Boston Matrix (BCG matrix)

In order to run a successful business, one cannot deny the importance of business planning, which helps companies determine which areas to invest in and which to abandon. One of the key tools for creating a competent strategy is the Boston Matrix. It is also called the BCG matrix, which allows for analysis, assessing the current position of a company's product or services and determining a step-by-step plan for their further development.

What is the BCG matrix: types of products

The Boston matrix, which is also known as the "growth/market share matrix" is a tool for analyzing, managing a product portfolio. The tool is designed to identify the importance, position of each product.

The BCG matrix was developed in 1968 by the Boston Consulting Group, which explains its name - by the acronym BCG. Since then, it has been a popular tool for analyzing competitiveness. The approach allows revealing hidden patterns in large volumes of information, effectively forecasting future trends, which is important for sales growth and the development of the company as a whole.

The basic principles of the BCG work - division of the received data into categories, their subsequent analysis, assessment of links between them. Everything is focused on identifying important factors or parameters directly affecting the final result.

The main types of products or services that can be identified in the BCG matrix are cash cows, dogs, stars and problem children.

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1. Cash cows are products that generate stable income.
2. At the same time, they do not require large investments, which is a major plus.
3. Dogs - on the contrary, do not bring profits, investing in them is strongly discouraged
4. .
6. Stars - give high profits, but for development require substantial cash contributions.
7. Problem children - will not bring income, but for development will require significant investment.

The starting classification, originally adopted by the Boston Consulting Group, is more difficult to understand, but confirms the previously discussed milestones of sector division.

1. Stars: "High market share, High market growth" - products with high market share and high growth rates.
2. Dilemmas - previously mentioned cows: "High market share, Low market growth" -
3. products
4. with high market share and low growth rates.
5. Question marks - aka "problem children":
6. "Low market share, High market growth" - with low market share and high growth rates.
7. Moose - specified in the previous classification as dogs: "Low market share, Low market growth" - with low market share but illogical growth rates.

The goal point of using the BCG is to determine the tactics of product development based on their starting position. The main tasks of using the BCG include determination of investment priorities, identification of potential profit, further development strategy.

For example, if we take a simple example of crop cultivation, it becomes clear: the crop must be grown; especially valuable grains must be preserved and protected from pests, and at the same time completely abandon the sowing of infertile crops.

Strategies of the Boston Matrix

The tool is most often used by company executives, managers to analyze and manage the product portfolio and make strategic decisions.

Let's consider an example of the BCG matrix.

A clothing company uses the Boston matrix to analyze and manage its product portfolio. Let's take a look at how it works:

1. Stars (Stars): A company has seen that their new line of sportswear for young people has become popular and is making a lot of money.
2. They decide to invest more in this segment to further develop and promote this product.
3. Question marks: let's say a new line of children's clothing is introduced and is not yet showing strong results.
4. They decide to conduct additional market research and marketing campaigns to determine whether to invest further in this segment or to reallocate resources to other, more promising lines.
5. Cash cows: A traditional line of adult clothing continues to generate steady revenue for the company.
6. They decide to maintain it without making major changes to keep it successful in the market.
7. Dogs: there is an old collection of clothing that is no longer in demand among consumers. They decide to either improve and modernize it or remove it from the range completely to free up funding resources for the successful ones.

Using the Boston matrix, it is easy to better understand the definition and forecasting of product potential, to make more informed decisions on the management of own resources and investments.

Let's take a closer look at the strategies of the Boston Consulting Group matrix, based on the previously highlighted sectors. With the stars, market expansion or diversification tactics should be employed. Dairy cows will require a strategy of maintaining market positions without impressive investments. Problem children - for them a strategy of stop funding and liquidation is used. Dogs are subject to liquidation or production stoppage due to lack of usefulness.

Let's emphasize four areas of activity - the basic strategies of the BCG include:

• Development (Growth) - investing in star products for further development.
• Done to increase revenues and market share.
• Hold (Hold) - holding on to dilemma products to stabilize and protect market position.
• Harvest (Harvest) - maximizing profits from products that have peaked by reducing investment in so-called question marks.
• Divest (Divest) - exiting a sluggish growth market. Such a move allows cash funding to be directed to more promising product lines.

The advantages of the Boston Matrix is that it not only allows you to assess the current state of affairs today, but also to predict future changes. This is very useful for businesses because it allows them to make more informed, data-driven decisions.

The Boston Matrix can be used to optimize processes in various areas of business: from finance to marketing. With this method, you can see hidden opportunities and potential risks, allowing you to manage your resources much more effectively. The matrix can also help in making decisions in conditions of uncertainty, because with its help it is quite realistic to highlight the key aspects and facts on which to focus.