In a success sequence, stars generate cash and over time they will turn into cash cows.The matrix divides the products into four main categories: cash cows, dogs, question marks, and stars.More precisely high market shares products will also bring high margins and cash and vice versa. The BCG Matrix assumes that the success of a portfolio of business products will highly depend on how the cash will be allocated over those same products.Back in the 1970s, Bruce Henderson, founder of the BCG consulting produced a cornerstone piece called The Product Portfolio, which would become the foundation of what is also known as the BCG Matrix or Growth-Share matrix.In 2019, BCG made over $8.5 billion in revenues. The BCG became independent by the end of the 1970s, and it started an expansion process. Henderson founded the Boston Consulting Group (BCG) as part of The Boston Safe Deposit and Trust Company. BCG Business Model It all started back in 1963 when Bruce D. Or the excess cash from stars into question marks, that will decay into dogs. In a disaster sequence the cash generated gets invested inefficiently, thus either using the excess cash from cash cows into products that will turn into dogs. And how excess cash from cash cows invested in dogs turns a negative loop. The Disaster Sequenceīruce Henderson, founder of BCG, in his Product Portfolio, explained how in a disaster sequence of cash allocation, excess cash from stars is invested in question marks, that turn into dogs. To triggering a positive loop, those question marks will need to be turned into cash cows, or else they will decay and turn into dogs. The cash flows generated by cows will need to get invested back to question marks, that for the time being, will make substantial cash. In short, stars over time become cash cows, due to market dominance and saturation, thus creating a condition of a product with a slower growth rate, and yet high margins and cash flows. And the abundant cash generated by cash cows will be invested back in question marks, that will need, over time, to become stars, to trigger a positive loop. The Success Sequenceīruce Henderson, founder of BCG, in his Product Portfolio, explained how in a successful sequence of cash allocation, stars over time become cash cows. However, they will have high market shares, thus becoming more stable products, requiring diminishing investments and high cash generation. Yet, they will become large cash generators only when they will turn into cash cows, as their growth rate will slow down. While they are leaders, they generate substantial cash. Stars are high share, high growth products. The only way out is if they become stars, otherwise, they will decay into dogs. They require far more cash than they can generate, otherwise, they will die. Question marks are low market share, high growth products. Pets (dogs)ĭogs are products with low market share and slow growth. Pets are those products that don’t have growth potential, and they don’t generate enough cash to be sustained.Īs Bruce Henderson explained in his piece, all products either become cash cows or pets. According to The Product Portfolio theory, cash should be invested back in cash cows only to maintain them, but most of the excess cash produced by cash cows should be invested in new products (question marks, see below), which have the potential to become cash cows in the future. They generate cash in excess for what it takes to maintain the market share. Rule 4: No product market can grow forever.Ĭash cows are products with high market share and slow growth.Rule 3: High market share will be either earned or bought.Rule 2: Growth requires cash to be maintained.Rule 1: High market shares bring high margins and cash flows.Assumptions underlying the Product Portfolio theoryĪccording to The Product Portfolio theory, it’s fundamental to look at cash flows, to build up a successful portfolio, and this is based on four primary rules: The idea was that of determining the share of cash to allocate for each product, based also on how much future cash potential each product had. The BCG became independent by the end of the 1970s, and by then Bruce Henderson had come up with The Product Portfolio (aka BCG Matrix or growth-share matrix). Henderson, the American businessman, founded the Boston Consulting Group (BCG) in 1963 as part of a bank, The Boston Safe Deposit and Trust Company. It all started back in the 1970s, when Bruce D. Other strategy frameworks to use in conjunction with the BCG Matrix.Assumptions underlying the Product Portfolio theory.
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