The Boston Matrix
Focusing Effort to Give the Greatest Returns
Related variants: The BCG Matrix, the Growth-Share Matrix and Portfolio Analysis
Milk your "cash cows."
Imagine that you're reviewing your organization's products. You need to decide which ones you should focus investment on.
One of the products is doing well financially. However, demand has fallen, and this trend looks set to continue.
Another product is also doing well, but it's in a new market, and needs a lot of cash to support it. Should you continue investing in it?
And another product is barely profitable, although its market is growing. Should you kill it or keep it?
To make these decisions, you need to look beyond the income that the products are currently bringing in. You need to assess how they're likely to perform in future.
The Boston Matrix, also called the Boston Consulting Group (BCG) Matrix, is a simple, visual way to examine the likely financial performance of your product or business portfolio.
In this article, we'll look at the Boston Matrix and how to use it. We'll also outline some of its limitations.
Understanding the Boston Matrix
Management consultants at the Boston Consulting Group developed their matrix in the early 1970s. They designed it to help managers at large corporations decide which business units they should invest in.
However, managers in all kinds of organizations now also use it to decide which of their product lines or products to invest in, and which to dispose of or to shut down.
The matrix, shown in figure 1, places products into four categories based on their market share and market growth.
Figure 1 – The Boston Matrix
The categories are:
- Dogs: Low Market Share and Low Market Growth Dogs are business units or products that have low market share in a low-growth market. They often don't make much profit, but they don't need much investment either. Much of the time, you'll need to offer a price discount to sell Dog products.
- Cash Cows: High Market Share and Low Market Growth These businesses or products are well established. They're likely to be popular with customers, which makes it easier for you to exploit new opportunities. However, you should avoid spending too much effort on these, because the market is only growing slowly, and opportunities are likely to be limited.
- Stars: High Market Share and High Market Growth Businesses and products in this quadrant are seeing rapid growth. There should be some good opportunities here, and you should work hard to realize them.
- Question Marks (Problem Children): Low Market Share and High Market Growth These are the opportunities that no one knows how to handle. They aren't generating much revenue right now, because you don't have a large market share. But they're in high-growth markets, so they could become Stars or even Cash Cows if you can build market share. However, if you cannot increase market share, Question Marks could absorb a lot of effort with little return.
... for the complete article:
Mind Tools members, click here.
Join the Mind Tools Club to finish this article AND get 1,000
Join now for just $1, first month
"When I started using Mind Tools, I was not in a supervisory position. Now I am. Along with that came a 12% increase in salary."
– Pat Degan, Houston, USA
Join the Mind Tools Club
The Mind Tools Club gives you much, much more than you get here on the basic Mind Tools site, including these 4 free workbooks!
Get training, help and ideas to boost your career.
Find out what you get
Where to go from here:
Join Mind Tools