What is Boston Matrix ?
“The Boston Matrix is a management tool to analyse portfolio of businesses and then to decide what to do with them- Spend money on building them, simply keep them ticking over or dump them”.
It is sometimes referred to as the BCG matrix, developed in late 60s by Bruce Henderson of the Boston Consulting Group- hence its name.
It is also known as Growth Share Matrix.
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 strategy.
The growth share matrix is, put simply, a portfolio management framework that helps companies decide how to prioritize their different businesses. It is a table, split into four quadrants, each with its own unique symbol that represents a certain degree of profitability: question marks, stars, pets (often represented by a dog), and cash cows. By assigning each business to one of these four categories, executives could then decide where to focus their resources and capital to generate the most value, as well as where to cut their losses.
How Does the Growth Share Matrix Work?
The growth share matrix was built on the logic that market leadership results in sustainable superior returns. Ultimately, the market leader obtains a self-reinforcing cost advantage that competitors find difficult to replicate. These high growth rates then signal which markets have the most growth potential.
The matrix reveals two factors that companies should consider when deciding where to invest—company competitiveness, and market attractiveness—with relative market share and growth rate as the underlying drivers of these factors.
Each of the four quadrants represents a specific combination of relative market share, and growth:
Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest.
High Growth, High Share. Companies should significantly invest in these “stars” as they have high future potential.
High Growth, Low Share. Companies should invest in or discard these “question marks,” depending on their chances of becoming stars.
Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.”
As can be seen, product value depends entirely on whether or not a company is able to obtain a leading share of its market before growth slows. All products will eventually become either cash cows or pets. Pets are unnecessary; they are evidence of failure to either obtain a leadership position or to get out and cut the losses eventually.
It remains, however, a revealing prism through which to observe a business and at the very least is a very helping starting point for any strategic business decision.