BCG Growth-Share Matrix

Definition

The BCG Growth-Share Matrix is a strategic planning tool used to analyze a company's product portfolio and guide resource allocation decisions. It categorizes a company's business units or products based on their market growth rate and relative market share, providing a framework for investment and divestment strategies.

5 Must Know Facts For Your Next Test

1. The BCG Growth-Share Matrix classifies a company's products or business units into four quadrants: Stars, Cash Cows, Question Marks, and Dogs.
2. Stars are high-growth, high-share products that require significant investment to maintain their market position and capitalize on growth opportunities.
3. Cash Cows are low-growth, high-share products that generate significant cash flow, which can be used to invest in other parts of the business.
4. Question Marks are high-growth, low-share products that require careful evaluation to determine if they have the potential to become Stars or should be divested.
5. Dogs are low-growth, low-share products that typically consume more resources than they generate, making them candidates for divestment or turnaround strategies.

Review Questions

• Explain how the BCG Growth-Share Matrix can be used to guide a company's strategic planning process.
  • The BCG Growth-Share Matrix provides a framework for companies to analyze their product portfolio and make informed decisions about resource allocation. By categorizing their products or business units into the four quadrants (Stars, Cash Cows, Question Marks, and Dogs), companies can determine which products to invest in, maintain, or divest. This helps align the company's strategy with the market dynamics and competitive landscape, enabling more effective strategic planning and decision-making.
• Describe the characteristics and strategic implications of the Cash Cow and Question Mark quadrants in the BCG Growth-Share Matrix.
  • The Cash Cow quadrant represents products or business units with low market growth but high relative market share. These are typically mature, established products that generate significant cash flow, which can be used to invest in other parts of the business, such as Stars or Question Marks. The Question Mark quadrant, on the other hand, represents products or business units with high market growth but low relative market share. These products require careful evaluation to determine if they have the potential to become Stars and gain a larger market share, or if they should be divested due to their high resource requirements and uncertain future.
• Analyze how a company can use the BCG Growth-Share Matrix to optimize its portfolio and achieve a balanced mix of products or business units.
  • By using the BCG Growth-Share Matrix, a company can strive to maintain a balanced portfolio of products or business units. The company should aim to have a mix of Stars, Cash Cows, and selectively invest in promising Question Marks, while divesting or turning around underperforming Dogs. This balanced approach allows the company to generate cash flow from Cash Cows, reinvest in high-growth Stars, and carefully evaluate and nurture Question Marks with the potential to become future Stars. This strategic portfolio management helps the company allocate resources effectively, respond to market dynamics, and achieve long-term sustainable growth.

Related terms

Market Growth Rate:

The rate at which the overall market for a product or service is expanding or contracting, often expressed as a percentage change over time.

Relative Market Share: The market share of a business unit or product compared to its largest competitor, providing an indication of its competitive position.

Strategic Business Unit (SBU): A distinct, independent business unit within a larger organization, with its own set of competitors and a unique strategy.