Boston Consulting Group matrix and strategic business applications

BCG Matrix, an analytic tool designed and named for the Boston Consulting Group, provides insight into corporate strategy regarding a company's operating units and products. The focus of the matrix is on "market growth and market share of the organization's product portfolio relative to their largest competitor" (NetMBA.com. N.D. PP. 1). Companies should according to the matrix, allocate capital to portfolio investments which are in a fast growing market that could lead to the firm achieving high market share. Represented on the BCG matrix are four types of scenarios, Stars, Cash Cows, Dogs and Question Marks which limn these potential opportunities (NetMBA.com. N.D. PP. 1).

When did the BCG experience-curve begin to have a significant impact on business thinking?

A tenet of the BCG Matrix, the experience curve describes how significant investment in products with high growth rates can lead to high market share. Specifically, as a firm spends more to increase production, its cost of production falls in a linear fashion. "BCG data revealed that the real value-added production cost declined by 20 to 30% for each doubling of cumulative production quantity" (Economist.com. The Experience Curve. September 14, 2009. PP. 1). Succinctly, an organization develops experience in production: proprietary methods, intellectual property technologies, scope, scale, and learning which provide them lower production costs over rivals and thus a competitive advantage leading to greater market share.

In the 1970's when the matrix was utilized by larger organizations, the experience curve was particularly useful "for if costs fell (fairly predictably) with experience, and if experience was closely related to market share (as it seemed it must be), then the competitor with the biggest market share was going to have a big cost advantage over its rivals" (Economist.com. The Experience Curve. September 14, 2009. PP. 1). The implication for the Fortune 500 organizations during this period was an almost singular focus on market share and high growth opportunities, which according the experience curve and BCG matrix would lead to an upward spiral of greater share and higher profits.

Was the BCG Growth-Share Matrix of any value in the 1990s?

Companies looking at the BCG Matrix would characterize their products and their respective lifecycles as: cash cows, stars, question marks, and dogs.

"Cash cows are businesses that have a high market share (and are therefore generating lots of cash) but low growth prospects; stars have high growth prospects and a high market share; question marks have high growth prospects but a comparatively low market share; and dogs are low on both growth prospects and market share" (Economist.com. Growth Share Matrix. September 11, 2009. PP. 1).