Classic · Model
The BCG matrix.
Boston Consulting Group set out a portfolio of businesses according to the growth of the market and their own share of it, and got four fields with a name each. The model is made for large companies with many legs to allocate capital between, and it shouldn't be transferred straight across to a company with thirty employees. The question underneath it is highly relevant there too, though: what finances what, and which parts of the business are living at the expense of the others without anyone having decided it.
The model
Two axes. The growth of the market on one and your share of the market on the other. Four fields.
Stars. High share in a growing market. They’re doing well and they still demand money, because growth costs.
Cash cows. High share in a mature market. They give more than they demand, and they finance the rest.
Question marks. Low share in a growing market. They can become stars or nothing, and they cost money in the meantime.
Dogs. Low share in a mature market. The model’s original advice was to wind them down.
Bruce Henderson set out the division in the essay The Product Portfolio in 1970. BCG’s own account of its history describes it as developed inside the firm rather than by one person alone, so Henderson is most reasonably described as the one who published it and drove it.
How it’s used
In a smaller company: swap business areas for services or customer groups, and swap market share for something you can actually measure, for instance your standing with the type of customer you’re aiming at.
The question that makes the exercise worth the time is what each part costs in management time compared with what it gives back. That’s where it usually turns out that the question marks take most of the attention and the cash cow looks after itself, which it does right up until it doesn’t.
Then put Ansoff alongside it. A question mark is often an investment in the bottom right box there, and the two models ask the same question from different directions.
Where it usually gets misused
The word dog is the biggest problem, because it’s a verdict and not an analysis. A business with a low share in a mature market can be steadily profitable, mean a great deal to a few customers and carry part of the fixed costs, and it shouldn’t be wound down because it landed in the wrong box.
It also gets misused when it’s applied to a company that only has one product, which simply isn’t what it’s made for. Ansoff or Porter is the right tool instead in that case.