The BCG matrix is a tool for the management of organization business portfolio developed by Bruce Henderson of the Boston Consulting Group in 1970s. The BCG matrix position the business units into the matrix based on relative market share and growth rate of industry. The Organization can track the business unit performance based on cash inflows and outflows by using BCG matrix.
The BCG matrix is composed of four quadrants, first quadrant is the question mark second quadrant is star third is cash cow and fourth is dog. Each business unit position is based on relative market share and growth rate of the industry, relative market share can be calculated by dividing business unit market share with the leading competitors market share. The relative market share is positioned on X-Axis and industry growth rate on Y- Axis both are measured in percentage.
As discussed there are four quadrants in BCG matrix each one explain the business in terms of relative market share and growth rate.
The business unit with low market share and having high growth rate is positioned in first quadrant of BCG matrix which is called the question mark and also known as problem child.The strategy for question mark business units are a bit complicated because it can either become successful or failure. The business units lies in this quadrant fetches more money on the other hand revenues are on lower side due to low market share. Its up to the decision makers whether they take risk to invest money in this business or sell out it to release the money. Business can opt for the strategies like market development, market penetration, product development or liquidation.
The business unit with high market share and growth rate is the member of second quadrant of BCG matrix know as star. As name suggest , stars are the business unit which cash inflows are high but on the other hand it requires investment to become more successful by gaining more market share. The attitude of organization is always positive towards star business unit because its the future prospect to become cash cow.
Cash cow are the business units with high relative market share and growth rate, cash inflow is greater than cash outflow. This is the most desirable position for the business units because the investment is low and return is[linkunit] high. The cash cow are important of the organization to provide support to star to convert them into cash cows and question marks to stars. The biggest challenge for organization to maintain the position of the business unit by adopting the strategies like product development or concentric diversification.
Dog are the business units with low relative market share and growth rate. In organization these type of business units have very weak position because the return is low or nothing and investment is stuck. The decision maker can take a risk to harvest or eliminate the business unit by selling it out.