Translating an inspired idea into a robust business plan
004 The Boston Consulting Group Box
The BCG box is also referred to as the market growth – market share matrix and is a useful tool for business planning in a company with several roduct lines. There is little businesses can do about the market growth rate. This is implicit in the product life cycle curve. The growth rate is highest in the early stages of the product life cycle. Therefore all products start at the top of the matrix. During the introduction stage of the product life cycle growth rates are high and continue to be relatively high during the early growth stage. In contrast, position and movement along the relative market share axis is the result of management action in beating its rivals. Ideally a product enters the matrix on the upper left hand corner and gradually moves to the lower left hand corner, i.e. products are first stars and then become cash cows.
Note that the horizontal axis indicates relative market share, i.e. the market share relative to the largest competitor or, in the case of the market leader, the next largest competitor.
You should have manoeuvred the product into a star position before reaching the point of inflection in the s-shaped product life cycle growth curve or it is in danger of becoming a problem child and eventually a dog. The reason for this is that at the product life cycle stage where markets are growing very fast and overall volumes are still small, differences in market share are not that important. However, as the market moves into the late growth stage, it becomes increasingly more difficult to win market share.
If a business has also cash cows, funds can be used to transform a problem child into a star. Alternatively, the problem child can be divested and the funds can be used to grow a new star. A balanced product portfolio should include cash cows and stars and possibly problem children that can be turned into stars. Most products will eventually reach the decline stage of the product life cycle. The cash generated from cash cows funds stars and problem children as well returning money to shareholders and bondholders.