Using the matrix of the Boston consulting group BCG you can. Boston Consulting Group (BCG)

10.10.2019

The BCG matrix is a kind of mapping of the position of a particular type of business in a strategic space defined by two coordinate axes, one of which is used to measure the growth rate of the market for the corresponding product, and the other to measure the relative share of the organization's products in the market of the product in question.

The BCG model is a 2x2 matrix in which business areas are depicted as circles centered at the intersection of coordinates formed by the corresponding market growth rates and the relative share of the organization in the corresponding market (see figure). Each circle plotted on the matrix characterizes only one business area characteristic of the organization under study. The size of the circle is proportional to the total size of the entire market (in other words, it takes into account not only the size of the business of this particular organization, but in general its size as an industry on the scale of the entire economy. Most often, this size is determined by simply adding the business of the organization and the corresponding business of its competitors). Sometimes, each circle (business area) has a segment representing the relative share of the organization's business area in a given market, although this is not necessary to draw strategic conclusions in this model. Market size, like business areas, is most often measured by sales volumes and sometimes by asset values.

It should be especially noted that the division of the axes into 2 parts was not done by chance. At the top of the matrix are business areas related to industries with above-average growth rates, at the bottom, respectively, with lower ones. In the original version of the BCG model, it is assumed that the boundary between high and low growth rates is a 10% increase in output per year.

The abscissa axis, as already noted, is logarithmic. Therefore, a typical coefficient characterizing the relative market share occupied by a business area varies from 0.1 to 10. Displaying competitive position (which is understood here as the ratio of an organization's sales in the corresponding business area to the total sales of its competitors) on a logarithmic scale is a fundamental detail of the BCG model. The fact is that the main idea of this model assumes the existence of such functional dependence between the volume of production and the unit cost of production, which looks like a straight line on a logarithmic scale.

The breakdown of the matrix along the abscissa into two parts allows us to distinguish two areas, one of which includes business areas with weak competitive positions, and the second - with strong ones. The border of the two regions passes at the level of the coefficient 1.0.

Thus, the BCG model consists of four quadrants:

Rice. 4. Introducing the BCG Model for Strategic Position Analysis and Planning

High market growth rates / High relative market share of the business area;
Low market growth / High relative market share of the business area;
High market growth / Low relative market share of the business area;
Low market growth / Low relative market share of the business area.

Each of these quadrants is given figurative names in the BCG model:

Stars
These tend to be new business areas that account for a relatively large share of a rapidly growing market, operations in which bring high profits. These business areas can be called leaders in their industries. They bring organizations a very high income. but the main problem connected with determining the right balance between income and investment in this area in order to guarantee the return of the latter in the future.

cash cows
These are business areas that have gained relatively large market share in the past. However, over time, the growth of the relevant industry slowed down noticeably. As usual, "cash cows" are "stars" in the past, which currently provide the organization with enough profit to maintain its competitive position in the market. The cash flow in these positions is well balanced, since investment in such a business area requires the bare minimum. Such a business area can generate very large revenues for the organization.

Difficult children
These business areas compete in growing industries but hold a relatively small market share. This combination of circumstances leads to the need to increase investment in order to protect its market share and ensure survival in it. The high growth rate of the market requires significant cash flow to match this growth. However, these business areas have a hard time generating revenue for the organization due to their small market share. These areas are most often net cash consumers, not cash generators, and remain so until their market share changes. These business areas have the greatest degree of uncertainty: either they will become profitable for the organization in the future, or not. One thing is clear, without significant additional investment, these business areas are more likely to slide into "dog" positions.

Dogs
These are business areas with relatively small market share in slow growing industries. Cash flow in these areas of business is usually very small, and often even negative. Any move by an organization towards gaining a large market share is uniquely immediately counterattacked by the industry's dominant competitors. Only the skill of a manager can help an organization maintain such positions in the business area.

When using the BCG model, it is very important to correctly measure the growth rate of the market and the relative share of the organization in this market. It is proposed to measure the market growth rate based on industry data for the last 2-3 years, but no more. An organization's relative market share is the logarithm of the ratio of an organization's sales in a given business area to that of the leading organization in that business. If the organization itself is a leader, then its relation to the first organization following it is considered. If the obtained coefficient exceeds one, then this confirms the leadership of the organization in the market. Otherwise, this will mean that some organizations have a large competitive advantage compared to this one in this business area.

(from the book "Strategic management of the organization" Bandurin A.V., Chub B.A.)

Publications

The difficult fate of the BCG matrix
On the shortcomings of the BCG model and the difficulties of its use

Strategic planning and the role of marketing in an organization
In particular, the article outlines some methods strategic analysis business portfolio

Discussions

In this section you can ask your questions or express your opinion on this technique.

Related sections and other sites

Strategic analysis and planning »»
Strategic analysis models (BCG, etc.), strategy formation and analysis

The Boston Consulting Group
Website of the company that developed the BCG model

In the 1970s, the Boston Advisory Group developed an original and ingenious way to classify foods. In their opinion, cash flow is determined by the place that a product or service occupies on the matrix field.
Another milestone in the development of marketing in the same 70s was born in Boston, the city that was destined to play a key role in the development of communications in the final period of the twentieth century as the first city in the world whose legal system introduced the practice of announcing court orders not in the usual print media, and through the Internet. This fact was actually high level recognized the importance and respectability of the Internet, which in turn gave impetus to the development of hitherto unknown electronic commerce, also known as virtual commerce.

So in the 70s, the Boston Consulting Group developed an original and ingenious way to classify products. Visually, the method was embodied in a table consisting of four quadrants. Members of the BCG put forward the idea that each service or product can be assigned to one of four categories, that is, to find its place in one of the quadrants.
The vertical axis represented the growth rate of the respective market, while the horizontal axis represented the market share of the product or service.
Depending on the needs and economic conditions, the market growth dynamics could change.
Companies with a product that accounted for a significant share of a rapidly growing market were enrolled in the most favorable zone of the matrix.
Such products have received the title of "stars".
Products with a significant share of a weakly growing market began to be called "cash cows".
If the market share is small, but the overall market is growing, then the products are classified as "problem children" ("calves" or "question marks").
Products that were able to secure only a small share of the market with little development were given the dubious designation of "dogs".

According to the Boston Advisory Group, cash flow is determined by the place that a product or service occupies on the matrix. A common mistake then, as now, is to confuse cash flow with profitability. Earnings do contribute to filling the cash flow, but if the business is actively investing in, say, Information Technology, equipment or marketing, a situation can be created that is defined as negative cash flow, while the company continues to operate at a profit. In other words, it flows into one pipe and out the other.

Divorced at the corners.

Almost every company has something to place in each of the squares of the matrix. Most product portfolios cover different sections of the table with their contents.
Starting from the low level, we note that "dogs" provide low (negative) cash flow. It is better never to evaluate "dogs" by their current face value - their bite can be more tangible than, perhaps, drawn out yawns taken by someone for lowing. Let me explain my thought. If a product (or service) falls somewhere between "dogs" and "cash cows", it is sometimes called a "cash dog". Such products wander in the border zone of a marginally developing market and its low share. Once in the "cash cow" sector, the product begins to show itself as the leader of a mature or stagnating market. The greater the market share, the greater the profit, but since the market is relatively mature, you will have to invest a lot of money in production equipment.
If your product falls into this sector, you should consider providing it with the marketing equivalent of a fresh blood stream or a stimulant pill. In other words, to provide the veteran with a surge of new forces by re-entering the market with him with parallel actions to expand the brand portfolio. If your business is relatively modest and you prefer to make small changes, support your source of profit more actively by "milking" the product until you enter fatter pastures.
On such pastures, “calves” (they are also “problem children”) graze. The good thing about products or services in this category is that they are in a rapidly growing market. Do not forget that their share in this market is small. Like a child trying to explore the unlimited expanse of the world before him, the owner of financial resources and "calves" must be prepared for the discouraging cost of a critical cash shortage. To make matters worse is the maniacal tendency of "problem kids" - like quirky teenagers - to revolve hopelessly in the zone of scarce products. Therefore, the hope for a significant profit from mass sales is small.
Finally, you can rise to the level of "stars". If your product (or service) falls into this sector, you can uncork champagne - just make sure you have enough money to maintain a decent head of foam. Being in this part of the matrix is equivalent to being a Hollywood celestial dwelling in the shady hills of Beverly Hills. Yes, you are the market leader, but now everyone wants to push you off the coveted Olympus. To stay on it will cost a lot of money - the price of glory is great! You will have to invest in the most advanced equipment, you will need additional financial resources for marketing activities that would not leave competitors any chance.

Although Boston Matrix is a truly "smart" tool, you as a business-oriented creative marketing practitioner will have to be even smarter. Therefore, by all means referring to the matrix, always keep in mind that the final decision is yours.

Such different inhabitants of the Boston Matrix.

"Stars".
Characteristic. The first of the first. They lead - everyone else tries to follow them. Their value is confirmed by the share in the total profit.
Your actions. Cherish them. Maximize growth by giving full support, unconditionally recognizing their value.

"Cash Cows".
Characteristic. Their careers are already established - everyone knows them - but can they continue to maintain their position, given that everyone has already taken advantage of the product and service?
Your actions. Milk out of them everything that you managed to invest! With proper management, "cash cows" can bring highest profit. Carefully control costs, including the costs of possible long-term advertising campaigns. To boost sales and revive interest, try various forms sales promotion. Even better, add some additional services or product benefits by expanding and therefore strengthening the assortment and then create a new bright star. The ideal ways to achieve these goals are as follows:
add new functionality to the product, for example, equip the vacuum cleaner with a garbage container full indicator;
to develop the format of an existing product or service, for example, to supplement the line of 35 mm cameras with digital models.
offer a new way to provide added value, for example, to supplement cash payments via the Internet;
propose new uses for old technologies, such as the use of photocopier cartridges in laser fax printers.

"Problem Children".
Characteristic. So far, growth satisfies you, but the share is small. If the “guys” are really new to the market, give them time to prove themselves.
Your actions. Count the contents of your wallet carefully. Your beneficiaries will need support, including promotion through advertising and/or PR.

The BCG matrix, also called "growth - market share", is a simple and visual tool for portfolio analysis. Accessibility, originality of the names of the chart sectors made it very popular among marketers and managers. Consider the example of building a matrix in Excel.

Application examples of the BCG matrix

Using the Boston Consulting Group (BCG) matrix, you can quickly and visually analyze product groups, branches of an enterprise or company based on their share in the relevant market segment and market growth rate. The application of the tool is based on two hypotheses:

The market leader has a competitive advantage in production costs. Therefore, the leading company has the highest profitability in the segment.
To work effectively in a fast-growing market, an enterprise needs to invest a lot in the development of its product. Presence in a segment with a low growth rate allows the company to reduce this cost item.

Using the BCG matrix, you can quickly identify the most promising and the “weakest” products (branches, companies). And already on the basis of the data received, make a decision: which assortment group (division) to develop, and which one to liquidate.

All the analyzed elements, after the work done on the analysis, fall into one of four quadrants:

"Problems". Products present in high-growth industries but with low market share. To strengthen their position in the market, significant financial investments. When an assortment group or division falls into this quadrant, the enterprise decides whether it has sufficient funds for the development of this direction. Without cash injections, the product does not develop.
"Stars". Lines of business and products are leaders in a rapidly growing market. The task of the enterprise is to support and strengthen these products. The best resources should be allocated to them, because it is a stable source of income.
"Money Bags" Products with a relatively high market share in a slow growing segment. They do not need high investments and are the main generator of funds. The proceeds from their sale should go to the development of "stars" or "wild cats".
"Dead weight". Feature– relatively low market share in a slowly growing segment. These directions do not make sense to develop.

BCG matrix: an example of construction and analysis in Excel

Consider the construction of the BCG matrix on the example of an enterprise. Training:

Construction of the BCG matrix

In Excel, a bubble chart is best suited for this purpose.

Through the "Insert" add a construction area to the sheet. Enter the data for each row as follows:

On the horizontal axis - the relative market share (we set up a logarithmic scale: "Layout" - "Format of the horizontal axis"). On the vertical - the rate of market growth. The chart area is divided into 4 identical quadrants:

The central value for the market growth rate is 90%. For relative market share - 1.00. Based on these data, we will distribute the product categories:

Conclusions:

"Problems" - Goods 1 and 4. Investments are needed for the development of these items. Development scheme: creation competitive advantage- distribution - support.
"Stars" - Goods 2 and 3. The company has such categories - and this is a plus. At this stage, only support is needed.
"Cash Cows" - Good 5. Brings in a good profit that can be used to finance other products.
"Dead weight" was not found.

The figure below shows the matrix of the Boston Consulting Group, in this version using relative market share indicators ( X axis) and relative market growth rate ( Y-axis) for individual evaluated products.

Boston Consulting Group Matrix

The relative indicators range from 0 to 1. For the market share indicator, in this case, an inverse scale is used, i.e. in the matrix it varies from 1 to 0, although in some cases a direct scale can also be used. The growth rate of the market is determined for some time interval, say, for a year.

This matrix is based on the following assumptions: the greater the growth rate, the greater the development opportunities; the larger the market share, the stronger position organizations in competition.

The intersection of these two coordinates forms four squares. If products are characterized by high values of both indicators, then they are called "stars", they should be supported and strengthened. True, the stars have one drawback: since the market is developing at a high pace, the stars require high investments, thus "eating away" the money they have earned. If the products are characterized by a high value of the indicator X and low Y, then they are called "cash cows" and are the organization's cash generators, since they do not need to invest in product and market development (the market does not grow or grows slightly), but there is no future behind them. With a low value of the indicator X and high Y products are called "difficult children"; they must be specially studied in order to establish whether they can turn into "stars" with certain investments. When as an indicator X, and the indicator Y have low values, then the products are called "losers" ("dogs"), bringing either small profits or small losses; they should be disposed of whenever possible, if there are no good reasons for their preservation (possible resumption of demand, they are socially significant products, etc.).

In addition, to display negative values of changes in sales volume, a more complex form of the considered matrix is used. Two additional positions appear on it: "war horses", bringing small cash, and "dodo birds" that bring losses to the organization.

Along with the visibility and apparent ease of use, the Boston Consulting Group Matrix has certain disadvantages:

difficulties in collecting data on market share and market growth rate. To overcome this shortcoming, qualitative scales can be used that use such gradations as greater than, less than, equal to, etc.;
the matrix of the Boston Consulting Group gives a static picture of the position of strategic economic units, types of business in the market, on the basis of which it is impossible to make forecast estimates like: "Where will the studied products be located in the matrix in one year?";
it does not take into account the interdependence (synergistic effect) of individual types of business: if such a dependence exists, this matrix gives distorted results and a multi-criteria assessment should be carried out for each of these areas, which is done when using the General Electric (GE) matrix.

Boston Matrix Characteristics of the BCG matrix

Stars— develop rapidly and have a large market share. Rapid growth requires heavy investment. Over time, growth slows down and they turn into "Cash Cows".
cash cows(Moneybags) - low growth rates and large market share. They do not require large capital investments, they bring high income, which the company uses to pay its bills and to support other lines of its activity.
dark horses(Wildcats, difficult kids, question marks) - Low market share but high growth. They require large funds to maintain market share, and even more so to increase it. Due to the high capital investment and risk, company management needs to analyze which dark horses will become stars and which ones should be eliminated.
Dogs(Lame ducks, dead weight) - low market share, low growth rate. Generate enough income to support themselves, but do not become sufficient sources to finance other projects. We need to get rid of the dogs.

Disadvantages of the Boston Matrix:

The BCG model is based on a fuzzy definition of the market and market share for business industries.
Market share value is overestimated. Many factors that affect the profitability of the industry are overlooked.
The BCG model breaks down when it is applied to industries with low level competition.
High growth rates are far from the main sign of the industry's attractiveness.

The first corporate model strategic management considered to be the BCG model. The emergence of the BCG model was the logical conclusion of the research work carried out by specialists consulting company Boston Consulting Group. The decisions that the BCG model suggests depend on the position of the particular type of business of the organization in the strategic space formed by the two coordinate axes.

Along the y-axis - the importance of market growth rates . The high growth rate allows the company to achieve an increase in the relative share by accelerating its own pace of business growth. In addition, a growing market implies a quick return on investment. The x-axis is considered relative competitive position organizations in the form of the ratio of the sales volume of the organization in the SBA to the sales volume of the main competitor in this SBA.

SZH on the matrix are represented by circles with centers at the intersection of the coordinates formed by the market growth rate and the relative share of the organization in the corresponding market. The size of the circle is proportional to the total size of the market. In the original version of the model, the boundary between high and low growth rates is a 10% increase in volume per year (Fig. 12.2).

12.2. BCG Matrix

Consider each of the quadrants of the matrix.

Stars are highly competitive businesses in fast-growing markets, which is an ideal position. The main problem of the stars has to do with finding the right balance between income and investment. cash cows- it is a highly competitive business in mature markets. SZH data is a source of cash for the company: « Cash Cows are former stars who are currently generating sufficient profits for the organization. The cash flow in these positions is balanced, since investment in SBAs requires the bare minimum. Difficult children(question marks, wildcats) are SBAs that compete in growing markets but hold a relatively small market share, resulting in the need for increased investment to protect market share and ensure survival. Thus, SBAs are consumers of cash until their market share changes. Dogs are a combination of weak competitive positions with markets that are in a state of stagnation. Cash flow in business areas is usually very low, and more often even negative.

The analytical value of the BCG model lies in the fact that it can be used not only to determine the strategic position of each SBA organization, but also to give recommendations on the balance of cash flow from the perspective of the SBA. The main recommendations for the BCG matrix:

1. Surplus funds from "cash cows" should be used to develop "difficult children" and strengthen the position of "stars".

2. Difficult children with unclear prospects should be removed from the portfolio to reduce the demand for financial resources.

3. The company must exit the SZH industries - "dogs".

4. If a company lacks cash cows, stars or problem children, then measures must be taken to balance the portfolio: the portfolio must contain "stars" and "difficult children" in quantities sufficient to ensure healthy growth of the company , and "cash cows" - to provide investments for "stars" and "difficult children".

Based on this, there are the following strategy options:

1) growth and increase in market share (for a “difficult child”);

2) maintaining market share (for "cash cows");

3) getting short-term profits even at the expense of market share reduction (for weak "cash cows", "difficult children" and "dogs");

4) liquidation of business or abandonment of it (for "dogs" and "difficult children").

The BCG matrix is refined by Jean-Jacques Lambin (Figure 12.3).