Boston Matrix

Hi everyone, in this blog post I would like to introduce you to a portfolio management framework called Boston Matrix. I will talk about it's history, how it works and my point of view on it.

History

The Boston Matrix was created in 1968 by BCG’s founder, Bruce Henderson. It was published in one of BCG’s short, provocative essays, called Perspectives. At the height of its success, the growth share matrix was used by about half of all Fortune 500 companies; today, it is still central in business school teachings on strategy.

Matrix

The matrix was built with the idea that market leadership results in significant superior returns. The market leader obtains an enormous cost advantage that competitors find difficult to replicate, thanks to being first to the market. These high growth rates then signal which markets have the most growth potential.
The matrix is divided into four blocks:

• Cash cows, is where a company has high market share in a slow-growing industry. They operate in what is known as a mature market. These units typically generate enough cash to maintain the rest of the company.
• Dogs, are units with low market share in a mature, slow-growing industry.
• Question marks, are businesses operating with a low market share in a high-growth market. They are a starting point for most businesses. They have the potential to gain market space and become stars, and eventually cash cows when market growth slows.
• Stars, are units with a high market share in a fast-growing industry. Companies should significantly invest in these stars as they have high future potential, and they could become in the future cash cows. But Stars require high funding to fight competitors and maintain their growth rate, and the risk is that if the company loses its opportunity, the business will be turn into a dog.

The natural cycle for most business units is that they start as question marks, then turn into stars., if they are successful enough, if not they will become dogs. Eventually, the market stops growing; thus, the business unit becomes a cash cow. At the end of the cycle, the cash cow turns into a dog, and later on in the end of the business.

Personal Thoughts

In my personal experience, I really like the Boston Matrix because it is a simple and well explained framework that helps to understand how companies think about their business plans. And this have an impact on the day to day operations of the companies.
I find this framework really interesting, and if you have any comments about it, or even other framework, please let me know in the comments below.