Boston Matrix is an analytical tool developed in the late 1960s by the Boston Consulting Group. It is used for strategic planning and business portfolio analysis, to help determine which products and services, if any, it should develop or continue funding. The model, also known as the BCG Matrix, divides products into four segments:
Stars: Products that are highly successful in the market and have been receiving a large portion of the company’s funds. They have a high market share and rapid growth, and profit margins are usually high.
Cash cows: Products that have a larger market share than stars, but growth rate and profit margins are smaller. They provide income and should not require significant investment and are usually seen as a conservative bet.
Question marks: Products that are new or have low market share and uncertain future. These require large investments to increase their market share and be successful, but could possibly turn into stars or cash cows.
Dogs: Products that have a very small market share and low market growth rate. They do not receive much investment and are often considered for withdrawal from the market or divested.
When it comes to strategic planning for a business, the Boston Matrix helps to evaluate the current portfolio of products, identify future potential and target resources. By categorising products, it becomes easier to review which products are performing well and to make a decision on whether the company should increase investment in these higher performing products or stop investments in the lower performing products.
The Boston Matrix has several advantages, including its simple approach which requires minimal data inputs. The categories that products are divided into also provide a visual representation of the products and their performance, aiding in the decision-making process. It is a model that is easy to grasp and relatively easy to use and understand.
While this model is straightforward and easy-to-understand, there are some drawbacks to be aware of. It does not effectively assess the relative position of a product against its competitors. Also, it cannot be used to identify dynamic markets, as those markets may change quickly, necessitating the entry of different products or the exit of existing ones from the portfolio.
Ultimately, the Boston Matrix is a powerful business planning tool that can help in the assessment of a business’s portfolio. It is a relatively straightforward tool that offers a visual representation of the products and their performance, assisting in the decision-making process. It has its limitations, but for most businesses it is easy-to-understand and use, provides a simple approach, and can be a useful tool for evaluating a portfolio of products.
