The BCG Matrix is a method for evaluating the contribution of a company’s profit centres, to the strategic design of the enterprise as a corporate whole.
The decades old concept remains broadly valid. With care it can still be useful in strategic planning discussions. Participants in any SWOT analysis should consider classifying their subsidiaries or products using the BCG growth share matrix.
The original portfolio matrix was pioneered in the 1970s by Bruce Henderson, founder of The Boston Consulting Group. See his classic article at The Product Portfolio. Yes, the BCG stands for The Boston Consulting Group.
By analyzing the cash flows possible according to the product position in the market, in terms of market share, and the prospects for growth of that market, he placed products or business activities into four categories.
K ‘Stars’ whose high share and high growth assure the future;
$ ‘Cash Cows’. These have high market share in a low growth market and require little in the way of additional management attention, development capital or other resources, but will continue to yield a stream of cash for several more years.
? ‘Question marks’ are businesses that have a low share of a growing market.
8 ‘Pets’ don’t gain sufficient market presence during the opportunity of a growth phase, so should simply be let go to cut losses.
The BCG table can help in the SWOT analysis stage of the strategic planning process. Clearly stars and cows are potentially strengths, and the stars face an opportune situation, while question marks and pets or dogs as they have come to be known, look like weaknesses.
For example, in this version of the matrix, the larger blob in the question marks cell could be a strategic issue to be accounted for in the corporate strategy; similarly the large bubble in the star cell. Note the size of the bubbles can denote turnover.
Subsequent to the initial versions of the product portfolio, the different business activities came to be labeled more like animals in pens. To some people the exercise becomes a trivial distraction from real strategy making. No doubt in some hands the BCG matrix, as with many other management tools, does distract from, or even substitute for, the kinds of hard thinking and discussing that should characterize serious corporate strategic planning.
There is a danger that linkages among the businesses or products may be overlooked. For example, customers who support large cash cow businesses may do so because of some benefit they perceive from a pet or question mark, and if the pet disappeared they may take their business elsewhere.
This just emphasizes the importance of having a sufficiently broad and varied representation of managers involved in the SWOT analysis workshops.
Assessments can be made using the graphic representation of the business activities, to assess the relative growth rate of businesses against the industry average, and to check the portfolio for balance of financial contributions to the overall corporate performance.
The matrix is simple and relatively easy to comprehend. As a graphic device, it can be an aid to strategic planning discussions, and keep participants focused on the decisions they have to address.
I suggest combining portfolio planning with shareholder value at business unit level.
The BCG matrix complements other aspects of business analysis, and should be used in the context of a full SWOT analysis, not as a tool on its own.
It remains a speedy guide for allocating resources by strategic business unit, and for getting a sense of where the business lies in relation to the competition.
The BCG facilitates strategic planning discussions by simplifying a large number factors down to two main ones, growth and market share.
Many other thought-provoking concepts similar to the BCG matrix appear in the management literature, such as McKinsey's 3 Horizons.
Even after many decades, the Ansoff Matrix on product/market strategies is another often used strategic planning tool. It helps to explore the risks of different business growth scenarios.
In my own view, helpful as these various tools can be, I would rather see strategies emerge from the Gap Analysis, which gives an indication of their required size and urgency, and a full scale SWOT analysis, which indicate the nature of the problems, or strategic elephants, which the set of strategies must solve.
I believe that strategies should be made to measure for the individual organization, rather than 'off-the-peg'; 'customized', not 'standard'. No two organizations need quite the same strategic design.
Various tools become highly regarded because of the consultant brand association, rather than on their merits for the individual organization needing strategies; hence BCG matrix rather than growth-share matrix.
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