BCG Growth Share Matrix – SKCI Business Strategy Tool
Background
The Boston Consulting Group developed the Growth Share Matrix in 1968 as a tool to measure growth opportunities. Since it was created, the BCG Growth Share Matrix, has been an easy way to review an organisation’s investments or the products in its portfolio. It has been criticised by some experts for oversimplifying markets, but when used with caution it is a great starting point for product prioritization.
When To Use The BCG Growth Share Matrix
The BCG Growth Share Matrix identifies what areas of your organisation should be prioritised and is therefore important in the early stages of strategy development. It should be viewed as a starting point for discussions around what products or business areas should be invested in and potential growth areas.
However, it is also an iterative process and can be referred back to at any point. If you feel like your strategy is not working you may want to do a new matrix to evaluate which areas are letting you down and which areas should be focused on.
How To Use The BCG Growth Share Matrix
Consider the different products and services offered by your company and divide them into the four quadrants based on their relative market share and their market growth. Remember that products may not always fit easily into one category, so try to place them where they fit best.
The four sections are:
- Stars: A market leader and your top product, it needs to be sustained to remain on top.
- Questions: Potential Stars, they require significant investment to grow them and may not pay off.
- Cash Cows: Usually a well-established product with a high revenue, it has already reached its maximum point of growth.
- Dogs: A drain on resources that can either be transformed into a strength or removed.
This tool should not be seen as a deep analysis and there is no set path for each of the categories. Just because a product is a Dog does not mean it should be cut immediately, as it may produce a small revenue with little to no investment. Similarly, a Question cannot be guaranteed as a future Star, there are many external factors which must be considered. Use your grid to think creatively about how your products compare in terms of growth and look for the links that can be seen between the quadrants to gain effective insight.
These questions may help you analyse your matrix:
- Can you grow the Star any further?
- Could investment turn a Dog into a Cash Cow?
- Are the quadrants interlinked?
- How can a Cash Cow be maintained?
- Is your organisation or product between quadrants?
- Which products could become villains in the light of customer and stakeholder demand for improved sustainability?
Before making decisions on the viability of a service, it is important to consider the underlying profitability, as sometimes legacy services (i.e. Dogs) are found to be surprisingly profitable. Additionally, it is important to look at the environmental impact of each product as a Star could easily become ‘public enemy number one’ as attitudes change on sustainability (plastic straws being a classic example of this).
Although this matrix is usually applied to the different products in an organisation, it can also be used to compare companies within an industry. To do this you treat the grid in exactly the same way, instead focusing on the overall growth of the organisation in comparison with competitors in the market.
Worked Example
Let’s look at the example of NewTechNow, an imaginary B2B software and hardware company that we have seen in previous examples.
The matrix above shows three products from NewTechNow: Alpha, Bravo and Delta.
Alpha
Alpha was the first product to be launched by NewTechNow. Unfortunately, it was launched later than some competitors, so the market share is fairly low. In addition, the post-COVID economic climate means the market for this product is barely growing at all.
This scenario presents several challenges but there are four main options for NewTechNow:
- Find a way to increase market share (e.g. by identifying additional benefits, by changing the pricing model or bundling it with other products), thereby changing it from a Dog to a Cash Cow.
- Retain the core technology from Alpha but reposition into another faster growth market, thereby changing it into a Question.
- Divest the product (possibly to a competitor who wants to grow market share)
- Close it down as will not comply with emerging ESG (Environmental & Social Governance) policies, and redevelopment to make it environmentally friendly will be too expensive (and hopefully reposition the people supporting this product into another part of the business)
Before making a decision on Alpha, it is important to do a proper analysis of its profitability, as sometimes Dogs can still be very cash generative – even with a low market share (this is particularly the case in markets where the major players regard it as a Cash Cow). It may be that this cash flow is supporting general overheads for the business which would have to be reduce (or funded from elsewhere) if Alpha did not exist.
Delta
By contrast with Alpha, Delta is the newest product; it has had a lot of investment and was intended to be a disruptive solution in a high growth market. Unfortunately, the initial hopes for this product have not been realized and it languishes on a fairly low market share.
The obvious solution to this problem is to find ways to gain market share. There are many ways to do this but a good starting point is often to use the Value Proposition Canvas as a framework to identify what customers really value about the product and use this insight to make changes to the product and its positioning in the market.
Bravo
As an established product in a high growth market, Bravo is clearly a Star. The danger here is complacency and the challenge for the management of NewTechNow is to find ways to maintain its market leadership. In particular, to look at ways to further enhance the value proposition and to be continually looking for potentially disruptive new competitors and technology. Could the product become more sustainable and then this become a new marketing avenue?
How Does This Fit Into The 5KQ Strategy Framework?
SKCI’s unique 5 Key Question (5KQ) strategy framework gives our clients an effective way of managing strategy development. The BCG Growth Share Matrix answers question one, ‘Where are we now?’. Understanding where your organisation currently stands, is vital in creating effective strategy and should always be the first stage in strategy development.
Our framework allows you to ask the right questions at the right time and provides a clear structure for the development of your strategy. By using BCG’s Growth Share Matrix to answer question one, you will have a clear overview of your products and a strong base to build on in the coming stages of strategy development.
Additional Resources
Additional Strategy resources, including blank worksheets in PowerPoint and Word format, are available from the SKCI website.
