It can safely be said that the BCG was the cause of a rush of different matrices to be developed for use in portfolio analysis and planning.
In the 80’s the Boston Consulting Group updated their original growth-share matrix. The new revised BCG matrix maintains that a company has to achieve a competitive advantage to enjoy sustained profitability and that the means for achieving such advantage are conditioned by the way in which industries evolve.
The new BCG is a two by two matrix with the number of approaches on the vertical axis. This number of approaches refers to the number of different unique ways that advantage can be achieved.
The horizontal axis represents the size of the competitive advantage. The resulting matrix and the four-quadrant grid recognises four different types of business – Volume, Stalemate, Fragmented and Specialisation.
The New BCG Matrix
Businesses falling in these quadrants have different characteristics (Hax & Majluf 1983). The horizontal axis (size of advantage) is linked to barriers of entry; only with high barriers of entry can a firm sustain a long-term defensible advantage over competitors. The vertical axis (number of approaches) is linked to differentiation. At one extreme of the range of differentiation are the commodity products with the speciality products at the other.
In a Volume business, there are only a few ways to obtain an advantage but if obtained, high volume is generated because of the size of the advantage. In this category, market share and profitability are closely associated.
There are a few ways to obtain advantage and the size of the advantage is small for businesses in the Stalemate quadrant. Profitability in this quadrant is low for all competitors regardless of size. There is a small difference between the most profitable and least profitable firms.
Businesses in this quadrant have many ways of achieving competitive advantage but the advantage is minimal. The profitability of businesses in this sector is not correlated with market share. Poor performers can be large or small and good performers are also independent of size. They differ in the large number of ways they choose to achieve a competitive advantage.
In this quadrant there are many ways to obtain an advantage and once it is obtained, it is large. The largest profitability is enjoyed by small businesses able to distinguish themselves among their competitors by following a focused strategy.