The BCG matrix was introduced in the late 1960’s and it attempted to facilitate the allocation of resources for a portfolio of companies, SBU’s or products.
The concepts underlying this matrix are those of the experience curve (x-axis measures relative market share) and the product life cycle (y-axis measures market growth).
It assists with the optimisation of the benefits associated with relative market share (competitive cost position) and the impact of the growth rate of the market (position on the product life cycle).
The matrix is made up of four quadrants and the circle size lends a third dimension – turnover.
Cash cows are cash generators and require an invest or hold strategy while maximising cash flow.
Stars are potential cash cows and require adequate funding to establish a dominant position before the market growth rate slows down and they become cash cows.
Question marks do not have market share on their side. They are found in growing markets and require funding if they are to become stars. If not withdrawal is possible.
Dogs are neither cash generators nor in many instances cash drains. They can be left alone or removed from the portfolio.
The aim is to achieve a balanced portfolio, sustaining or holding the Cash Cows, investing in the Stars and some select Question Marks and divesting or holding Dogs. If necessary, Questions marks could also be divested if they do not have a chance of becoming a Star.
There has been a lot of criticism regarding the growth – share matrix and many subsequent matrices have been designed to try to overcome these deficiencies.