While it may not be a core framework for solving consulting case questions, the BCG Growth Share Matrix can help to broaden your understanding of how a company might want to allocate cash between products and business units.
The framework is based on the idea that the amount of cash a product uses is proportional to the rate of growth of that product in the market, and the generation of cash is a function of market share.
To be successful, the story goes, a company should have a portfolio of products with different growth rates and different market shares. Money generated from high-market-share products can then be used to develop high-growth products.
Under the BCG matrix, products are classified into four types:
- Stars are leaders in high growth markets. Stars grow rapidly and therefore use large amounts of cash. Stars also have a high market share and therefore generate large amounts of cash.
- Cash Cows are highly profitable and require low investment because they are market leaders in a low-growth market.
- Question Marks are low market share high growth products, and almost always require more cash than they can generate.
- Dogs are low market share low growth products. BCG refers to these products as “cash traps”. They require little cash but also generate little cash.
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