BCG matrix

Also known as: Boston Matrix

A BCG matrix is a marketing model that focuses on analyzing an organization's portfolio. This matrix was developed by the Boston Consulting Group which explains why the BCG matrix is also known as the "Boston matrix." Portfolio analysis takes place to determine the strategy for the operations of a product and/or business unit. This is the reason a matrix model consisting of two axes is used:

• On the horizontal axis, the relative market share is visualized. This is the market share of a specific offering (in the form of a product or service) or business unit in relation to the largest player in the market. Here the center of the axis is marked with the value "1" and provided with a horizontal line Anything above this value can be seen as a larger market share compared to the largest competitor.
• The vertical axis plots the potential market growth of a specific offering or business unit. Here, the center of the matrix is positioned at 10% growth. Anything above this value (visualized with a vertical line to form a cross) indicates growth of 10% or more. anything below this line indicates growth of less than 10%.

Application of the BCG matrix

Using the BCG matrix, entrepreneurs can make considered decisions regarding the portfolio in combination with the strategy to be followed. This can be done on the basis of classifying the relevant product group or business unit in one of the quadrants of the BCG matrix. This position is determined on the basis of relative market share combined with potential market growth. A distinction can be made between the positions listed below:

• Star, the position at the top left of the matrix. This involves an offering or business unit with a relatively large market share and high potential market growth. "Stars" are market leaders that generate a lot of money. Thus, this offering or business unit is profitable. It is therefore well worth investing in it with the goal of holding this position in the future. As a result, although the net income of a star becomes minimal, this offering or business unit can grow into a cash cow. In the case of a star position, it is very important to hold on to the value of the offer or business unit.
• Cash cow, the position at the bottom left of the matrix. This involves an offering or business unit with a relatively large market share and small potential market growth. Thus, there is low growth potential. Therefore, the strategy of this unit is "harvesting." A cash cow must therefore be milked. The main objective here is to invest as little as possible to maintain this position. It is good to consider whether the proceeds of a cash cow can be spent on developing a star or question mark.
• Question mark, the position at the top right of the matrix. This involves an offering or business unit with a relatively small market share and high potential market growth. Although the offer or business unit is not yet profitable, there is a clear growth potential. It is therefore a good idea to build on this growth by investing in it. By following the right strategy in combination with investing in it, a path can be taken to the star position.
• Dog, the position at the bottom right of the matrix. This involves an offering or business unit with a relatively small market share and small potential market growth. De-investing is the course to follow in this case. After all, it is not worth investing in a dog. So it is important to avoid high expenses in this and any rescue plans. This offering or business unit should be divested when they become (too) expensive.

A BCG matrix provides a simple representation of an organization's portfolio that focuses on the market share and potential growth of a specific offering or business unit. Despite this somewhat simplistic representation, this matrix can be an excellent analysis method for making fact-based reasoned choices related to the strategy to be followed involving the offering or business unit.