Explain what is the importance of developing the Boston Consulting Group matrix and what is its main purpose?

Question

Explain what is the importance of developing the Boston Consulting Group matrix and what is its main purpose?

Answer 1

The BCG Matrix helps companies think about how they should manage their product portfolios based upon market growth and relative market share.

There are 4 groups in the BCG Matrix:

1. Stars (High Market Share/High Growth): Require investment to stay strong & grow further, but are usually worth it because they generate significant income. Older Stars often become Cash Cows.
2. Cash Cows (High Market Share/Low Growth): Having triumphed over the competition, Cash Cows don't require as much investment to maintain but still deliver significant revenue. Management may "milk" Cash Cows to fund growth opportunities (Question Marks).
3. Question Marks (Low Market Share/High Growth): Question Marks are products that have loads of potential... but they aren't living up to it yet. Why not? What needs to happen to bring them up to Star status? How much money should be invested in them? When- - and where? Question Marks either become Stars or Dogs.
4. Dogs (Low Market Share/Low Growth): These items are sucking up resources while delivering little to no profit. Generally speaking, they are candidates for discontinuation.

In practice, the BCG Matrix suggests that a healthy organization should have a solid mix of Cash Cows and Stars, with a few Question Marks in play as well. Dogs should be identified and eliminated as efficiently as possible.