BCG (Boston Consulting

Group) Matrix
Provides a framework for senior
management in allocating
resources across business units in a
diversified firm by
Balancing cash flows among business
units, and
Balancing stages in the product life-
cycle (PLC)
 STEPS INVOLVED
Dividing a company into SBUs
Comparing SBU with industry
Developing strategies with respect
to SBU
 BCG Product Portfolio Matrix
Dimensions
high low
stars Question marks
high

Product
Sales
Growth dogs
Rate Cash cows

low

Relative Market Share (Log Scale)

 Matrix Quadrants
Relative Market Share
High Low

High

Product
Sales
Growth
Rate
Low
Strategic Perspectives of Products
in Different Quadrants

Four different strategic perspectives

Investment
Earnings
Cash-flow, and
Strategy Implications
 Question Marks
(Problem Children)
 Investment—heavy initial capacity
expenditures and high R&D costs
 Earnings—negative to low
 Cash-flow—negative (net cash user)
 Strategy Implications
 If possible to dominate segment, go after
share. If not, redefine the business or
withdraw
 Stars
 Investment—continue to invest for
capacity expansion
 Earnings—Low to high earnings
 Cash-flow—Negative (net cash user)
 Strategy Implications
 Continue to increase market share—even
at the expense of short-term earnings
 Cows
Investment—Capacity maintenance
Earnings—High
Cash-flow—Positive (net cash
contributor)
Strategy Implications
 Maintain market share and cost leadership
until further investment becomes marginal
 Dogs
 Investment
 Gradually reduce capacity
 Earnings—High to low
 Cash-flow
 Positive (net cash contributor) if
deliberately reducing capacity
 Strategy Implications
 Plan an orderly withdrawal to maximize
cash flow
 BCG Matrix
(Three Paths to Success)
 Continuously generate cash cows and use the
cash throw-up by the cash cows to invest in the
question marks that are not self-sustaining
 Stars need a lot of reinvestments and as the
market matures, stars will degenerate into cash
cows and the process will be repeated.
 As for dogs, segment the markets and nurse
the dogs to health or manage for cash
 Three Paths to Success
(cont’d)
Relative Market Share
High Low

High

Market
Growth
Rate

Low
 BCG Matrix
(Three Paths to Failure)
 Over invest in cash cows and under
invest in question marks
 Trade further opportunities for present cash
flow
 Under invest in the stars
 Allow competitors to gain share in a high
growth market
 Over milked the cash cows
 Three Paths to Failure (cont’d)
Relative Market Share
High Low

High

Market
Growth
Rate

Low