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Growth-Share Matrix

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Concept explanation

The Growth-Share Matrix is a decision-making tool that helps to decide which company’s sub-businesses, products, or services should be kept, which should get more resources, and which should be depreciated.

This tool places products into four different categories: Dogs, Cash Cows, Stars, and Question marks. Each category represents a specific combination of relative market share and market growth.

Cash Cows: Low market growth, high market share
Typically, these are leading products in mature markets. Units in this category usually generate more cash than required for maintenance. Companies should “milk” these for cash to reinvest in “Stars” or “Question Marks.”
Stars: High market growth, high market share
"Stars" represent long-term opportunities. They require significant investment to support their growth but also generate substantial cash flows. As the market matures, successful “Stars” evolve into “Cash Cows.”
Question Marks: High market growth, low market share
"Question Marks" are a company’s big bets. They typically grow fast but consume large resources without generating substantial cash flow. Companies typically monitor these closely to decide whether to invest in them further or abandon them. If market growth goes down, “Question Marks” may turn into “Dogs.”
Dogs: Low market share, low market growth
"Dogs" generate just enough cash to maintain themselves without being major profit streams and can turn out to be a cash trap. Companies should liquidate, or rethink these units.

The Growth-Share Matrix reveals fundamental factors that decision-makers should consider when choosing where to invest: Company competitiveness, and market attractiveness (with relative market share and growth rate as the underlying drivers of these factors).

The Growth Share Matrix was created by the Boston Consulting Group in 1970. At the peak, the Growth-Share matrix was used by about half of all Fortune 500 companies & is still central in business school teachings on business strategy.

Use-cases

Setting the context for the current product portfolio to highlight the potential of your idea

New ideas, especially innovative ones, may look unclear if presented in a vacuum. Setting the right context that would visualize the current position of the company on the market, the market situation, and the potential risks of the current business model may set the right context to understand the potential of your idea. The new idea will be placed in the “Question Marks” category, stressing the high growth potential and outlining a path to becoming a “Star.”

Visualizing the need to redistribute resources from other teams/departments to support your idea

When pitching new ideas, your main goal is to secure the resources that you will need to execute your idea. Almost always resources are limited and distributed between different teams & departments. In this system asking for resources will often mean taking resources from other teams/departments. Simply put, the Growth-Share Matrix is a great tool to visualize the ROI of different teams & departments to display the ineffectiveness of distributed resources in your favor. Use the Growth-Share matrix to make sure you will get those resources.

How to use

Decide what you want to compare: sub-businesses, products, services, or teams/departments.

Identify all units within the chosen category.

For each unit calculate the total market share using the foLamborghinrmula:

(your product’s sales / total market sales) x 100.

If your product sold $20 million worth in a $100 million market, your market share would be 20%.

Calculate the market leader’s market share using the same formula.

Compute the relative market share using the formula:

your product’s market share / market leader’s market share.

If your market share is 20% and the market leader’s share is 40%, your Relative Market Share would be 0.5 (20% / 40%).

Interpret the results:
1. Relative market share > 1: Your product outsells the market leader.
2. Relative market share = 1: Your product sells as much as the market leader.
3. Relative market share < 1: Your product sells less than the market leader.

Then, calculate the market growth rate using the following formula:

((Current market sales - Previous market sales) / Previous market sales) x 100.

Interpret the results:
1. High growth rate: If the market growth rate is positive and significantly high (e.g., 10% or more), the market is expanding quickly, indicating opportunities for increased sales.
2. Average growth rate: A moderate growth rate (e.g., 3-10%) indicates a stable and steadily growing market.
3. Low growth rate: A low or near-zero growth rate (e.g., 0-3%) suggests a mature market with limited expansion.
4. Negative growth rate: If the market growth rate is negative, the market is shrinking, which may signal declining demand.

Finally, place your products on the matrix according to their category.

Suggestions from Deckster

Keep in mind that the Growth-Share Matrix assumes that all products/businesses operate independently, but in reality, that could be different. I.e. products in the "Dogs" category can indirectly support the growth of products in the "Stars" category.

Before using the Growth-Share Matrix, evaluate the connection between market share and profitability, as they may not always be directly related. I.e. premium niche products like Ferrari or Lamborghini may have low market share but high profitability.

The Growth-Share Matrix can also be used to evaluate different teams or departments within a company, in addition to comparing sub-businesses, product lines, or services.