BCG Matrix

The BCG Matrix is a useful device for considering the relevant interactions of a portfolio of profit centers (in an individual business) or the interactions of different companies in a corporate portfolio. The BCG Matrix places profit centers or businesses in a 2 x 2 matrix. Generally the rows in the matrix represent high and low industry sales growth and the columns represent high and low relative market share. Industry growth rates are typically "split" at 20% annual growth - high growth rate firms have more than a 20% growth rate and low growth rate firms less than 20%. The relative market share (x-axis of the matrix) for a single firm or profit center is that firm's market share divided by the largest in the industry. The "split" is at 50%. So, a firm that had a relative market share less than half the market share of the largest firm in the industry would be a "low share" firm and one that had a relative share greater than 50% would be a "large share" firm. It should be obvious that relative market share can only range between 1 and 0.

One uses the BCG Matrix to consider the interactions (and cash relationships) between businesses or profit centers. Businesses that are high growth - high share (1,1) are designated "Stars". These businesses represent the overall firm's best long-range opportunities. Stars consume cash and must; therefor, be supported by cash generators. Businesses that are high growth - low share (1,2) are " Question Marks". These businesses, too, are cash consumers and an important strategic question is whether or not to support the growth of these businesses. In many instances, Question Marks wind up being sold off. Businesses that are low growth - high share (2,1) are "Cash Cows". As the name implies, Cash Cows are cash generators. They support the investments required by Stars and Question Marks. Every organization needs adequate Cash Cow supports if it hopes to succeed. Finally, businesses that are low share - low growth (2,2) are designated as "Dogs." Dogs, presumably, offer no benefit to the organization and should most likely be "harvested".