What the BCG matrix is
The growth-share matrix was developed by Bruce Henderson of the Boston Consulting Group in the early 1970s. It helps a company with several products or business units decide how to allocate cash and investment across its portfolio. Each unit is placed on a grid according to two measures: how fast its market is growing, and how large its market share is compared with its biggest competitor.
The logic rests on two ideas. Fast-growing markets need cash to keep up, and high relative market share tends to bring lower costs and stronger cash generation through scale and experience. Combining the two shows which units generate cash and which consume it.
The four quadrants
| Quadrant | Market growth | Relative share | Cash position | Typical strategy |
|---|---|---|---|---|
| Stars | High | High | Generate a lot, but also need heavy investment | Invest to hold leadership as the market matures |
| Cash cows | Low | High | Generate more cash than they need | Maintain efficiently; use surplus to fund stars and question marks |
| Question marks | High | Low | Need cash; uncertain future | Invest selectively to build share, or divest |
| Dogs | Low | Low | Roughly break even or drain resources | Harvest, reposition or divest |
The ideal portfolio uses cash from cows to turn promising question marks into stars, which eventually become the next cash cows as their markets slow.
Calculating the axes
Market growth rate (vertical axis)
Use the annual growth rate of the market the unit competes in, not the unit's own sales growth. The original matrix used 10% as the dividing line between high and low growth, but in assignments it is better to justify a threshold based on the economy or industry, such as the average growth rate across your company's markets.
Relative market share (horizontal axis)
Relative market share compares the unit's share with that of its largest competitor:
Relative market share = unit's market share ÷ largest competitor's market share
- A value above 1.0 means the unit is the market leader.
- A value of 0.5 means the unit is half the size of the leader.
- If the unit is the leader, divide by the second-largest competitor's share.
The traditional dividing line is 1.0. The horizontal axis is often drawn on a logarithmic scale running from high share on the left to low share on the right, which surprises many students. Label your axes clearly whichever direction you choose.
Plotting the portfolio
Each unit is drawn as a circle. Its position shows growth and relative share; the size of the circle shows the unit's revenue, or its share of company revenue. This adds a third dimension: a large dog matters more than a tiny one.
- Gather market growth, market share and largest competitor share for each unit.
- Calculate relative market share for each.
- Set and justify your growth threshold.
- Plot each unit, sizing circles by revenue.
- Add arrows if you want to show expected movement over time.
Strategy recommendations
BCG suggested four broad strategies, which map onto the quadrants:
| Strategy | Meaning | Usually applied to |
|---|---|---|
| Build | Invest to increase market share | Promising question marks |
| Hold | Invest enough to keep current share | Stars and strong cash cows |
| Harvest | Reduce investment and maximise short-term cash | Weak cash cows and some dogs |
| Divest | Sell or close the unit | Dogs and unpromising question marks |
Your recommendations should go further than the generic strategy: explain what the investment would be used for, where the cash would come from and what risks are involved.
A worked example
A fictional consumer goods company has four product lines. All figures are illustrative.
| Product line | Market growth | Company share | Leader's share | Relative share | Revenue | Quadrant |
|---|---|---|---|---|---|---|
| Plant-based snacks | 14% | 30% | 20% (next largest) | 1.5 | $40m | Star |
| Breakfast cereal | 2% | 35% | 25% (next largest) | 1.4 | $120m | Cash cow |
| Energy drinks | 12% | 6% | 40% | 0.15 | $15m | Question mark |
| Canned soup | -1% | 8% | 32% | 0.25 | $20m | Dog |
Using a 5% growth threshold (justified as roughly double the average for the company's markets), the portfolio shows a large cash cow funding a smaller star, a weak question mark in a market dominated by a strong leader, and a declining dog.
Recommendations might be: hold cereal and run it efficiently to release cash; invest in plant-based snacks to keep leadership as the market grows; seriously question energy drinks, since building share against a leader eight times larger would be expensive, so consider a niche position or divestment; and harvest or sell canned soup. Each recommendation should then be tested against the company's wider strategy and resources.
Finding the data
The hardest part of a BCG assignment is often the data. Market growth rates appear in industry reports, government statistics and trade association publications. Market share figures come from market research databases your library may subscribe to, company annual reports and investor presentations, and reputable business press. Where only revenue figures are available, you can estimate share by dividing each company's segment revenue by an estimate of total market size, provided you explain the method. Always cite your sources beneath the data table, and flag any estimate so the marker can see where judgement was involved.
Limitations
Markers expect critical evaluation, not just application.
- Only two variables. Profitability, competitive intensity, brand strength and synergies are ignored.
- Market definition drives the result. Define the market narrowly and almost any product looks like a leader.
- Share does not always mean profit. In some industries, smaller focused firms are more profitable than leaders.
- Dogs can be useful, for example by completing a product range, supporting other products or holding a profitable niche.
- Static snapshot. It shows a single point in time unless you add expected movement.
- Self-fulfilling risk. Labelling a unit a dog and starving it of investment can guarantee its decline.
Alternatives and complements include the GE-McKinsey nine-box matrix, which uses broader measures of market attractiveness and business strength, and the Ansoff matrix for growth direction. Pairing the BCG matrix with Porter's Five Forces or a SWOT analysis gives a fuller picture.
Writing it up
- Introduce the company and its portfolio.
- Explain the matrix briefly, citing its origin.
- Present your data, sources and calculations in a table, including how you defined each market.
- Show the plotted matrix as a labelled figure.
- Interpret each unit's position and the balance of the portfolio as a whole.
- Make specific recommendations for each unit.
- Evaluate the limitations of the analysis for this company.
Real data for market share often comes from company annual reports, industry reports and market research databases available through your library. If data is incomplete, state your assumptions openly.
Mistakes to avoid
- Using the unit's sales growth The vertical axis is market growth, not company growth.
- Absolute share instead of relative share Divide by the largest competitor's share.
- Labelling without numbers Show the data behind every position.
- Generic recommendations "Invest in stars" is not enough; explain how and why.
- No critique Discuss the matrix's limitations for this specific portfolio.
- Applying it to a single product The matrix compares a portfolio of products or units.
Checklist before you submit
- Is each market clearly defined?
- Are growth rates and relative shares calculated and sourced?
- Is the growth threshold justified?
- Is the matrix plotted with labelled axes and circles sized by revenue?
- Does each unit have a specific recommendation?
- Have you evaluated the limitations?
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