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BCG Matrix: Resource Allocation Guide

The document summarizes the BCG Growth-Share Matrix, a model developed by Boston Consulting Group in the 1970s to help companies allocate resources among business units. The matrix plots business units based on their market share and the market growth rate to categorize them as cash cows, stars, question marks, or dogs. Cash cows have high share in mature markets, while stars have high share in growing markets. Question marks have low share in growing markets, and dogs have low share in mature markets. The categorization helps determine how much to invest in each unit. However, the model receives some criticism for oversimplifying factors like market growth and share-profitability links.

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90 views2 pages

BCG Matrix: Resource Allocation Guide

The document summarizes the BCG Growth-Share Matrix, a model developed by Boston Consulting Group in the 1970s to help companies allocate resources among business units. The matrix plots business units based on their market share and the market growth rate to categorize them as cash cows, stars, question marks, or dogs. Cash cows have high share in mature markets, while stars have high share in growing markets. Question marks have low share in growing markets, and dogs have low share in mature markets. The categorization helps determine how much to invest in each unit. However, the model receives some criticism for oversimplifying factors like market growth and share-profitability links.

Uploaded by

2607_sunny
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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BCG Growth-Share Matrix

Companies that are large enough to be organized into strategic business units face the
challenge of allocating resources among those units. In the early 1970's the Boston
Consulting Group developed a model for managing a portfolio of different business units
(or major product lines). The BCG growth-share matrix displays the various business
units on a graph of the market growth rate vs. market share relative to competitors:

      BCG Growth-Share Matrix

Resources are allocated to business units according to where they are situated on the
grid as follows:

 Cash Cow - a business unit that has a large market share in a mature, slow
growing industry. Cash cows require little investment and generate cash that can
be used to invest in other business units.
 Star - a business unit that has a large market share in a fast growing industry.
Stars may generate cash, but because the market is growing rapidly they require
investment to maintain their lead. If successful, a star will become a cash cow
when its industry matures.
 Question Mark (or Problem Child) - a business unit that has a small market
share in a high growth market. These business units require resources to grow
market share, but whether they will succeed and become stars is unknown.
 Dog - a business unit that has a small market share in a mature industry. A dog
may not require substantial cash, but it ties up capital that could better be
deployed elsewhere. Unless a dog has some other strategic purpose, it should
be liquidated if there is little prospect for it to gain market share.
The BCG matrix provides a framework for allocating resources among different
business units and allows one to compare many business units at a glance. However,
the approach has received some negative criticism for the following reasons:

 The link between market share and profitability is questionable since increasing
market share can be very expensive.
 The approach may overemphasize high growth, since it ignores the potential of
declining markets.
 The model considers market growth rate to be a given. In practice the firm may
be able to grow the market.

These issues are addressed by the GE / McKinsey Matrix, which considers market
growth rate to be only one of many factors that make an industry attractive, and which
considers relative market share to be only one of many factors describing the
competitive strength of the business unit.

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