the BCG Matrix is a framework for experimentation and expansion, so go ahead and use it in your next business simulation/project. The evaluator is likely to appreciate it and may even give you a better grade!