The BCG matrix, also known as the Growth Share matrix, or the Boston Consulting Group matrix, is a simple yet powerful framework used to evaluate a company's product portfolio and determine which products to invest in and which to divest.

In this article, we will discuss the four quadrants of the BCG matrix and their significance, the strategic implications of each quadrant, and how to use BI software to effectively create BCG matrix. Additionally, we will provide a practical BCG matrix example of how to create a BCG matrix to help you apply this tool in your own business reports.

So, let's dive into the world of BCG matrix and learn how to use it to make informed strategic decisions.

A BCG matrix is a strategic planning tool used to assess a business's product portfolio. It offers a framework for analyzing the performance of each product, identifying growth opportunities, and determining where resources should be allocated for the future.

While businesses typically offer a range of products, not all of them generate the same returns. The BCG matrix provides a structured approach for evaluating each product's success, enabling businesses to determine which products to invest in further and which ones to eliminate. Additionally, the matrix can assist companies in identifying new products to introduce to the market.

The BCG matrix is structured into four quadrants based on the market growth rate and relative market share. These quadrants represent different stages in the product lifecycle, each with distinct strategic implications. In the following sections, we will discuss each of these quadrants in more detail to provide a comprehensive understanding of the BCG matrix.

The Boston Consulting Group (BCG) Matrix, developed by BCG in the USA, is a well-known tool for analyzing corporate portfolios. It is a four-quadrant, or 2x2, matrix that provides a visual representation for organizations to assess their various businesses based on related market share and industry growth rates.

The BCG Matrix is a two-dimensional analysis of Strategic Business Units (SBUs) that compares business potential and evaluates the environment. It classifies businesses as high or low based on their industry growth rate and relative market share.

To calculate relative market share, the SBU sales for the current year are divided by the sales of the leading competitor for that same year. The market growth rate is calculated by subtracting the industry sales for the current year from the industry sales for the previous year.

To use the matrix, both measures must be calculated for each SBU. The dimension of business strength, and relative market share, measures the comparative advantage indicated by market dominance. The underlying theory is that market share is achieved due to overall cost leadership, which results from an experience curve.

The BCG Matrix has four cells, with relative market share on the horizontal axis and market growth rate on the vertical axis. The midpoint for relative market share is set at 1.0. If all SBUs are in the same industry, the average growth rate for the industry is used. If they are in different industries, then the midpoint is set at the growth rate for the economy.

Resources are allocated to business units according to their placement on the matrix. The four cells of the matrix represent different types of businesses, which are known as stars, cash cows, question marks, and dogs.

Stars refer to business units that possess a significant market share in rapidly growing industries. Although they may generate cash, they require substantial investments to maintain their dominance in a rapidly expanding market. The net cash flow is typically moderate. Such SBUs are appealing since they are situated in a thriving industry and are highly competitive. If successful, a star may evolve into a cash cow when the industry matures.

Cash cows, on the other hand, are business units that have substantial market share in mature and slow-growing industries. They necessitate minimal investment and produce cash that can be allocated for investment in other business units. These SBUs are the corporation's primary source of cash and are typically the core business. They serve as the foundation of the organization and usually follow stability strategies. When cash cows lose their popularity and start to decline, a retrenchment policy may be pursued.

Question marks denote business units with a low relative market share located in a high-growth industry. They require a substantial amount of cash to acquire or maintain market share. Determining if the venture is viable necessitates close attention. Question marks are generally new goods and services with strong commercial potential. There is no specific strategy that can be implemented. If the firm believes it has a dominant market share, it may adopt an expansion strategy; otherwise, it may adopt a retrenchment strategy.

Most businesses begin as question marks as the company seeks to enter a high-growth market where there is already market share. If ignored, question marks may transform into dogs; however, if significant investment is made, they have the potential to become stars.

Dogs represent businesses with a weak market share in low-growth markets. They do not generate cash nor require a large amount of cash. Due to their low market share, these business units face cost disadvantages. Typically, retrenchment strategies are adopted since these firms can only gain market share at the expense of competitors/rivals. These business firms have a low market share due to high costs, poor quality, ineffective marketing, and other factors. Unless a dog has another strategic aim, it should be liquidated if there are few prospects for it to gain market share. Organizations should avoid and minimize the number of dogs.

Once you have assessed the performance of each product, you can evaluate them objectively and create a strategy for your business's future. The BCG matrix is a helpful tool to identify which products you should prioritize and which ones should be eliminated altogether.

Here are four ways to use the BCG matrix to strategize for your business:

• If your focus is on innovation, consider increasing your investment in Stars and Question Marks. Investing more in a Question Mark can eventually lead to it becoming a Star and later a Cash Cow.
• If you cannot invest more in a product, maintain it in the same quadrant and leave it untouched. Cash Cows, for example, are well-established products that require less maintenance and can generate a steady cash flow.
• Maximize profitability by reducing your investment and extracting the maximum cash flow from a product. This strategy is ideal for Cash Cows.
• If a product is underperforming and has little chance of recovery, divest the money invested in it and allocate it elsewhere. This approach is suitable for Dogs.

Since consumer preferences are always changing, it's essential to regularly review and update your BCG matrix as market conditions change. A Question Mark product could quickly become a Dog, so be prepared to cut your losses if necessary.

The objective is not to succeed in any one area but to create a diversified portfolio. To maintain a healthy cash flow and ensure the future of your company, you need products in every quadrant of your BCG matrix.

So how can we use BCG matrix to assist with business decisions? Next, we will establish an practical BCG matrix example by using Profeesional BI tool FineBI to explain it.

FineBI is a modern big data analytics & BI software designed for everyone who has need of data analysis. Everyone of any level can use FineBI to easily establish professional BI dashboards, perform self-service data analysis, gain useful insights and thus drive your business forward.

Through simple operations like drag-and-drop, you can create professional dashboards without difficulty!

In FineBI, data processing is also very convenient. Through functions such as filtering and merging calculation in FineBI, data can be processed quickly without writing SQL statements or other codes.

FineBI supports more than 50 chart styles, covering basically all basic and high-level charts on the market, and also has excellent dynamic effects and a powerful interactive experience. Various features can be set according to the needs during use, and can also be self-adjusted and displayed on the mobile terminal and large LED screen.

Let's now use a BCG matrix example demonstrate how to use FineBI for quick BCG matrix analysis.

The general idea is to create a scatter chart of alla the products. By setting the cordon, the area is divided into four quadrants, and then the data can be observed.

At the same time, use FineBI to create a drill directory to mine more fine-grained data.

Firstly, Let's upload the sample data to FineBI.

FineBI is fully capable of managing data from multi-source based on business need. Including database tables, SQL sets, Excel, self-service data sets, and etc. And FineBI also supports instant classification.

You can get the sample data from the help document of BCG matrix and download FineBI for free to follow the steps and create DuPont Analysis of your own!

1) Enter "Data Preparation", choose "Style data > RMF detailed data". Click "Create component" and modify the name of the dashboard:

1) Using Finebi's calculation indicator function, click "+" under the indicator field to be analyzed to add and calculate the customer unit price. The customer unit price means the average consumption amount of each customer, and the Customer unit price = sum_ AGG (MONEY) / count_ AGG (CUSTOMERNAME), as shown in the figure below:

1) Observe the given data. There are customer names and corresponding customer categories in the system. This structure is called tree structure, which often appears in the company's organizational structure.

You can set common data drilling to view detailed data. In this example, the tree structure is relatively simple, with only two levels: customer classification and customer name.

To reflect this hierarchical relationship in the Boston matrix, you need to create a drill directory and drag "CUSTOMERNAME" into "CUSTOMERTYPE" field, as shown in the following figure:

2) The chart type is now grayed out and the scatter chart is not selectable. It prompts that you need to drag in a dimension and an indicator to make a point chart, as shown in the following figure:

3) Drag "Counter" to the horizontal axis, drag "Customer unit price" to the vertical axis and drag the drill directory to the fine-grained column under the graphic properties, as shown in the following figure:

4) Add two warning lines, click the drop-down box of "Customer unit price", and select "Set the analysis line > cordon(Landscape)", as shown in the following figure:

5) Click to add the cordon, name it as "Average consumption amount", set the formula: "AVERAGE(Customer unit price(Aggregation)), and click "OK" to set the color of the analysis line, as shown in the following figure:

In the same way, add the cordon of average times of consumption, as shown in the following figure:

And then, the scatter chart of BCG matrix example has completed!

According to the scatter chart, the customer portrait of this company can be roughly analyzed:

• Customers who spend more than the average number of times and spend more than average each time: judged as star customers, such customers need to focus on, and give the highest courtesy;
• Customers who spend more than the average number of times but whose consumption intensity does not reach the average level each time: They are judged as cash cow customers. Such customers usually consume more frequently and can bring more stable cash flow to the company. This type of customer is The cornerstone of corporate profits;
• Customers whose consumption has not reached the average level, but the consumption intensity exceeds the average level each time: they are problematic customers. This type of customer is most likely to be transformed into a star customer, but because the customer has certain potential problems, the consumption frequency is not high. Customers need to use customer service for key follow-up and long-term tracking;
• Customers whose consumption has not reached the average level, and the consumption intensity has not reached the average level: They are thin dog customers. This type of customer usually accounts for the majority of corporate customers. They only need general maintenance and do not need to invest in key maintenance.

You can combine the finished scatter plot of BCG matrix with other graphs and charts to form a Dashboard just like the picture below to help you better analyze your data.

Using FineBI makes it easy to build various classic data analysis models, such as the BCG matrix discussed in this article, as well as other data models like the DuPont Analysis, RFM model, Kano Model, etc., to help businesses gain insights.

FineBI offers business theme analysis scenarios for different industries, including manufacturing, pharmaceuticals, retail, finance, and more. By analyzing and displaying business indicator data, relevant managers can easily grasp business dynamics.

FineBI can liberate business professionals from the quagmire of data processing and visualization, allowing them to focus more on data analysis, management, and business communication.

A BCG matrix is a straightforward tool that all companies can utilize to assess their products. It provides a clear overview of which products are performing well and allows companies to identify the factors that contribute to a product's success or failure. Additionally, the matrix allows companies to compare their products against one another and identify new opportunities within their market. Using the BCG matrix can also help companies eliminate underperforming products, saving them money in the long run.

While the BCG matrix is a valuable starting point for assessing a company's product portfolio, it has some limitations-such as:

• The BCG Matrix categorizes businesses as either low or high, but many businesses can fall in between these two categories and may not be accurately reflected.
• The market is not clearly defined in this model.
• High market share does not necessarily result in high profits, as there may be significant costs associated with maintaining a high market share.
• Growth rate and relative market share are not the only indicators of profitability. Other indicators of profitability are ignored or overlooked by this model.
• At times, dogs can assist other businesses in gaining a competitive advantage and can even generate more revenue than cash cows.
• This four-quadrant approach is often considered overly simplistic.

To sum up, the BCG matrix is a useful tool for businesses to evaluate their portfolio and allocate resources accordingly. By classifying each business unit as a star, cash cow, question mark, or dog, companies can make strategic decisions about where to invest and where to divest. And with the help of FineBI, analyzing your BCG matrix can be made even easier and more efficient. So why not give it a try and see how it can benefit your business?