BCG Matrix explained

The Boston Classification classifies Portfolios of Business Units in terms of their capacity for growth within the market and the market’s capacity for growth as a whole.


1. Market Growth High, Market Share High: STARS

2. Market Growth High, Market Share Low: QUESTION MARKS

3. Market Growth Low, Market Share High: CASH COWS

4. Market Growth Low, Market Share Low: DOGS



The portfolios should be balanced, with CASH COWS providing finance for STARS and QUESTION MARKS; and a minimum of DOGS.

(a) In the short term, STARS require capital expenditure in excess of the cash generate, in order to maintain their position in their competitive growth market, but promise high returns in the future. Strategy: build.

(b) In due course, STARS will become CASH COWS. CASH COWS need very little capital expenditure, since mature markets are likely to be quite stable, and they generate high levels of cash income. CASH COWS can be used to finance the STARS. Strategy: hold or harvest if weak.

(c) QUESTION MARKS must be assessed as to whether they justify considerable capital expenditures in the hope of increasing their market share, or should they be allowed to die quietly as they are squeezed out of the expanding market by rival products? Strategy: build or harvest.

(d) DOGS may be ex-CASH COWS that have now fallen on hard times. Although they will show only a modest net cash outflow, or even a modest net cash inflow they are cash traps which tie up funds and provide a poor return on investment. However, they may have a useful role, either to complete a product range or to keep competitors out. There are also many smaller niche businesses in markets that are difficult to consolidate that would count as DOGS but which are quite successful. Strategy: divest or hold.

The BCG Matrix must be used with care.

(a) It may be difficult to define “high” and “low” on both axes of the matrix.

(b) The matrix has been used to assess products rather than SBUs, but JS&W say this should not be done, nor should it be applied to broad markets that include many market segments. They however recommend it for assessing a portfolio of international operations, with three caveats:
a. The permitted forms of activity and ownership vary from country to country.
b. Political risk is not considered.
c. Shared resources are not considered.

(c) the matrix is built around cash flows but innovative capacity may be the critical resource.


(source: BPP Learning Media)






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