BCG Matrix and Its Structure
The Boston Consulting Group (BCG) Matrix is a business analysis model developed in 1970 by the Boston Consulting Group. Although created in the previous century, it is still an effective analysis tool for building portfolios and company divisions. It considers two variables—market growth and the company’s market share—which in turn enables the formation of more efficient business strategies to manage the brand.
BCG, as a matrix, contains two axes: product profitability and market attractiveness. It is divided into four sections: the start-up block, volatile block, profitable block, and chasing block. Although the BCG matrix is criticized for its outdated parameters, it is still widely used as an effective tool of business modeling in which all traditional business values are combined and used.
The first block is the start-up block, which reviews brands’ new or unattractive products. In this quadrant, strategists should invest in these products or brands to improve production and integrate them into the market. The second block is the volatile block, which includes products or brands that bring in revenue but fall short of sustaining the business. Within this quadrant, strategists should reduce investment in such products or brands.
The third quadrant is the profitable block, consisting of products or brands that generate high income and support the business. In this quadrant, strategists should increase investments in these products or brands. Finally, the fourth quadrant is the chasing block, which contains products or brands that generate income but little profit. In this quadrant, strategists should conduct market research and make decisions about the further use of products or brands.
Strategic Application and Budget Allocation
As the organization of different products is clear for the analysis, the next step is to make decisions about the budget allocation for each section. The BCG matrix enables us to make optimal decisions regarding the four quadrants and each product specifically. It allows the assignment of priorities to products and quadrants depending on data used in the categorization, such as market share and growth rate.
Chiu and Lin (2019) describe the Matrix as one of the best strategic tools for identifying product market positions and allocating the budget. It is also based on how fast the market is growing and the size of the business share (Williams, 2019). It allows one to assign priorities and make adaptive decisions, which is vital to the analysis.
Limitations and Future Development
Still, the Matrix has not been improved for the modern digital world since it was created in the early 1960s and 1970s. Hensmans (2021) discusses the possibility of implementing a new business model for portfolio creation. The study claims to have updated the map to meet modern requirements and changes, like the necessity of taking into account the economic environment or being able to perform corporate actions.
Chiu and Lin (2019) claim that the BCG matrix is a static tool that requires more dynamic analysis to remain relevant. The study on dynamics assumes a new method of data collection as well as new approaches to identifying product position and budget allocation. Thus, studies show strong incentives for the development of a Matrix.
As mentioned above, studies recommend developing the Matrix, not replacing it, since it is still a crucial tool for developing business models and resource allocation. It provides a crucial decision-making tool using four quadrants and enables businesses to work more effectively with brands. Thus, to enable the company’s growth, most analytical tools will be based on the given Matrix.
References
Chiu C. & Lin K. (2019). Rule-based BCG Matrix for product portfolio analysis. In editor R. Lee, Studies in Computational Intelligence, Springer.
Hensmans, M. (2019). A new matrix for building platform portfolios: how companies can sustain their leadership. Journal of Business Strategy, 42(3), 159-167. Web.
Williams, C. (2019). MGMT11: Principles of Management. 11th eds, Cengage.