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The BCG matrix revisited

In 1970 Bruce Henderson drafted the Growth-Share matrix as a tool to help companies allocate their resources to their different products, according to the market attractiveness and the firm`s competitiveness in each market. (1) The BCG has revisited the concept in a paper by Reeves, Moose and Venema. (2) and (3)

Matriz y vision

They state in the years passed, the number of conglomerates has dropped and also a more dynamic and unpredictable environment has emerged.

Henderson observed that market share went together with high margins and cash, so that “cash cows” generated free cash when growth started to slide down the slope, as the need for reinvestment also fell. The value of a product depended on acquiring a leading share (scale and experimentation economies) before growth started to fall.

What the authors revisiting the matrix assert is that market share does not warrantee a competitive advantage, or at least one as durable as before; firms need (for instance) capacity to adapt or produce change. So the matrix needs to be seen differently, and according to their research:

  • the number of cash cows has diminished, also their longevity;
  • resources move between quadrants much faster;
  • distribution of firms among quadrants is different, less cows and more pets, but also less “question mark” products.

One important change refers to the link between market share and cash generation; cash cows captured 53% of profits in 1982, but only 40% in 2012.

Share Relevance

As for the use of the matrix, the authors propose a new view:

  • Firms need to consider changes will take place much faster, and resources also need to move faster between quadrants.
  • Firms need to think of the matrix as a picture of their product experimentation, so that they acquire “adaptability”. Firms need to experiment with more question marks and select the good ones that will grow into stars. And they need to do it efficiently and in a much quicker way. This experimentation needs to be embedded in the organization, so that the flux of ideas does not cease, but firms need to test and select the ones in which to invest, the products that will be launched, keeping investment under control.
  • Firms need to milk cows rapidly and also get rid of pets soon enough.
  • Firms need to measure their experimentation field, their product change and success, so as to be able to keep a balanced portfolio in the new environment.
  • The horizontal axis (market share) also needs to change. Unfortunately, although it is clear that market share is not any more as good indicator of a sustainable competitive advantage as it once was, selecting a better indicator remains an open point.

 

  1. The job by Henderson can be found here: https://www.bcgperspectives.com/content/Classics/strategy_the_product_portfolio/
  2. The article can be downloaded here: https://www.bcgperspectives.com/content/articles/corporate_strategy_portfolio_management_strategic_planning_growth_share_matrix_bcg_classics_revisited/
  3. A good video explanation of the change proposed when using the matrix can be watched here: https://www.bcgperspectives.com/content/videos/corporate_strategy_portfolio_management_strategic_planning_growth_share_matrix_revisited_ted_animation/
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