The BCG matrix, also known as the Boston Consulting Group matrix, is a strategic tool used by companies to assess their product portfolio and make decisions about investment, growth or divestment. It was developed by the Boston Consulting Group in the 1970s and remains relevant today to help organisations prioritise their products or business units based on two key factors: market growth rate and relative market share.
The matrix is divided into four quadrants:
- Stars: These are products or business units with a high market share in a fast-growing sector. These products are generally market leaders and require substantial investment to maintain or increase their position. Although Stars generate significant revenues, they often consume a lot of resources due to their rapid growth phase. If well managed, they can become the Dairy Cows of tomorrow.
- Milk Cows: These are established products or units with a high market share in a slow-growth sector. Milk Cows generate stable, reliable profits, requiring little investment to maintain their position. Companies often use profits from Milk Cows to finance investments in other areas, such as Stars and Dilemmas.
- Dilemmas: These are products or units with a low market share in a fast-growing sector. These products require in-depth analysis because, although the market is expanding, the product is not a leader. Companies need to decide whether to invest in these products to try and turn them into Stars, or get rid of them if prospects are not promising.
- Deadweights: Products with a low market share in a low-growth or declining sector. Deadweight products generally generate little profit, or even losses. In most cases, companies choose to divest or discontinue these products, unless there is a strategic reason to retain them, such as serving a niche market or supporting other areas of the business.
Why is the BCG matrix important?
The BCG matrix helps companies to allocate their resources more effectively by identifying which products or business units should receive investment, and which should be downsized or divested. It enables managers to visualize their portfolio’s performance at a glance, ensuring balanced growth and long-term profitability.
For example, too many Milk Cows and no Star may indicate that a company is not investing enough in future growth. Conversely, having too many Dilemmas could deplete resources without clear returns. An ideal portfolio would balance each quadrant, enabling a company to leverage Milk Cows to invest in Stars and foster future growth, while minimizing losses from Deadweight and prudently managing Dilemmas.
In short, the BCG matrix is an essential tool for strategic decision-making in product management and resource allocation. It simplifies complex market analysis, providing managers with a clear visual framework for a balanced approach to growth and profitability.
I’m presenting a free version 1 below, and may offer other tools of this type in the future.
