Strategic Management: Formulation and Implementation

Original Bcg Matrix

The Boston Consulting Group translates differentials in unit cost as a result of the experience curve into differences in relative market share. The original BCG concept is illustrated by the matrix shown in Figure 4-8 and Figure 4-9.

It was developed in 1967 by the Boston Consulting Group (BCG), a firm specializes in strategic planing. Originated by Alan J. Zakon of BCG and William W. Wommack of Mead Corporation, the framework has since been elaborated upon by Barry Hedley, a director of BCG.

Recognition that some firms have multiple products of varying strength, the concept of a matrix portrays the strength of the various products or activities. The market's rate of growth is indicated on the vertical axis, and the firm's share of the market is indicated on the horizontal axis.

Each of the circles represents a business unit. The size of the circle reflects each product unit's annual sales, the horizontal position of the circle indicates its market share, and its vertical position depicts the growth rate depicts the growth rate of the market in which its competes.

Using this framework, management can categorize each of its different businesses as stars, question marks, cash cows, or dogs, depending upon each business unit's relative market share and the growth rate of its market.

* The Cash Cows. These businesses (in the lower left corner of the matrix) are sources of cash for the organization. Cash flow can be used to grow other products.

* The Stars. The Stars are the businesses in the upper-left corner of the matrix. They are highly attractive businesses (ones with high market growth), and they have strong competitive positions (high relative market share). Those products could use some of the cash generated from the "Cash Cows" as investments in order to grow.

* The Question Marks. The Question Mark (in the upper right quadrant) needs careful scrutiny to see which way it will go. Sometimes "Question Marks" are divested, and sometimes they are heavily invested in and transformed into "Stars".

* The Dogs. These businesses (in the lower right quadrant) are clearly the great losers, unattractive and weak. Typically, "Dogs" are divested or liquidated.