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The growth share matrix
The Growth-Share Matrix, also known as the Boston Matrix or the BCG Matrix, is a tool used in business strategy to evaluate the relative growth potential of a company's business units or products. It was developed in the 1970s by the Boston Consulting Group and is based on the idea that a company's market share and industry growth rate are the most important factors in determining its potential for profitability.
How the Growth-Share Matrix Works
The Growth-Share Matrix is a graphical representation of a company's business units or products plotted on a grid. The horizontal axis represents the company's market share, with low market share on the left and high market share on the right. The vertical axis represents the industry growth rate, with low growth on the bottom and high growth on the top.Based on these two factors, the Growth-Share Matrix divides a company's business units or products into four quadrants:
Stars
These are business units or products with high market share in a high-growth industry. They require a lot of investment to maintain their leading position, but they have the potential to become cash cows (i.e. highly profitable) in the future.
Cash cowsThese are business units or products with high market share in a low-growth industry. They generate a lot of cash, but they have little potential for growth.
Question marks
These are business units or products with low market share in a high-growth industry. They have the potential to become stars, but they also require a lot of investment to grow. If they are successful, they can become stars. If they are not, they may become dogs (see below).
Dogs
These are business units or products with low market share in a low-growth industry. They have low potential for growth and often consume more resources than they generate.
Using the Growth-Share Matrix
The Growth-Share Matrix is a useful tool for identifying the relative importance of a company's business units or products and for allocating resources accordingly. For example, a company with a lot of stars should invest heavily in these business units or products to maintain their leading position, while a company with a lot of cash cows should focus on maximizing their profitability.
On the other hand, a company with a lot of question marks should carefully consider whether to invest in these business units or products, as they have the potential to be either stars or dogs. A company with a lot of dogs may consider divesting these business units or products, as they are likely to be a drag on overall performance.
Example usage of the Growth-Share Matrix
One example of a company that has used the Growth-Share Matrix is Procter & Gamble. In the 1970s, P&G used the matrix to evaluate its product portfolio and make strategic decisions about which products to invest in and which to divest.
For example, P&G's Crest toothpaste was a star, as it had a high market share in a high-growth industry (the oral care industry). P&G invested heavily in Crest, which helped it maintain its leading position in the market.
On the other hand, P&G's Folgers coffee was a cash cow, as it had a high market share in a low-growth industry (the coffee industry). P&G focused on maximizing the profitability of Folgers rather than investing heavily in it to grow the business.
In summary, the Growth-Share Matrix is a valuable tool for businesses seeking to evaluate the relative growth potential of their business units or products and make strategic decisions about resource allocation. By understanding where their business units or products fall on the matrix, companies can make informed decisions
Also read the other articles of Stretch Innovation, to be fully prepared for growth: The Ansoff Matrix, The Three Horizons of Innovation and The Ambidextrous Organization.
