BCG Growth- Share Matrix was developed in 1967 by the Boston Consulting Group and is illustrated by a matrix. The market’s rate of growth is indicated on the vertical axis and the firm’s share of the market is indicated on the horizontal axis. A firm’s business units can be plotted on the matrix with a circle whose size denotes the relative size of the business unit. The horizontal position of a business indicates its market share and its vertical position depicts the growth rate of the market in which it competes. Managers and consultants can categorize each business unit as a star, question mark, cash cow or a dog, depending on each one’s relative market share and the growth rate of its market.
A Star is a business unit that has a large share of a high-growth market, generally, 10% or higher. Although stars are usually very profitable, they often necessitate considerable cash to continue their growth and to fight off the numerous competitors that are attracted to fast-growing markets.
Question Marks are business units with low share of rapidly growing markets and may be newbusinesses just entering the market. If they are able to grow and develop into market leaders, they evolve into stars, if not, they will likely be divested or liquidated.
A Cash Cow is a business unit that has a large share of a slow-growth market, generally less than 10%. Cash cows are normally highly profitable because they often dominate a market that does not attract a large number of new entrants. Because they are well established, they need not spend vast resources for advertising, product promotions or customer rebates. The firm may invest the excess cash that they generate in its stars and question marks.
Finally, Dogs are business units that have small market shares in slow-growth (or even declining) industries. Dogs are generally marginal businesses that incur small-profits or losses and are often liquidated.
Ideally, a well-balanced corporation should have mostly stars and cash cows, some question marks and few, if any, dogs. To attain this level, corporate managers have four options.
First, managers can build market share with stars and question marks. The key for question marks is to identify and support the promising ones so that they can be transformed into stars. Building market share may involve significant price reductions, which may result in losses or marginal profitability in the short run.
Second, management can hold market share with cash cows, thereby generating more cash than building market share does. Hence, the cash contributed by the cash cows can be utilized to support stars and question marks deemed most promising.
Third, management may harvest as much short-term cash from a business as possible, usually while allowing its market share to decline. The cash gained from this strategy is also used to support stars and selected question marks.
Finally, management may divest a business unit to provide cash to the corporation and stem the outflow of cash that would have been spent on business in future. As dogs and less promising question marks are divested, the cash provided is reallocated to stars and more promising question marks.
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