What is the BCG Growth Share Matrix?

hello everyone my name is kids and capacity on XP CQ consultant an ex-googler and founder of rock locks an online platform that helps candidates prepare for case interviews in today's rocket blocks video lesson we're going to mix up the format a little bit and do something different we're going to do a deep dive into a particular concept and slides and visual aids and talk about how this concept might be relevant in your consulting interviews as well as on the job as a consultant and what we're going to start with is the BCG growth-share matrix so let's go ahead and jump it so let's talk about the growths chair matrix and this was invented by Bruce Anderson who you see here who works for BCG in fact he was the founder of BCG and in 1970 he created this framework to help really large companies think about their capital allocation decisions and so that basically means if you're a really big company and you've got 80 different product lines how should you think about where you devote your capital and resources amongst those different product lines that are in different stages of product life cycles etc so this was a framework he put together in the 1970s to do that and even though it's you know quite old now it is still extremely relevant today because you have companies like Microsoft and Amazon Google etc that have tons of different product lines with many different products at different stages of the product life cycle and they're wrestling with these same types of challenges so let's take a look at how ECG describes this basically they say the matrix helped companies decide which markets and business units to invest in on the basis of two factors the first is company competitiveness and the second is market attractiveness so let's look at how those two factors manifest themselves in this framework basically what you've got here is a matrix and on the bottom here market share we have this first factor that we're talking about which they called company competitiveness and essentially what they're doing is they're saying well market share is a way that you can quantify and easily kind of measure whether a company is really competitive in a particular market so if they've got a really high market share like 90 percent they're competitive in that market if I've got a low market share like 5 percent maybe they're not competitive in that market then the second factor they were talking about is the attractiveness of the market and how they've chosen to measure that and quantify it is by looking at the growth rate of the market so is the market a high-growth market or is it a low growth market which will really kind of dictate whether it's an attractive market so be it so this is basically the matrix they put together the way to kind of visualize those two factors are talking about and then what you can do is if you are a company you can start plotting your product lines into this matrix to understand kind of your distribution and what it looks like so let's take a look at each of the quadrants in detail so the first is what are called the docks and basically these are product lines that exist that have a low market share in the market they operate in and they're also in a market that has a low growth rate so basically these are products that the prospects moving forward don't look great the current position in the in the market isn't particularly great and so they'd be good candidates to divest ourselves with their portfolio or etc they can combine it in a new way that brings more value to them than it does to the current company so that's the first category the second category is the question marks so we're staying over here on the low market share side of the matrix but we are now in a high-growth market and that's what makes these product lines a question mark because the company has not yet established this product in the particular market they have a low market share but the market itself is very compelling it's growing very very quickly and so that means that the company really needs to make a decision do you continue to invest heavily in this particular product line or do you divest it often and focus your attention elsewhere so that's the second category okay now we're going to move on to the left side of the matrix which is where a lot of the excitement is so on the third category we have our stars and these are products or business units that have a high market share in the area that they operate in and they are operating in high-growth markets so basically you know if you got a bunch of stars in your business that's gonna be a great place to be you're gonna be really happy because these are quickly growing markets you've got a dominant position in them that's just a very good mix of of factors they're working working in your favor so let's talk about the fourth category the fourth category is the cash cows and so we're still over here we're talking about product lines or business units that have a high market share in the market they operate and but the market itself has slowed down the growth is slower it might be a mature or stable market and so the prospects aren't as great as your stars which are in the fast growing markets but they're called cash cows because likely they're throwing off a lot of pass you've got a dominant market position in a stable market so let's now take these different product lines and think about kind of the interplay between them and how this type of framework can help with capital allocation decisions so okay so we've got our matrix here and what I want to do is run through a few examples so let's say you're a business and you've got products in all of these different categories and you've got some cash cows down here and these cash cows have you know they've got really dominant market positions they're in low growth markets though but they do throw off a lot of money which is great so you could decide as a business to take the money that's being thrown off by your cash cows and directly invest it in your question mark products and the reason and the intent for doing that would be we take the money that you're making from your cash cows you invest it into the question marks with the goal of turning those question mark products into future stars right because those question mark products already exist in a high-growth market but they haven't established themselves yet and so maybe if you give them a little extra capital which is coming from your cash cows that don't really need to do much because they already have a dominant position you can take those question marks and turn them into stars okay let's run through another example so say you've got a few businesses or products that are currently dogs and they're in you know low growth markets you've got a low market share there one option is you could potentially divest some of those dog and sell them to to other companies and so if you did that you would get rid of them from your portfolio that might help generate a little bit of cash here and then you have a decision what to do with that cash so one option would be take that cash that you generate from those divestitures and funnel it over to some of your stars your high growing your high-growth markets with high market shares already and and kind of continue to build and establish an even more dominant position so that's another option of something you could do but there's a lot of different permutations as you could see here for example you could imagine taking the money that you've made from your cash cows and instead of funding question marks like we talked about the first example you could funnel that money directly into your stars as well to continue to fuel their growth even faster so there's a bunch of different permutations here but the key idea is if you have multiple products this is a way to kind of map them out understand where in there kind of like products life cycles they are and where they are relative to the markets they're participating in and what you could do to kind of allocate your capital as efficiently as possible that makes a one final pop I want to leave you with as soon as you ordered one of these frameworks whether it's the BCG growth-share matrix framework or any other framework it can be tempting to start using them over and over and over again and every time you see a do problem but I want to say a word of caution about that because while these frameworks are very powerful you need to think critically about whether the framework is the right framework to apply in any given situation so in reality this framework should be another tool in your critical thinking toolkit but not a proverbial hammer that you use to him you know try and solve every problem so thank you so much for watching we've got a ton of great content coming out on the rocket block stream on a weekly basis so please subscribe if you haven't already there's a big red button below and we'll see you next time thanks and have a great day you

Channel: rocketblocks

Views: 4,110

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Keywords: BCG, Consulting, Consulting frameworks, business frameworks, Consulting interviews, case interview prep, case interviews

Id: Jyl9NiYtOm8

Length: 9min 48sec (588 seconds)

Published: Tue Jun 04 2019