How can you use the BCG matrix to grow your client's portfolio?

1 What is the BCG matrix?

The BCG matrix, also known as the growth-share matrix, was developed by the Boston Consulting Group in the 1970s. It divides a portfolio into four categories based on two dimensions: market growth rate and relative market share. Stars have high market share and high market growth, making them the leaders in their markets and generating strong cash flows. However, they require high investment to maintain or increase their position. Cash cows have high market share and low market growth, being mature and stable, and generating more cash than they consume. Question marks have low market share and high market growth, being risky and uncertain, and requiring high investment to gain market share. Dogs have low market share and low market growth, being weak and unprofitable, and consuming more cash than they generate. Your client should invest in stars to ensure their long-term success, maintain cash cows, evaluate question marks carefully before investing or divesting them, and divest dogs or minimize their losses.

2 How to create a BCG matrix?

Creating a BCG matrix for your client requires gathering data on their products or services, their markets, and their competitors. Sources such as financial reports, market research, industry reports, customer surveys, and interviews can be used. The steps to creating a BCG matrix include defining the scope of the analysis by deciding which products or services to include in the portfolio and which markets to focus on. Additionally, you should calculate the relative market share (the ratio of your client's market share to the market share of their largest competitor) and the market growth rate (the annual percentage change in the size of the market). Plotting products or services on the matrix involves using the relative market share as the x-axis and the market growth rate as the y-axis. Different sizes or colors can represent other variables such as revenue, profit, or customer satisfaction. Finally, draw boundaries for each of the four categories using median values of relative market share and market growth rate as cut-off points.

3 How to interpret a BCG matrix?

Once you have created a BCG matrix for your client, you can use it to analyze their portfolio and make strategic recommendations. To interpret a BCG matrix, you should consider the overall balance of the portfolio, the strengths and weaknesses of each product or service, and the implications and actions for each product or service. Ideally, your client should have a balanced portfolio that includes stars, cash cows, question marks, and dogs. Stars and cash cows provide cash and profitability, while question marks and dogs offer opportunities and challenges. However, if your client has too many or too few products or services in any category, they may face problems such as cash shortage, low growth, high risk, or low return. You can use the BCG matrix to evaluate the performance and potential of each product or service in the portfolio. You can look at their market share, market growth, revenue, profit, cost, customer loyalty, competitive advantage, and other factors. You can also compare them with their competitors and identify their gaps and opportunities. Furthermore, you can use the BCG matrix to suggest strategic actions for each product or service in the portfolio. Generally speaking, stars should be invested in to maintain or increase their market share and growth; cash cows should be maintained and optimized; question marks should be evaluated to decide whether to invest in them or divest them; and dogs should be divested or minimized.

4 How to present a BCG matrix?

A BCG matrix is a powerful tool to communicate your analysis and recommendations to your client; however, it must be presented in a clear and compelling way to make an impact. To do this, use a simple and consistent design with a clear font, color, and size for the labels, axes, and boundaries. Contrasting colors or shapes can also be used for the products or services. Additionally, explain the logic and assumptions behind the matrix. Provide an introduction to the BCG matrix and its purpose, and highlight any assumptions or limitations in the data or analysis. When presenting your findings, focus on key insights and recommendations; summarize the main findings of the BCG matrix, emphasizing strengths and weaknesses of the portfolio and products or services. Offer specific and actionable recommendations for each category that align with your client's goals and priorities. Finally, engage your audience by using stories, examples, or anecdotes to illustrate points; use questions, polls, or quizzes to involve your audience; and ask for their opinions or concerns respectfully.

5 How to improve a BCG matrix?

A BCG matrix is a useful framework, but you should be aware of its limitations and challenges. To improve your analysis, you can use multiple dimensions and criteria, such as profitability, customer satisfaction, innovation, or sustainability. Additionally, you should use dynamic and relative data to capture market trends and changes. Moreover, scenarios and sensitivity analysis can help test the validity of your assumptions and explore alternative options for the portfolio.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?