Last week I talked about Ansoff Matrix primary focus is the market potential rather than the resources required by the company to support the chosen strategy? This week I will talk about another strategic management tool the Boston Consulting Group Matrix (BCGM), a decision-making tool for allocating resources.
Boston Consulting Group Matrix allows a more complicated strategic analysis of your portfolio of products and services that may be trading in a number of markets. BCGM is made up of 4 quadrants, it enables you to plot where you are relative to your competitors, relative to the market development.
- Star – high relative market share in a growth market new areas are opening up, you are leading in a growing market and competitive advantage the strategy is to continue to invest to maintain your position of strength and win more or the growing market.
- Question Mark – new areas opening up but your competitor are doing better than you winning business your thinking you are a Star in a growing market, however, relative to your competitors your market share is reducing. You might be continuing to invest to maintain or defend your marketing share, it is expensive to continue to compete hence the Question Mark. The Question Mark may develop into a Star and Cash Cow or may end up being a Dog. It might be better to divest out of the market although it is a growth market your share is small and will consume vast amounts of cash to gain a competitive market share.
- Cash Cow – market growth is low or entering a declining period you may be a change in technology or have an old technology. However you may still have a leading position in a declining market, your relationship or brand may be strong so it is working for you.
- Dog – small market share in no growth market, you do not want to be here and there is no opportunity for growth and you must divest immediately as dog trip cash that could be better utilise in the business.
In a rapidly changing global economy measuring two variables is an over simplification of competitive advantage, however, it is a good starting point for allocation limited resources within a business unit or across the organisation.
Businesses as sales machines continue to sell into a market because they have established relationships and expertise, it is what they know. Established business can fall victim to this paralysis. It is important to analyse which areas to invest for new opportunities and which areas to divest out of, to balance your portfolio and grow your business overall. BCGM was original developed as a model for allocating resources in a business with a portfolio trading in a variety of markets. Boston Consulting Group Matrix assesses market changes to adapt your limited resource to maximise the available opportunities and so still relevant in your strategic tool kit.
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