How to use the BCG Matrix: Star, Cash Cow, Question Mark, and Dog Business Classification and Strategy

When the question “Analyze this company’s business portfolio” comes up in a management strategy assignment, the first tool that comes to mind is the BCG matrix. Although the Khan name is familiar, the actual order of business placement and strategy can be confusing. This article summarizes everything from drawing methods to limitations.

What is BCG Matrix

The BCG Matrix is a business portfolio analysis tool introduced by Boston Consulting Group in the 1970s. We help companies with multiple businesses decide which business to invest more money into and which business to collect money from. The vertical axis is market growth rate, and the horizontal axis is relative market share (our share compared to our largest competitor).

The key to this tool is ultimately cash flow. A growing market requires a lot of investment, and a business with a high market share earns a lot of cash through economies of scale. So, how to divide the money earned from one business to other businesses becomes the management's investment decision.

Four Business Types

The ideal flow is a cycle where the money earned from cash cows is used to grow question marks into stars, and as the market matures, the stars become the next cash cows.

기출 문제를 먼저 보고 자주 나오는 개념부터 공부하니까 시간이 많이 줄더라고요. 공부 계획은 하루 단위로 작게 쪼개 두는 게 지키기 쉬운 것 같아요.

Actual drawing order

First, decide on the business unit to analyze and find the growth rate of the market each business belongs to and its share compared to its biggest competitor. Next, determine the baseline. The growth rate is often set based on the industry average or economic growth rate, and the relative market share is often set at 1.0 (same as competitors). Then, draw a dot for each business and draw a circle corresponding to the size of the sales. Finally, in each box, write which strategy is appropriate among investment, maintenance, harvest, and withdrawal, and evaluate whether the overall company's fund allocation is balanced. For numbers, please use the company's business report, public disclosure data, or credible market research data, and enter the base year. When analyzing restructuring cases, the logic of the strategy can be clearly seen by following which business the money obtained from selling was reinvested into.

Limitations and ways to improve

The BCG matrix is simple and easy to understand, but market share varies greatly depending on whether the market is viewed broadly or narrowly, and it does not reflect synergy or brand value between businesses. Also, even a ‘dog’ business can play a role in helping other businesses. Therefore, it is complementary when used with the GE-McKinsey matrix, which evaluates industry attractiveness and business strength using more factors, or SWOT analysis, which looks at the external environment.

Assignment structure and reference materials

It is neat to write the assignment in the following order: company overview → business unit definition → matrix arrangement → strategy by type → limitations and complements → suggestions. The concept, characteristics, pros and cons of the BCG matrix technique, and examples of restructuring applications at Doosan and NHN are summarized on page 6 Campus-down BCG matrix case study can be helpful to those who want to refer to the flow of actual corporate application in business strategy or business school theory assignments.