Unit 6: Business Management Toolkit — BMT 4 Boston Consultancy Group Matrix
What is the Boston Consultancy Group Matrix?
The Boston Consultancy Group Matrix (BCG Matrix) is a strategic planning tool used by businesses to analyze their product portfolio based on market growth rate and relative market share. It helps managers decide which products to invest in, develop, or discontinue.
Purpose: To optimize resource allocation across multiple products and business units.
Key Elements of the BCG Matrix
| Quadrant | Market Share | Market Growth | Characteristics | Strategy |
|---|---|---|---|---|
| Stars | High | High | Leaders in fast-growing markets | Invest for growth |
| Question Marks | Low | High | Potential but need decision — invest or divest | Decide future |
| Cash Cows | High | Low | Generate steady profit, need little investment | Maintain, milk for funds |
| Dogs | Low | Low | Weak position in stagnant market | Divest, discontinue |
BCG Matrix Diagram Structure
The four quadrants: Stars, Cash Cows, Question Marks, DogsHow to Use the BCG Matrix
- List all products/business units
- Determine relative market share and market growth rate for each
- Place each product in one of the four matrix quadrants
- Develop strategy: invest, hold, harvest, or divest
Relative Market Share Formula:
\text{Relative Market Share} = \frac{Firm's Market Share}{Largest Competitor's Market Share}
Market Growth Rate Formula: Market\ Growth\ Rate = \frac{(Current\ Sales - Previous\ Sales)}{Previous\ Sales} \times 100\%
Market Growth Rate Formula: Market\ Growth\ Rate = \frac{(Current\ Sales - Previous\ Sales)}{Previous\ Sales} \times 100\%
Benefits & Limitations of the BCG Matrix
| Benefits | Limitations |
|---|---|
|
- Clear visual of portfolio - Supports strategic allocation - Focuses on core business strength |
- Simplifies complex issues - Ignores external factors - Market share may not equal profitability |
Conclusion
The Boston Consultancy Group Matrix is a practical toolkit for managers. Used effectively, it leads to smarter product investment, portfolio management, and long-term business growth through clear strategic choices.