The BCG Matrix

https://petersmith.org/blog/2008/10/02/the-bcg-matrix/ 2 Oct '08 09:31 Peter Smith MGMT302BCG

A quick guide to the BCG growth-share matrix.

I often find that students understand the concepts behind the BCG growth-share matrix, but don't know what 'numbers' to use when 'drawing' it. So here we are.

The BCG growth share matrix is a tool for the evaluation of the performance of a company that operates in a number of markets; i.e. it is a way to examine the portfolio of businesses in which the firm operates. I have taken an illustration of the matrix from Hedley's original 1977 paper. The description of stars, question marks, cash cows, and dogs can be found in Hendley's paper.

There are a couple of things to note. Firstly, the y-axis is Business Growth Rate. On this access, the dividing line between cash cows and dogs (the bottom half of the matrix) is at 10%. In other words to be a star or a question mark, the business needs to be growing at 10% or more.

The x-axis is the relative competitive position. It is a logarithmic scale, of a firm's relative comparative position, i.e. their relative market share compared to the best competitor (not oneself). Thus, if my company has 20% market share, and my best competitor has 10% market share, then my relative competitive position is 20/10 which is 2. On the other hand, if my company has 20% market share, and my best competitor has 30%, then my relative competitive position is 20/30 or 0.67. On the x-axis, the difference between stars and question marks is that stars have a relative competitive position of more 1.5. However, for cash cows and dogs, the difference is that cash cows have a relative competitive position greater than 1.

Of course, the numbers are only approximate. As Hedley (1977, p.13) says, there is "no 'magic' that transforms a star to a cash cow as it growth declines from 10.5 to 9.5 per cent". Indeed, all the lines are just guides.

Finally, to convey the importance of each business being analysed, Hedley recommends that the size of the circle represents either turnover or the number of employees.