Growth Share Matrix

Did you know up to half of all the Fortune 500 companies are said to have used a BCG matrix at one point in time?

You might be wondering, "Why is he speaking about BCG matrix, a topic which we learnt in out college. is it still relevant, and what is the link between BCG matrix and Growth Share matrix"

Well, BCG matrix and Growth share matrix are one and the same. 

The reason behind bringing BCG matrix into the picture at this point in time is "2020".

2020 was no ordinary year. People, Businesses, and Nations around the world suffered a lot. 2020 has made its place in the history books as the year that almost stopped/paused the World. 

Now we are no longer in 2020. Post vaccination news a new hope has risen. New changes are taking place. Many are are focusing on what next. They are looking for opportunities and possibilities. They are focusing on the future and growth.

You might say, "At this point in time survival itself is a question mark and you want us to think about future, growth, opportunities, and possibilities. Look around every one is blank......they don't know what to do. Okay, even if you were right, what kind of strategy should we use to get our business back on track. What about the future".

Strategies and business models not only provide information that will help us now but also identify changes that will keep the company profitable in future.

Identifying current market and plan according to it is good strategy, but a great strategy is that which focus on both present and future.

So, coming to your question, "What about the future".

When this question arises, every entrepreneur, business leaders, managers, and consultants focus on BCG - Growth Share matrix.  

What is BCG Matrix?

BCG matrix also known as Growth Share Matrix is a tool used in corporate strategy to analyse business units or product lines based on two variables

1. Relevant Market Share
2. Market Growth Rate

By combining these two into a matrix an organisation can plan its business accordingly and determine its "Where", "What", "When", and "How.

The main purpose of big matrix is to make investment decisions on a corporate level. Depending on how well the industry is performing, four different category labels can be attributed to each unit.

Whenever someone speaks about BCG matrix the first thing that comes in our mind is the above figure and four categories. 

• Stars: Product High market share that generate the more cash
• Question mark: High growth but low market share
• Cash Cows: Products that generate more cash than they consume
• Low market share and low growth rate

We all are aware of the four categories and its functions, now let us look into the aspects that speak about market share and growth.

Relative Market Share:

The creators of BCG matrix used this to measure an organisation's competitiveness. The exact measure for relative market share is the focal organisation's share relative to its largest competitor. 

For example:

Company A has 20% market share and Company B has 60% market share, so as to speak, the ratio would be 1:3 (0.33) implying that Company A is in a relatively weak position. The point here is, the focal organisation should at least have a similar market share Asit largest competitor in order to have a high relative market share. The assumption in this framework is that an increase in market share will result in increase in profits (cash) since the focal organisation benefits from economies of scale and thus gain cost advantage relative to its competitors.

Market Growth:

It is used to measure the market attractiveness. Rapid growing markets are what organisations usually strive for since they are promising for interesting ROI in the long-term. The drawback here is that companies in growing markets are likely to bee in need for investments in order to make growth possible. 

Now let us how BCG market can be used to strategise.

Now that you know what each category/quadrant and Market share and growth is, now you can evaluate them based on these potential strategies.

• You can push a question mark into a star and finally a cash cow by increasing the investment in a product and increase market share. 
• If you can't invest in a product hold it in thee same quadrant and don't lose the position
• Cash cows can reduce their investment and try to take out the maximum cash flow from the product which increases its overall profitability 
• Dogs can release the amount of money already stuck in the business

You need products in every quadrant of BCG matrix to keep a healthy cash flow and have product that can secure your future.

Role of Cash flow in BCG Matrix:

• Margins and cash generated are functions gf market share. high margins and high market share go together.
• To grow, you need to invest in your assets. 
• High market share must be earned or bought. For this you need investment.
• No product market can grow indefinitely. You need to get your payoff from growth when the growth slows. You lose you opportunity if you hesitate. 

BCG matrix is based on products rather than service, however, it does apply for both.