The Boston Matrix is a business planning tool that helps companies devise strategies for future growth.
Using graphs to represent what you sell and the markets you sell into, it shows your business which products and services to invest in and which to discontinue.
Created by the Boston Consulting Group, the Boston Matrix is also known as the BCG Matrix, the Product Portfolio Matrix or the Growth Share Matrix, and has been in use since 1968.
What are the main considerations when creating a Boston Matrix?
The two key considerations for the Boston Matrix are growth and relative market share (i.e. relative to your competitors).
By looking at the current and projected growth of your products and services and then at the market, you can gain objective insights on how to capitalise on opportunities for growing your market share.
How do you create a Boston Matrix?
Your first step is to collect data. This should include details of your portfolio of products and services, including costs and growth rate, plus information on competitors and relative market share.
Analyse your main competitor and consider what competitive advantage you have over them. Think about what sort of growth you might see over a fixed period of time, for example the next three years.
Next download an online template to create your Boston Matrix. Each of your products and services should then be placed on the Matrix under one of four headings. These are:
Dogs – products or services that have a low share in a slow growth market. These are usually products that generate little or no profit for your business and should be discarded.
Cash Cows – products or services that have a high share in a slow growth market. They require management but tend to need little investment to generate income. Because they generate more income than you are spending to create them, they should be held on to.
Problem Children – also known as Question Marks, these are products and services that have a low share in a high growth market. They generate little while consuming time and money, in particular as you work to increase your market share.
Stars – last but not least, these are products and services that have a high share of a high growth market. These should be kept as they generate high profits, however they also tend to require heavy investment to sustain growth.
Finally, add your competitors’ products and services to the framework to make comparisons with your own.
What are the downsides to using the Boston Matrix?
While the Boston Matrix can help a business to make decisions on developing its portfolio of products and services, there are some downsides to the framework. The Matrix only offers a general overview from one position and doesn’t take into account a number of other internal and external factors that could affect income generation.
Also, measuring market share does not take into account whether or not the market is attractive and sustainable. In short, it takes a simplistic approach to a complex problem.
The Boston Matrix could give you a useful overview of where to put your resources, but it’s worth looking at the other business development tools available, to use alongside or instead.