The BCG Matrix is a strategic management tool. It was developed by Boston Consulting Group as a framework for analyzing a company’s portfolio based on two factors.
- Market Growth Rate
- Relative Market Share
The BCG Matrix has a wide range of implications. This stands as a significant strategic framework for understanding the business and managing its unit/product portfolio. This matrix categorizes the business units or products into four different categories based on the market growth rate and relative market share.
Implications of the BCG Matrix
The BCG Matrix categorizes the business units/categories based on certain criteria. This categorization reflects the risk and potential factor associated. Different quadrants have different risk potentials. The challenges posed by a product or a unit in a cash cow is different from a product in a question market quadrant. BCG matrix is essential in assessing the related risk and provides enough ground to manage the risk.
Product Portfolio Management
BCG Matrix is a tool which manages the product or business unit portfolio. This matrix is useful in making decisions by providing enough information regarding investment, divestment, research, marketing, infrastructure development, R&D etc.
The BCG Matrix helps in categorization of products, guide during resource allocation, assess the risk associated, assist in marketing etc. The matrix assesses the market and suggests the strategies as per the market dynamics. In conclusion, the BCG matrix suggests the appropriate strategies for product portfolio management considering the position of the business unit or product.
The BCG matrix is very important in resource allocation. The matrix provides a strategic framework by positioning products and business units according to their market growth potential and market share. Understanding this category, business or company can understand the requirements of inputs, depending upon the position of their product/units in the BCG quadrants.
For instance, units/products in STAR quadrant require heavy investment as they are operating with high growth potential and market share. Companies usually invest in product development, marketing and expansion strategies to help STARs become CASH COWS. Similarly, for units and products in CASH COWS, company is subtle and allot resources for sustaining and optimizing the profitability, rather than for growth,
In this way, companies can know where to allocate the resources for optimal usage. The resources in this case can be financial, technical and human.
The BCG Matrix covers the area related to portfolio management, allocation of resources and investment, assessment of risk, divestment and M&A strategies and many more. All such inputs assist business in corporate planning and making corporate strategies.
Portfolio Management assesses the overall health and composition of the business unit and product. Such assessment provides inputs for taking corporate level decisions and assists during planning.
The matrix aids corporate planning by identifying and assessing the risk associated with different units and products. The matrix alarms the potential risk associated and proactively suggests the possible solution. This assessment can be useful during corporate planning.
The division of units and products under the four quadrants in the BCG matrix allows businesses to understand their business based on the market growth rate and their relative market share. Each unit or product in their respective quadrant suggests their position and required investment strategies for future possibilities.
|Substantial investment to Capitalize on their potential for future possibilities
|Significant investment to enhance the position and divestment if their is limited potential
|Moderate investment for maintenance
|Minimum investment or consider divestment
The four quadrants of the BCG matrix categorize the business or products based on their competitive standings. The BCG matrix provides the structured framework for evaluating the existing businesses and suggests the required strategic support. Similarly, it also suggests businesses regarding the investment strategies and allows businesses to effectively allocate the resources. Some of the efforts by BCG matrix for competitive advantages are:
- The BCG Matrix classifies products/units based on some rationale. This guides businesses about the investment and return on that investment and what needs to be done to optimize the profitability.
- It is strategically important to understand when and what needs to be done. The insights from BCG matrix helps to make decisions regarding the Low-Performers products or units. This suggests businesses either to invest or divest in their low-performers. Such decisions are always crucial for competitive success.
- The matrix helps businesses to balance their business portfolio. The matrix confirms that the existing product/unit portfolio is contributing to competitive positioning.
- Adaptation to the changing environment is crucial in competition. The matrix allows business to adjust and adapt to the changing marketing environment. The change in the market share and growth profile of the units suggests the change and awards the business with needed strategies.