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Saturday, January 16, 2021

BCG Matrix – What is the Importance?

People in the corporate world are very much aware of what the BCG matrix is. When with a group of people, when someone mentions about BCG matrix, you tend to think about what is it this term they are discussing about. Through this content, you will have all your questions answered about the BCG matrix.

What is the BCG Matrix?

The Product portfolio matrix of the famous consulting firm, Boston Consulting Group is the BCG matrix. It is designed in a way that helps the users to create a long-term strategic plan, help a business grown by reviewing its product portfolio and further decide where to invest, and even decided on whether to develop or discontinue a product. BCG matrix is also known as Share Matrix or Growth matrix.

Why is the BCG Matrix Used?

In the year 1968, Bruce Henderson, who is the founder of Boston Consulting Group created the BCG matrix of growth-share. This matrix was published in Perspective, which was a proactive and short essay on BCG.  It is a framework of portfolio management. With the help of the matrix, businesses can decide which business out of all, should they prioritize the most.

BCG matrix templateBased on the analysis of relative market share and growth of the market, the BCG matrix, or the Boston Consulting Group matrix can be divided into four different quadrants. These 4-quadrant as an individual has a distinctive symbol that signifies a certain level of profitability. The four symbols are cash cows, stars, question marks, and dogs. It is through these categorizations, an executive decides on which resources should they focus and which capital can be more profitable, and what are the areas where the losses could be cut.

There are many BCG matrix template which can be found online. The commonly used template includes a BCG matrix star, BCG matrix cash cow, BCG matrix dog, and BCG matrix question mark.

The working of BCG Share Matrix

“Sustainable superior returns are the result of market leadership”. In The End, the market leader achieves a self-reinforcing cost advantage which is self-reinforcing and difficult for the competitors to replicate. This was the logic behind the creation of the BCG Matrix.

Market attractiveness and the firms’ competitiveness are the two factors of the matrix that should be considered when deciding on what to invest in.

The four quadrants represent a certain combination of market growth and relative market share:BCG matrix cash cow

  1. High share but Low Growth: These “cash cows” should be milked by the firm for the reinvestment of cash.
  2. High share and High Growth: “stars” are that quadrant in which the firms should invest much more than other quadrants because the future potentials are high for these.
  3. Low share but High Growth: “question marks”, are the quadrants which the firm should not invest in and should discard but it all depends on the chances of the firm becoming a star.
  4. Low Growth and Low Share: Firms should divest, liquidate, or reposition the “Dogs.”

Examples of BCG Matrix

This matrix is more favorable for products but can be used for services as well.

Marks and Spencer, which is a British company deal in a lot of products and services. Through the various lines of products, one can identify each element of the BCG matrix.

1. Star Quadrant

Marks and spencer were famous for lingeries as the options earlier were limited. This division of M&S is still famous in many countries despite the firm dealing with many other products. It has a high market share and high market growth in the UK.

2. Question Mark Quadrantmarket growth

In the past year’s Marks and Spencer declined to consider food but today it has more than 400 simply food stores that deal with just food in the UK. Despite it not being one of the major supermarkets in the UK one can say it has Low market share and high market growth.

3. Cash Cows Quadrant

The Marks and spencers classic range, which is a series of 16 wines has a high market share but low market growth.

4. Dogs or Pets Quadrant

The premium price range of women’s and men’s clothing is known as the autograph range of M&S has a low market growth as well as low market share. Despite being in the dog quadrant, this range because of its premium price rates contributes to the final financial contribution to M&S as a whole.

The BCG Matrix Benefits

  • Managers find the BCG matrix to be very useful as it gets easier for the managers for evaluating the firm’s current portfolio balance based on dogs, stars, question marks, and cash cows.
  • It is easy and simple to understand this matrix.
  • The future actions to manage a business can be decided with the help of this matrix.
  • It becomes easier to identify the future opportunities of a firm.
  • The business areas which are weak and no more profitable can be removed with the help of this model.

The BCG Matrix Limitations

  • The synergies between the units of business are often neglected by this model.relative market share
  • One can determine success just by a high share in the market.
  • There are situations where the dog’s quadrant earns more than the cash cows quadrant.
  • It is not always easy to get the data of market growth and its share.
  • Small businesses and competitors are ignored in the BCG matrix and the fact that they can grow and make a profit as well is ignored.
  • A business is affected by many factors except market growth and share. This matrix tends to ignore those factors and even unavoidable situations like natural calamities.

One can say that the BCG matrix is simple but can be difficult as well when it comes to the classification of smaller firm products whose market share is relatively too low to quantify. This matrix can be very useful when someone decides to spend a little more on a marketing budget. It can make a firm take the best decision ever.

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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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