Reference
The BCG matrix: how to use it
The BCG matrix places each business in a group by how fast its market grows and by its share against the market leader. It is also called the growth-share matrix. It starts a group's conversation about the role each business plays.
What it is
Bruce Henderson of the Boston Consulting Group set out the growth-share matrix in 1970. One axis is the growth of each business's market. The other is its share relative to the largest rival. The four boxes are stars, question marks, cash cows and dogs.
The grid starts the conversation. The roles still need the board's judgement.
The idea behind it is cash. A business with a large share of a slow market tends to earn more cash than it needs. A business in a fast market needs cash to keep up. The grid shows where a group's cash comes from and where it might go.
When to use it
Use it to start a group's conversation about the role each business plays. It helps most before budgets are set, when each business argues for more money. It suits a group with several businesses in different markets.
The grid starts the conversation. The roles still need the board's judgement, and a check against each business's own profit and cash.
How to run it
- Measure the growth of each business's market. Use the market's growth in volume, after inflation.
- Measure its share against the largest rival. Divide your share by theirs.
- Place each business on the grid. Draw each one where its two numbers put it.
- Agree a role for each, then check it against the business's own profit and cash. Change the role where the check says the grid is wrong.
Record it on the portfolio-logic worksheet and the capital-across-businesses worksheet.
How to measure each part
- Market growth: how fast the market grows in volume each year, after inflation, over the next few years. Use the market's growth. The business's own growth comes in later, in the check against profit and cash.
- Relative share: your share divided by the share of the largest rival. Above 1, you lead the market. Below 1, a rival is bigger. If you lead, divide by the second-largest.
- Where to draw the lines: set fast against slow at the growth of the economy, or at the group's own average. Set high against low share at 1, the point where you lead.
- Profit and cash: beside each business, note whether it makes cash or uses it. Then check the role the grid suggests against that note.
A worked example: a group of four businesses
Illustrative: an invented group, to show the method. The figures are made up.
A family-owned group has four businesses in building products. The board wants to agree a role for each before it sets next year's budgets.
| Business | Relative share | Market growth | Where the grid puts it |
|---|---|---|---|
| Modular bathrooms | 1.3 | 9% | Star |
| Solar mounting | 0.4 | 12% | Question mark |
| Roofing | 1.8 | 1% | Cash cow |
| Timber trusses | 0.5 | 1% | Dog |
On the grid alone, roofing funds the others and the truss business is sold. The check against profit and cash changes one call. The truss business earns a steady return, and builders buy its trusses with their roofing. So the board keeps it and sets it a cost target. The real choice is how much of roofing's cash to put behind solar mounting.
Common mistakes
- Letting the grid decide. Share and growth leave out profit, the cash each business needs, and whether you are the right owner.
- Using the business's own growth. The grid asks how fast the market grows. A business growing fast in a flat market is taking share, which shows up in the other axis.
- Drawing the market to suit the answer. Share depends on where you draw the market. Define it by the customers and products that compete, and keep that definition for every business.
- Selling every dog. A small share of a slow market can still earn a steady return, or hold up the sales of another business. Check before you sell.
Frequently asked questions
What do the four boxes mean? Stars lead fast markets and need cash to keep up. Question marks trail in fast markets, so the group invests to lead or leaves. Cash cows lead slow markets and earn more cash than they need. Dogs trail in slow markets and often earn little.
Why relative share and not plain share? A 20% share leads one market and trails in another. Dividing by the largest rival shows whether you lead.
Does it work for a single business? It works best across several businesses. Within one business, the same grid can place product lines, if each line has its own market and rivals.
Where to go next
- The strategy health check, about ten minutes.
- The growth-share matrix in the frameworks library, beside the other frameworks for setting priorities.
- The move guide on reviewing a portfolio.