Growth–share matrix
To use the matrix, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.
As BCG stated in 1970: Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities.
The growth–share matrix thus offers a "map" of the organization's product (or service) strengths and weaknesses, at least in terms of current profitability, as well as the likely cashflows.
As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it is assumed that these earnings will grow faster the higher the share.
If the largest competitor had a share of 60 percent, however, the ratio would be 1:3, implying that the organization's brand was in a relatively weak position.
If the largest competitor only had a share of 5 percent, the ratio would be 4:1, implying that the brand owned was in a relatively strong position, which might be reflected in profits and cash flows.
Determining this cut-off point, the rate above which the growth is deemed to be significant (and likely to lead to extra demands on cash) is a critical requirement of the technique; and one that, again, makes the use of the growth–share matrix problematical in some product areas.
What is more, the evidence, from fast-moving consumer goods markets at least, is that the most typical pattern is of very low growth, less than 1 per cent per annum.
This is outside the range normally considered in BCG Matrix work, which may make application of this form of analysis unworkable in many markets.
While theoretically useful, and widely used, several academic studies have called into question whether using the growth–share matrix actually helps businesses succeed, and the model has since been removed from some major marketing textbooks.
[10][11] One study (Slater and Zwirlein, 1992), which looked at 129 firms, found that those who follow portfolio planning models like the BCG matrix had lower shareholder returns.
As originally practiced by the Boston Consulting Group,[12] the matrix was used in situations where it could be applied for graphically illustrating a portfolio composition as a function of the balance between cash flows.
[citation needed] In particular, the later application of the names (problem children, stars, cash cows and dogs) has tended to overshadow all else—and is often what most students, and practitioners, remember.
Such simplistic use contains at least two major problems: Perhaps the most important danger,[12] however, is that the apparent implication of its four-quadrant form is that there should be balance of products or services across all four quadrants; and that is, indeed, the main message that it is intended to convey.
The Life Cycle-Competitive Strength Matrix was introduced to overcome these deficiences and better identify "developing winners" or potential "losers".
