Boston Matrix

What is the Boston Matrix?

The Boston Matrix, also known as the Growth-Share Matrix or BCG Matrix, was proposed by the Boston Consulting Group. It is an economic tool used to evaluate a company's product portfolio or business units, providing information on their development and strategic decision-making.

The Boston Matrix typically consists of two dimensions:

1. Market Growth Rate: This indicates the growth rate of a specific market, representing the market's attractiveness and potential opportunities. It is usually expressed as an annual percentage.
2. Relative Market Share: This refers to the ratio of a company's sales to the total sales in a specific market. It measures the company's competitive position and relative advantage in the market.

The Four Quadrants of the Boston Matrix

The basic idea of the Boston Matrix is to classify products or businesses according to their market share and market growth rate into four quadrants:

1. Stars: Products or businesses with high market growth rate and high market share. Stars usually require substantial investment to sustain their rapid growth and further develop into the company's core products or businesses.
2. Question Marks: Products or businesses with high market growth rate but low market share. These face competitive markets and require additional investment to increase market share. They have the potential to become Stars but could also fail.
3. Cash Cows: Products or businesses with high market share but low market growth rate. Cash Cows are often mature products with stable market share, providing steady cash flow for the company. They typically need less investment and can support the development of other products.
4. Dogs: Products or businesses with low market share and low market growth rate. Dogs often face competitive markets and are unable to generate significant profit. In the Boston Matrix, they are often less desirable products that need to be considered for discontinuation.

The Boston Matrix helps companies classify their product portfolio, enabling them to develop different strategies and allocate resources accordingly. For example, increasing investment to drive the growth of Stars, reassessing the prospects of Question Marks, maintaining the stable cash flow of Cash Cows, or considering the discontinuation of Dogs.

How to Use the Boston Matrix (BCG Matrix) for Analysis

Using the Boston Matrix for analysis typically involves the following steps:

1. Identify Products or Business Units: Determine the products or business units to be analyzed. These can include different product lines, brands, or business departments.
2. Collect Data on Market Growth Rate and Relative Market Share: Gather relevant data to calculate the market growth rate and relative market share of each product or business unit. Market growth rate can be obtained from market research or industry reports, while relative market share can be calculated from the company's sales data and total market sales.
3. Plot the Boston Matrix: Use the collected data to plot the Boston Matrix. The horizontal axis represents the relative market share, and the vertical axis represents the market growth rate. Mark each product or business unit in the corresponding quadrant based on their data.
4. Analyze the Products or Business Units in Different Quadrants: Stars, Question Marks, Cash Cows, and Dogs.
5. Develop Strategic Decisions: Based on the analysis, develop strategic decisions accordingly. For example, deciding to increase investment in Stars to realize their potential, exploring ways to convert Question Marks to Stars, maintaining the stable cash flow of Cash Cows, and reassessing the future of Dogs.

Example of the Boston Matrix (BCG Matrix)

Here is an example of a Boston Matrix (BCG Matrix) used to evaluate and classify a company's product portfolio:

In this example, products or business units are classified into four quadrants based on their market growth rate and market share:

1. Stars: Products or businesses with high market growth rate and high market share. These products perform well in rapidly growing markets and have significant development potential. They typically require substantial investment to support further growth and become the company's future core products.
2. Cash Cows: Products or businesses with high market share but low market growth rate. These products dominate mature markets and provide a steady cash flow for the company. They don't need much investment and can provide stable income to support the development of other products.
3. Question Marks: Products or businesses with high market growth rate but low market share. These products face competitive markets and require extra investment to increase market share. They have development potential but also face the risk of failure. Companies need to carefully assess their prospects and decide whether to continue investing.
4. Dogs: Products or businesses with low market share and low market growth rate. These products perform poorly in competitive markets and cannot generate significant profit. They may be outdated or fail to meet market demands. Companies need to consider whether to continue operating these products or to exit the market.

This example is a simple illustration of the Boston Matrix, and additional products or businesses might be classified and evaluated in real-world applications. Companies can use the classification results of the Boston Matrix to develop various strategies, such as increasing investment to promote the growth of Stars, maintaining the stable cash flow of Cash Cows, reassessing the prospects of Question Marks, or considering the exit of Dogs.

The Role of the Boston Matrix (BCG Matrix)

As a market analysis tool, the Boston Matrix (BCG Matrix) can play the following roles in strategic decision-making:

1. Product Portfolio Analysis: The Boston Matrix can help companies analyze and evaluate their product portfolio. By marking different products or business units in various quadrants of the matrix, companies can clearly understand the structure and characteristics of their product portfolio.
2. Development Strategy Formulation: The Boston Matrix provides information on the market growth rate and relative market share of different products or business units. Based on this information, companies can formulate development strategies for different products. For example, increasing investment in Stars to realize their potential, conducting deeper evaluations and decisions for Question Marks, and maintaining stable cash flow for Cash Cows.
3. Resource Allocation Decisions: The Boston Matrix can help companies make decisions regarding resource allocation. Products or business units in different quadrants require different resource support. By identifying Stars and Question Marks, companies can decide to allocate more resources to products with higher growth potential to achieve better performance.
4. Business Performance Evaluation: The Boston Matrix can also serve as an indicator to evaluate the performance of a company's business units. Products or business units in different quadrants represent different business statuses and prospects. By tracking and comparing the performance of products in different quadrants, companies can assess their overall business performance and the contribution of their product portfolio.