Boston matrix is ​​a business analysis tool developed for corporations and is working also

great for small businesses. So what is the connection between stories of cows and children,

and what has to interest you from Boston? All in next post.

Boston matrix was created somewhere at beginning of 1968, by the good people at Boston

Consulting Group. The purpose was to offer for businesses a tool that allows analysis and

decision-making information’s about the mix of products and their areas of operation. The

use of matrix helps decision makers to understand what products or areas of activity are

profitable to invest in and what is not, what products cost more and what no, and so forth.

The model, which is used by the world’s largest companies, is also suitable for small and

medium businesses. Placing segments of the business matrix can also help those who are

not having at them disposal teams of analysts and marketers and is just good business

management software.

But let’s start with the beginning. Boston matrix is based on two main variables for

calculation the weight of product or area of activity for business. These variables are: market

share and market growth. Model assumption is based on the following:

Market share: the company has a larger market share in a specific field, so it can defend the

position more easily – and perhaps even strengthen it.

Growth: rapidly expanding market because is an attractive market, it would be easy for

company to grow without having to fight for market share.

Based on these two axes that matrix was built, the changing market growth is shown on the

vertical Y-axis and the market share is shown on the horizontal X-axis.

Cutting of axes (X and Y), divides the matrix into four quadrants. Each quarter is given by

BCG experts with relevant name and description – dairy cows (Cash Cows), dogs (Dogs),

Stars (Stars) and question marks (Question Marks).

Cash Cows (high share, low growth)

Cash cows are the most profitable brands and should be “milked” to provide as much cash

as possible. The cash gained from “cows” should be invested into stars to support their

further growth. According to growth-share matrix, corporates should not invest into cash

cows to induce growth but only to support them so they can maintain their current market

share. Again, this is not always the truth. Cash cows are usually large corporations or SBUs

that are capable of innovating new products or processes, which may become new stars. If

there would be no support for cash cows, they would not be capable of such innovations.

Strategic choices: Product development, diversification, divestiture, retrenchment.

Stars

Stars operate in high growth industries and maintain high market share. Stars are both cash

generators and cash users. They are the primary units in which the company should invest

its money, because stars are expected to become cash cows and generate positive cash

flows. Yet, not all stars become cash flows. This is especially true in rapidly changing

industries, where new innovative products can soon be outcompeted by new technological

advancements, so a star instead of becoming a cash cow, becomes a dog.

Strategic choices: Vertical integration, horizontal integration, market penetration, market

development, product development.

Dogs

Dogs hold low market share compared to competitors and operate in a slowly growing

market. In general, they are not worth investing in because they generate low or negative

cash returns. But this is not always the truth. Some dogs may be profitable for long period of

time, they may provide synergies for other brands or SBUs or simple act as a defense to

counter competitors moves. Therefore, it is always important to perform deeper analysis of

each brand or SBU to make sure they are not worth investing in or have to be divested.

Strategic choices: Retrenchment, divestiture, liquidation

Question marks

Question marks are the brands that require much closer consideration. They hold low market

share in fast growing markets consuming large amount of cash and incurring losses. It has

potential to gain market share and become a star, which would later become cash cow.

Question marks do not always succeed and even after large amount of investments they

struggle to gain market share and eventually become dogs. Therefore, they require very

close consideration to decide if they are worth investing in or not.

Strategic choices: Market penetration, market development, product development,

divestiture.

To maximize profits, for all business units you need to ensure that products gain or are

balanced and varied. The business owner should refer to the data matrix as an investment

portfolio and make sure it contains: stars – so it will remain relevant in the future, dairy cows –

with which it will be possible to fund further developments and questions and hopefully one

day become stars and cash cows.

Boston model application for SMBs

This was developed by Boston It department for also small and medium businesses that can

use the matrix for intelligent analysis of them operations. Take for example, a clothing store

its product mix several brands. Retirement brands on the matrix will help store owners to

understand:

-The brands that are sold at all times, even without the massive promotion, and are not

available for buying in stores nearby. These brands will be marked like dairy cows.

-Brands which are left on the shelf untouched, and there are also abundant at the

competition from next door. These brands will be marked as dogs.

-The brands who arouse great enthusiasm among buyers but to educate the market

familiarity with them has put money into marketing. These brands will be marked with stars.

-The brands that appear in abundance at the competition and are interest to some extent,

but require a high financial investment to educate the market acquaintance with them. These

brands will be marked as question marks.

Looking at the picture that emerges from the data would allow business owners to make

decisions about future purchases, marketing budget distribution for various brands and even

decide wisely about how to order the store shelves.

To make retirement the correct matrix should be used data from your business management

software. ERP software friendly of COMAX allows full control over the business from

anywhere, inventory and production reports. Put and call help from both Boston and

implementation planning model business processes long and short term.