The BCG Matrix
How does a company know when to pare down its offerings and when to expand? When to invest in research & development? When to phase out an old product? When to take a gamble on a hot new market?
These questions are important because products and offerings have lifespans. Some products, like pain relievers, maintain relevance in the market over a long period of time. Other products, like video game consoles, have a much shorter lifespan. In order to achieve maximum overall profits, a company must make its older and younger products work in concert to maintain a steady flow of relevant offerings.
The most popular tool for conceptualizing this flow is the BCG (Boston Consulting Group) Matrix, developed in the early 1970s by Bruce Henderson. Check out this website for a detailed explanation of the four quadrants of the matrix. In a nutshell, the matrix defines how companies should use profits from long-running, successful products (“Cash Cows”) to fund risky high-return gambles (“Question Marks”) in the hopes that they will become high-growth success stories (“Stars”). In addition, companies must remain wary of holding on to “Dogs” (products that have little growth potential and little market share). When Wendy’s / Arby’s Group Inc. announced that it was interested in selling off Arby’s, that might have been because they have identified Arby’s as a “dog” with little growth potential and unsatisfactory market share.
