BCG matrix

What it means

The BCG matrix was created at the Boston Consulting Group as a simple picture of a portfolio: market growth on one axis and the company’s market share relative to its largest competitor on the other. Every product or division is placed in one of four quadrants.

Stars have a high share of a fast-growing market and consume a lot of cash to grow. Cash cows hold a strong position in a mature market and generate more cash flow than they need. Question marks are weak in a growing market, and dogs have a weak position in a market that is not growing.

The matrix looks not only at profit but above all at how cash flows between products: cash cows fund the stars and selected question marks. It is a strategic decision tool like a SWOT analysis or Porter’s five forces, and works best alongside them.

How it works in practice

For smaller companies the matrix can be simplified. Instead of precise market shares an estimate of position and demand growth is enough, and service lines or customer groups can be placed in the quadrants. What matters is seeing which activities feed the company and which merely consume management time.

From the books we add figures that cannot be obtained without management accounting: the margin and contribution margin of individual products or services. It often turns out that a supposed star does not actually make money at all.

An ABC analysis by revenue or the Pareto principle is a useful complement, showing which small share of products delivers most of the result. The decision to invest or wind down then rests on numbers rather than on the owner’s instinct.

What to watch out for

The matrix is a static snapshot, and markets change. Today’s cash cow may be a dog in three years if its market disappears, and dropping a dog may hurt sales of other products if customers buy them together. The placement therefore needs regular review.

A high market share does not automatically mean high profit. Costs and prices decide, and a company buying share through discounts can have a star that burns cash endlessly. We therefore test the matrix’s conclusions against KPIs and actual cash flow.