The Boston Matrix was developed by the large US consulting group BCG (Boston Consulting Group). This matrix is a powerful tool that assists the firms planning their product portfolio. It has two controlling characteristics: relative market share and market growth as suggested from the figure below.
Figure 5: Boston Corporate Group matrix
It has four cells and each cell has its name as follows.
- a. Dogs. The products that fall in this cell are the ones with a low share of a low growth market. These products do not generate revenues for the company. Firms should get rid of the products that fall in this cell as they tend to require huge investments from time to time.
- b. Cash Cows. In a slow growth market products that hold a high share are represented by the Cash Cows in the BCG matrix. Cash Cows generate revenues more than that is invested in them since they are the leaders in the mature market. Firms can still continue to have them as a part of the portfolio till they eventually become dogs and stop generating revenues.
- c. Question Marks (also known as the ‘problem child’). These products have low market shares and do not generate much cash. However, these products are in a rapidly growing stage and thus consume large amounts of cash. A question mark has the capability to gain market share when the market growth slows, and can thus become a star and finally a cash cow. Before making the investment required to grow the market share. Question marks must be analyzed carefully in order to determine their potential.
- d. Stars. These products generate high amounts of income as they are in high growth markets with a relatively high share of that market. However, they require large amounts of investment because of their high growth rate. When the market growth rate decreases, a star will become a cash cow, if it maintains its large market share. A diversified company should have stars that have the potential to become the next cash cows in their portfolio to ensure future cash generation.
Limitations of the Boston Matrix.
- The matrix is just based on one factor each in industry attractiveness and competitive advantage. It tends to ignore a number of highly important factors as determinants of profitability.
- The framework is based on the assumption that each business unit is independent of the others and their activities are mutually exclusive. However, in practicality, a business unit that is “dog” may be helping other business units gain a competitive advantage.