The BCG matrix (Boston Consulting Group growth-share matrix, Bruce Henderson, 1970) classifies a company's products or business units by market growth rate and relative market share into four groups: stars, cash cows, question marks and dogs. It shows where to invest, hold, harvest or divest.
By convention the share axis runs from high on the left to low on the right.
The four quadrants and what to do with each
| Quadrant | Cash position | Typical strategy |
|---|---|---|
| Stars | Generate cash but need heavy investment to keep up with growth | Build or hold: invest to defend share until the market matures |
| Cash cows | Generate more cash than they need | Hold or harvest: minimise investment and use the cash to fund stars and question marks |
| Question marks | Use a lot of cash, uncertain return | Build selectively (invest in the best) or divest the rest |
| Dogs | Low cash, often break-even | Divest or harvest, unless they support other products or have strategic value |
How to build a BCG matrix
- List the business units or products in the portfolio.
- Find each unit's market growth rate. A common cut-off between high and low is around 10%, but judge it against the industry.
- Calculate relative market share: the unit's share divided by its largest competitor's. 1.0 is the usual dividing line.
- Plot each unit, often as a circle sized by revenue.
- Assess balance: are there enough cash cows to fund the stars and question marks? Too many dogs?
- Recommend investment, holding, harvesting or divestment for each unit.
How to use the BCG matrix in the SBL exam
Use it when the case describes a group with several divisions or product lines and asks about resource allocation, divestment or portfolio balance. Always use the numbers in the case. If you cannot calculate relative share, say what extra information you would need. That earns scepticism marks.
Worked example
A diversified group might have: a mature domestic cleaning brand with the largest share of a flat market (cash cow), an eco range growing fast where it is the leader (star), a new app-based service in a booming market with a small share (question mark), and an old industrial line losing share in a shrinking market (dog). A sensible recommendation: use the cash cow to fund the star, test whether the question mark can reach leadership within a set time, and sell or close the dog.
BCG matrix vs Ansoff matrix
BCG looks at an existing portfolio and asks where to invest cash. Ansoff looks forward and asks which products and markets to grow into. Use BCG to decide what to keep and fund, and Ansoff to find new growth.
Advantages and limitations
Advantages
- Simple visual overview of a portfolio
- Highlights cash flow balance
- Prompts clear decisions on each unit
Limitations
- Market share and growth are not the only drivers of profit
- Defining the market changes the result
- Ignores synergies between units; a dog may support a star
- Labels can become self-fulfilling if dogs are starved of investment
FAQs
What is the BCG matrix?
A portfolio planning tool created by Bruce Henderson of the Boston Consulting Group in 1970. It classifies business units or products by market growth rate and relative market share into stars, cash cows, question marks and dogs.
What are the four quadrants of the BCG matrix?
Stars (high share, high growth), cash cows (high share, low growth), question marks or problem children (low share, high growth) and dogs (low share, low growth).
What is relative market share?
A unit's market share divided by the share of its largest competitor. A figure above 1 means it is the market leader.
Is the BCG matrix still relevant?
Yes as a quick way to think about balance and cash flow across a portfolio, but it oversimplifies: share and growth are not the only drivers of profit, and it ignores links between business units.