SMEs face the challenge of implementing an effective growth strategy. BCG matrix is a strategic planning tool developed by the American firm, Boston Consulting Group to aid businesses in implementing a growth strategy. The matrix provides a sound basis for evaluating products and strategic business units(SBU) thus helping a firm to ascertain the current and future value of each unit. As a result, a business can identify the best way of treating specific business units to maximise their contribution to the corporate vision. Large businesses are divided into strategic business units that can be evaluated separately regarding revenue, costs, market shares, and profit. On the other hands, it might be difficult to segment small businesses into strategic business units and in this case the matrix is used to evaluate products. The matrix uses the market growth rate, and the product relative market shares to evaluate a SBU/product where four positions (Star, dog, cash cow, and question mark) given symbolic names are identified. To effectively apply the BCG matrix, SMEs should segment their businesses into specific revenue streams comprising of either products or service lines and analyse the resulting units using the relative market share and the market growth rate.
A ‘dog’ is a product/business unit operating in a low growth market and whose market share is small. Such business units are a liability to a business, and they should be terminated as they predate on other business units.
A ‘question mark’ as the name suggests plunge a business into uncertainties as it is hard to tell whether this business unit can be developed into stars. Question marks are business units operating in a high growth rate market with a low relative market share. In-Depth research is needed to point out what the firm should do right to grow question marks into stars.
A star is a business unit operating in a high growth market and one that has a high relative market share. It has a great potential to grow and requires an investment to increase its value to the business.
A cash cow has a high relative market share and operates in a low growth rate market. Cash cows require to be maintained to preserve their cash generating ability.