BOSTON CONSULTING GROUP
MATRIX ( BCG )
This technique is particularly useful for multi-divisional or multi-
product companies. The divisions or products compromise the
organisations “business portfolio”. The composition of the portfolio
can be critical to the growth and success of the company.
The BCG matrix considers two variables, namely..
xMARKET GROWTH RATE
xRELATIVE MARKET SHARE
The market growth rate is shown on the vertical (y) axis and is
expressed as a %. The range is set somewhat arbitrarily. The
overhead shows a range of 0 to 20% with division between low
and high growth at 10% (the original work by B Headley “Strategy
and the business portfolio”, Long Range Planning, Feb 1977 used
these criteria). Inflation and/or Gross National Product have some
impact on the range and thus the vertical axis can be modified to
represent an index where the dividing line between low and high
growth is at 1.0. Industries expanding faster than inflation or GNP
would show above the line and those growing at less than inflation
or GNP would be classed as low growth and show below the line.
The horizontal (x) axis shows relative market share. The share is
calculated by reference to the largest competitor in the market.
Again the range and division between high and low shares is
arbitrary. The original work used a scale of 0.1, i.e. market
leadership occurs when the relative market share exceeds 1.0.
The BCG growth/share matrix is divided into four cells or
quadrants, each of which represent a particular type of business.
Divisions or products are represented by circles. The size of the
circle reflects the relative significance of the division/product to
group sales. A development of the matrix is to reflect the relative
profit contribution of each division and this is shown as a pie-
segment within the circle.
