See also:Strategic Thinking The Boston Matrix and the Ansoff Matrix are both marketing tools designed to help companies explore their product portfolios and strategies, and make decisions about where to focus attention. The Boston Matrix was developed by consultants at the Boston Consulting Group in the 1970s, and is also known as the Product Portfolio Matrix. It is designed to help companies work out which of their products are worth attention, which should be stopped, and what strategies to use to improve sales. The Ansoff Matrix, also known as the Product/Market Expansion Grid, was developed by Igor Ansoff and first published in the 1950s. It focuses on the possible strategies for growth, and the risks associated with each one. While both these tools are relatively old, they still have their uses in strategic decision-making. The Boston MatrixThe Boston Matrix assesses each product on two measures:
You can work out each one exactly, or you can just opt for a low–high distinction. Each product is plotted on a simple four-by-four grid with relative market share and market growth as the axes (see diagram below), giving four possible product categories. These are:
As with any tool, there are issues with the Boston Matrix. For example, it was designed for use with products, and although it can also be used for services, this may take care. It is also relatively simplistic, which is both a strength and a weakness. Used in conjunction with other tools, such as the Ansoff Matrix, however, it can be helpful aide to decision-making about product futures. The Ansoff Matrix is also known as the Product/Market Expansion Grid. The Ansoff Matrix plots products and services against the markets in which they are sold or marketed, on the basis of whether they are new or old (see diagram), and therefore identifies four possible strategies for growth.
Using the Ansoff MatrixEach square in the matrix represents a different strategy, with risk increasing with each step upwards or to the right. The four strategies are:
All these strategies have some elements of risk about them, and for more about how to manage this, you may want to read our page on Risk Management.
Further Reading from Skills You Need
The Skills You Need Guide to Business Strategy and Analysis Based on our popular management and analysis content the Skills You Need Guide to Business Strategy and Analysis is a straightforward and practical guide to business analysis. This eBook is designed to give you the skills to help you understand your business, your market and your competitors. It will help you understand why business analysis is important for strategy—and then enable you to use analytical tools effectively to position your business. Tools for the jobThe Boston and Ansoff Matrix offer ways to look at products and markets, and decide on a future strategy for growth if necessary. The Boston Matrix focuses on products, and the Ansoff Matrix adds in the market as well. Taken together, they can provide a useful support for decision-making. Both, however, have some limitations, particularly their simplicity. Decisions should be made with care, and should feel right for the business too.
The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses graphical representations of a company’s products and services in an effort to help the company decide what it should keep, sell, or invest more in. The matrix plots a company’s offerings in a four-square matrix, with the y-axis representing the rate of market growth and the x-axis representing market share. It was introduced by the Boston Consulting Group in 1970.
The BCG growth-share matrix breaks down products into four categories, known heuristically as "dogs," "cash cows," "stars," and “question marks.” Each category quadrant has its own set of unique characteristics. If a company’s product has a low market share and is at a low rate of growth, it is considered a “dog” and should be sold, liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don't generate much cash for the company since they have low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time. For this reason, they are prime candidates for divestiture. Products that are in low-growth areas but for which the company has a relatively large market share are considered “cash cows,” and the company should thus milk the cash cow for as long as it can. Cash cows, seen in the lower left quadrant, are typically leading products in markets that are mature. Generally, these products generate returns that are higher than the market's growth rate and sustain itself from a cash flow perspective. These products should be taken advantage of for as long as possible. The value of cash cows can be easily calculated since their cash flow patterns are highly predictable. In effect, low-growth, high-share cash cows should be milked for cash to reinvest in high-growth, high-share “stars” with high future potential.
The matrix is not a predictive tool; it takes into account neither new, disruptive products entering the market nor rapid shifts in consumer demand. Products that are in high growth markets and that make up a sizable portion of that market are considered “stars” and should be invested in more. In the upper left quadrant are stars, which generate high income but also consume large amounts of company cash. If a star can remain a market leader, it eventually becomes a cash cow when the market's overall growth rate declines. Questionable opportunities are those in high growth rate markets but in which the company does not maintain a large market share. Question marks are in the upper right portion of the grid. They typically grow fast but consume large amounts of company resources. Products in this quadrant should be analyzed frequently and closely to see if they are worth maintaining. The matrix is a decision-making tool, and it does not necessarily take into account all the factors that a business ultimately must face. For example, increasing market share may be more expensive than the additional revenue gained from new sales. Because product development may take years, businesses must plan for contingencies carefully.
The BCG Growth-Share Matrix uses a 2x2 grid with growth on one axis and market share on the other. Each of the four quadrants represents a specific combination of relative market share, and growth:
The BCG Growth-Share Matrix considers a company's growth prospects and available market share via a 2x2 grid. By assigning each business to one of these four categories, executives can then decide where to focus their resources and capital to generate the most value, as well as where to cut their losses.
According to BCG, at the height of its success, the growth share matrix was used by about half of all Fortune 500 companies; today, it is still central in business school teachings on business strategy.
The BCG Growth-Share Matrix is a business management tool that allows companies to identify the aspects of their business that should be prioritized and which might be jettisoned. By constructing a 2x2 table along the dimensions of growth and market share, a company's businesses can be categorized into one of four classifications: "stars," "pets," "cash cows," and "question marks." |