tPeople in the corporate world are very much aware of what the BCG matrix is. When with a group of people, when someone mentions about BCG matrix template, you tend to think about what is it this term they are discussing about. Through this content, you will have all your questions answered about the BCG matrix template.
What is the BCG Matrix Template?
The Product portfolio matrix of the famous consulting firm, Boston Consulting Group is the BCG matrix template. It is designed in a way that helps the users to create a long-term strategic plan, help a business grow by reviewing its product portfolio and further decide where to invest, and even decided on whether to develop or discontinue a product. BCG matrix is also known as Share Matrix or Growth matrix.
To understand how BCG Matrix works and what are the key components associated with it, first, you need to have a clear idea regarding market share and growth rate.
Market Share Definition
Market share is the percentage of a market that a company owns. Trade share can be calculated by dividing the number of units sold by all units sold in the market. Market shares are often calculated for individual products, but they can also be calculated for an entire industry.
The importance of market share in the business is that it helps to measure the number of customers, money, and products that a company has. Market share also helps to measure the percentage of the total market for a company’s products or services.
Market share is important for companies because it can help them make decisions about what they should do with their business. For example, if a company sees that they are losing market share, then they may need to change their product or service to get more customers.
Growth Rate Definition
The growth rate is the percentage of change in a quantity over a given period. It is usually measured relative to the initial quantity. The growth rate is used to measure how fast something is growing and how much it has grown over a period of time. This can be done by measuring the percentage of change in an amount, or by measuring the ratio of two quantities. In business’s growth rate refers to the profit growth rate.
Why is the BCG Matrix Used?
In the year 1968, Bruce Henderson, who is the founder of Boston Consulting Group created the BCG matrix of growth-share. This matrix was published in Perspective, which was a proactive and short essay on BCG. It is a framework of portfolio management. With the help of the matrix, businesses can decide which business out of all, should they prioritize the most.
Based on the analysis of relative market share and growth of the market, the BCG matrix, or the Boston Consulting Group matrix can be divided into four different quadrants. In these 4-quadrants as an individual has a distinctive symbol that signifies a certain level of profitability. The four symbols are cash cows, stars, question marks, and dogs. It is through these categorizations, an executive decides on which resources they should focus and which capital can be more profitable, and what are areas where the losses could be cut.
There are many BCG matrix template that can be found online. The commonly used template includes a BCG matrix star, BCG matrix cash cow, BCG matrix dog, and BCG matrix question mark.
The working of BCG Share Matrix
“Sustainable superior returns are the result of market leadership”. In The End, the market leader achieves a self-reinforcing cost advantage which is self-reinforcing and difficult for the competitors to replicate. This was the logic behind the creation of the BCG Matrix.
Market attractiveness and the firms’ competitiveness are the two factors of the matrix that should be considered when deciding on what to invest in.
The four quadrants represent a certain combination of market growth and relative market share:
- High share but Low Growth: These “cash cows” should be milked by the firm for the reinvestment of cash. It can be understood that a cash cow means products that have a high market share but low market growth.
- High share and High Growth: “stars” are the quadrant in which the firms should invest much more than other quadrants because the future potentials are high for these. Star refers to products that have both high market growth and low market share.
- Low share but High Growth: “question marks”, are the quadrants which the firm should not invest in and should discard but it all depends on the chances of the firm becoming a star. It refers to products that have a low market share but high market growth.
- Low Growth and Low Share: Firms should divest, liquidate, or reposition the “Dogs.” As Dogs means products with low market share and market growth.
The most Important Quadrant in BCG Matrix
The “Stars” is considered the most important as products under this quadrant are market leaders and require major investments to retain the leading position, maintain competitive advantage, and boost growth. So are Apple products, particularly iPhone, a Star or cash cow? Since the return on assets is much greater than the market growth of the iPhone, it can be considered a cash cow instead of a Star in the definition of the BCG growth share matrix, and it can invest the surplus cash generated into other products.
Examples of BCG Matrix
This matrix is more favorable for products but can be used for services as well.
Marks and Spencer is a British company that deals in a lot of products and services. Through the various lines of products, one can identify each element of the BCG matrix.
1. Star Quadrant
Marks and spencer were famous for lingeries as the options earlier were limited. This division of M&S is still famous in many countries despite the firm dealing with many other products. It has a high market share and high market growth in the UK.
2. Question Mark Quadrant
In the past year Marks and Spencer declined to consider food but today it has more than 400 simple food stores that deal with just food in the UK. Despite it not being one of the major supermarkets in the UK one can say it has a Low market share and high market growth.
3. Cash Cows Quadrant
The Marks and Spencers classic range, which is a series of 16 wines has a high market share but low market growth.
4. Dogs or Pets Quadrant
The premium price range of women’s and men’s clothing known as the autograph range of M&S has a low market growth as well as a low market share. Despite being in the dog quadrant, this range because of its premium price rates contributes to the final financial contribution to M&S as a whole.
The BCG Matrix Benefits
- Managers find the BCG matrix to be very useful as it gets easier for the managers for evaluating the firm’s current portfolio balance based on dogs, stars, question marks, and cash cows.
- It is easy and simple to understand this matrix as there are only four quadrants and two dimensions.
- The future actions to manage a business can be decided with the help of this matrix.
- It becomes easier to identify the future opportunities of a firm.
- The business areas which are weak and no more profitable can be removed with the help of this model.
- The Matrix 4 long-standing model and reputation have shown to be robust over a period, and the changes have been significant in a competitive environment.
- BCG helps companies to pursue goals such as market share by allocating resources.
- It helps companies to understand the benefits of experience curves – for example, large manufacturing operations where experience curves can be realized.
- It is more beneficial for students to understand the concept of market opportunities and align it with competitive strength suitable for an organization.
The idea of BCG growth-share matrix was created to make every company better. Using this method, the BCG matrix provides a means for companies to identify their strengths, weaknesses, opportunities, and threats. These qualities and opportunities are then used to make business decisions.
Growth-Share Matrix is designed in a way that helps the users to create a long-term strategy, to help a business grow by reviewing its product portfolio and further decide where to invest, and even decide on whether to develop or discontinue a product and even decide on how well they can compete against other companies.
Using BCG Matrix, it becomes easier for businesses to analyze many factors within one matrix, allowing them to have more information and knowledge about each aspect. This allows them to know where to work in order to succeed and also how best they will be able to meet competition depending on two factors, market share, and growth. It also enables managers to set up plans in advance so that employees can focus on what they must do to achieve the goals, which includes finding out a lot more about their customers, competitors, and employees. The key benefit of using BCG Matrix is:
-It enables managers to easily visualize the strategic direction the organization is headed in, making it possible to have clear guidance on the most important aspects of any enterprise.
-It allows organizations to see opportunities and risks clearly.
–BCG matrix template offers great benefits to both individuals who are responsible for running an operation as well as those who are working in support of it. Employees are given the opportunity to take advantage of all types of rewards available to them. They are thus able to use their skills and talents to the maximum extent possible for them to be successful. And they are provided with the necessary tools and training that can help them grow and develop.
BCG Matrix has a number of advantages that make it a powerful tool for improving performance. One of these is enabling companies in different departments and divisions to put together strategies from different areas of the company. A common example would be a marketing department team that includes two sections. For the marketing team, the top priority would be providing new products and services to consumers. The bottom priority would be maintaining strong customer relationships that will assist the marketing department’s growth. Effective market segmentation is needed to ensure successful sales and delivery of high-quality products to the target consumer. Another benefit is helping companies establish an approach to growth so well-defined that it would be difficult for others to imitate their moves. In other words, the goal of BCG Matrix is to make sure there is more than enough room for risk-taking to stay ahead of the game. All businesses need to be aware of their strengths, opportunities, and threats. BCG Matrix helps to get these things right. When managers and leaders know all of these areas well, they have a better chance of creating effective plans, deciding on how to expand into new markets, and even deciding what makes sense for their own business.
How BCG Matrix Helps Internally
In addition, BCG Matrix helps you determine the priorities of your functions such as accounting, finance, legal, compliance, procurement, purchasing, and human resources.
With BCG Matrix, leaders and managers will know how all parts of management can contribute to the organization’s overall success. Leaders and managers will know which parts of the organization should provide resources in which areas. Because of this, leaders and managers will be able to allocate responsibilities, time, and talent with confidence and certainty. BCG Matrix helps improve employee engagement by allowing leaders to pinpoint which tasks will impact employees’ jobs and when and where a task needs to occur. Leaders and managers will be able to spot problems as early as they arise and work to prevent them from becoming serious issues down the line with the framework stock of BCG Matrix. As leaders and managers work closely with teams, leaders and managers will be able to monitor their progress and the results of their actions. This will enable leaders and managers to spot when employees are not doing what they are supposed to be doing instead of getting frustrated when one person is getting caught up in a problem rather than focusing on the bigger picture.
If your current job requires specialized knowledge, BCG Matrix can play a critical role in boosting your career development. In fact, BCG Matrix is an excellent resource for professionals who want to get ahead in the world of work by learning specific skills to apply and hone on the job. Many professionals would like to gain experience and learn on the job. Still, unfortunately, not everyone has the right education that teaches them how to do that at the same level. With BCG Matrix, professional development for anyone who wants to become a leader is made easy. Your potential employer will know exactly how much you want to learn and how much time you intend to spend studying, and what type of training programs would be best for your education requirements. By spending time exploring BCG Matrix, employers will know how much work they need to help find a solution to a problem, plus how much training and expertise they should expect before hiring you. Therefore, employees will know exactly how much time and energy they need to devote to learning and growth in a specific field.
The BCG Matrix Limitations
- The synergies between the units of business are often neglected by this model.
- One can determine success just by a high share of the market.
- There are situations where the dog’s quadrant earns more than the cash cows’ quadrant.
- It is not always easy to get data on market growth and its share.
- Small businesses and competitors are ignored in the BCG matrix and the fact that they can grow and make a profit as well is ignored.
- A business is affected by many factors except market growth and share. This matrix tends to ignore those factors and even unavoidable situations like natural calamities.
One can say that the BCG matrix template is simple but can be intricate when it comes to the classification of smaller firm products; whose market share is relatively too low to quantify. This matrix can be very useful when someone decides to spend a little more on a marketing budget. It can make a firm take the best decision ever.
Forbes reports that BCG Growth-Share Matrix is the fourth-most recognized and most valuable organizational skill. However, it’s fairly surprising because we live in an age where people are continually evaluating everything they do. That often involves asking questions about something and researching it thoroughly before making judgments. BCG Matrix encourages participants to look into a situation from numerous angles and then weigh multiple courses of action to find out what should happen in this case.
BCG Matrix gives leaders the ability to predict the future accurately and align operations to meet objectives. It is essential to have a clear understanding of the next step before any kind of decision-making can begin. BCG Matrix empowers companies to make smart actions that will help drive organizational success. Leaders and managers will know what they must do so that they achieve their vision. Without BCG matrix template, a manager cannot have a clear plan to increase sales, increase revenue, or strengthen a company’s standing in the marketplace. If BCG Matrix can produce these benefits for leaders and managers, why wouldn’t it be a good place to start?
