25 Feb 2021
You might ask what we’re talking about with this article. What do dogs, stars, cash cows, and question marks have to do with my business? Don’t worry, we haven’t lost our collective minds, and all will be revealed. What we’re talking about is a...
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You might ask what we’re talking about with this article. What do dogs, stars, cash cows, and question marks have to do with my business? Don’t worry, we haven’t lost our collective minds, and all will be revealed.
What we’re talking about is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970s. It was known as the BCG Growth-Share Matrix, and we believe it still holds some value for businesses today.
The BCG Growth-Share Matrix looks at two things, being market growth and market share. In simpler terms, market growth refers to how attractive or popular an industry is, while market share looks at your advantage over competitors.
From this, a company’s business units can be broken up into four categories to determine their profitability. In theory, a growing industry (market growth) requires more of a cash investment, therefore it’s costing your business money to enter these markets. For example, higher marketing costs, or the expense of using new technology. However, an increase in market share should generate cash for you.
The idea behind this matrix is to determine if you have enough mature business units to generate the cash required to invest in rapidly growing markets. If you do, you could develop a strong market share in an attractive market, hence generating more profits.
The four categories used in the BCG Growth-Share Matrix are ‘Dogs’, ‘Stars’, ‘Cash Cows’ and ‘Question Marks’. When we talk about ‘business units’, this can apply to a number of things. It might be certain products, different sub-brands, or even different services you offer. Let’s explore them in more detail.
Dogs: Dogs are generally in low-growth markets, and they also have a low share of those markets. Essentially, they don’t make much money, but they also don’t cost a lot of money.
Question Marks: These business units are in high-growth, popular markets, and therefore it costs more money to run them. Unfortunately, they hold a low market share, meaning they don’t generate much income for you. Think of Question Marks as those parts of the business you believe have potential. They could become Stars and even Cash Cows in the long term. Alternatively, if the unit doesn’t succeed, you could have invested a lot of money to end up with a Dog.
Stars: Stars bring in plenty of income for you, but they also cost a lot to run. Think of it like launching a product into a rapidly growing market, and it starts performing well straight away. It captures plenty of market share and hopefully turns into a cash cow when the market growth rate starts to decline.
Cash Cows: Cash cows are those units that hold a great market share, but in markets that have stopped growing. So, you’re investing a lot less money to remain a market share leader. Cash Cows generate good income, with little investment. They’re crucial to help cover business expenses and also to help turn Question Marks into Stars and future Cash Cows.
As we mentioned, the business units we refer to can be applied differently depending on your business. So, the idea is to identify where all of your products or services sit in the matrix.
For example, a building company might look at eco-friendly homes as a high-growth market. To start with, it’s a Question Mark because they have a low market share. They aim to capture a large piece of that market, hence creating a Star. Once the growth of the eco-homes market declines, they’re still a market leader, but it costs them less to hold that share (for example in marketing costs). Hence, generating a Cash Cow that earns great income.
There are still some limitations with this matrix, so it’s important to use it as a tool rather than a strict business strategy. For example, you may have Dogs that don’t generate much income but also don’t cost much, and they may feed into your higher-profit business areas. So, use the matrix wisely, because it can still be particularly useful in determining which markets to enter, and the likelihood of success.
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