Preparing for your strategic plan: BCG matrix
OGSM and OKR are popular methods to build a strategic plan. With OGSM Software, you can then monitor progress towards its execution and achieve all your goals. However, a good strategic plan requires solid preparation. To define realistic goals and effective strategies, it’s not just necessary to know where you want to go tomorrow – you also need to know where you stand today. There are several tools to help you prepare for your OGSM or OKR strategic plan. One of these tools is the BCG Matrix.
What is a BCG matrix?
A BCG matrix is a 2-by-2 matrix you can use to classify your product or service suite. BCG stands for Boston Consulting Group, the original creators of the tool. The matrix has two axes: the horizontal axis represents the relative market share of a product, and the vertical axis represents the market growth. Each box or quadrant in the matrix has a name: Star, Cash cow, Dog or Question mark.
- Stars are products with a high relative market share in a growth market. You want these!
- Cash cows are products with a high relative market share, but not much growth. These are often old products toward the end of their life cycle. They are a steady source of income.
- Question marks are products with a low relative market share, but where there is a high potential for growth. These should be considered strategically: do they have what it takes to be a star one day?
- Finally, dogs are products with low relative market share in a stagnant market. Sometimes the best thing is just to get rid of them.
The BCG visualises the current and potential market impact of the products or services in your portfolio. A BCG can also map the expected development of your products and services. Do you expect a product to go from star to cash cow in the near future? Or is it more likely to become an unprofitable ‘dog’ or question mark?
Why use a BCG?
A BCG matrix is a useful tool to strategically analyse your portfolio of products or services in preparation for your strategic plan in OKR or OGSM. A BCG helps you determine your current situation and the market potential of each product or service in your portfolio.
In that way, it provides input for your Strengths and Weaknesses within your SWOT and your OGSM Strategies. For example, your OGSM product Strategies can be focused on eliminating Dogs and developing a new Star by investing in product innovation.
A BCG matrix provides a simple visual understanding of your current portfolio. This facilitates the discussion about where you are today and where you want to go in the future.
Who should make a BCG matrix?
The BCG matrix is suitable for commercial organisations with multiple products or services. It is widely used by so-called Fast Moving Consumer Goods companies, but service providers can also benefit from it. In general, a BCG matrix is made by the portfolio manager, the marketing manager or the head of strategy in an organisation.
How do you make a BCG matrix?
How do you make a simple BCG matrix?
For a simple BCG matrix, you can download a standard BCG template or image and position your products or services approximately in terms of market share and growth. This gives you a quick and basic idea of your portfolio.
How to create an advanced BCG matrix?
For deeper insight, you need to do some calculations to show the relative performance of the products or services in terms of market growth and share. Where each product or service ends up on the matrix will depend on your parameters: what is considered a high or low market share, or high or low growth potential, will be different for each situation, as that depends on the product, market and company in question.
Determine your relative market share on the horizontal axis
The horizontal axis of the BCG matrix represents the relative market share of the product or service compared to the largest competitor. To calculate this, take your own product’s market share and divide it by the market share of the largest competitor’s product. If the largest competitor has a share of 40% and your market share is 15%, the formula looks like this: 15/40 = 0.375.
Formula: relative market share = your market share / market share of the largest competitor.
Determine the market growth on the vertical axis
Market growth is on the vertical axis. This is the percentage by which the market of your product has grown within a certain period of time. You calculate this using the total market turnover value at the start date and end date of your desired time window. Subtract the old turnover from the new turnover, and divide this by the old turnover. Then multiply by 100. Make sure you use the turnover of the total market, and not the turnover of your own product.
Formula: Market growth = (new turnover market – old turnover market) / old turnover market * 100%
Steps to create your own advanced BCG matrix
Step 1 – Create a table with the variables
The first step is to create a table in which you enter the necessary information for your product or product groups. For our example below, we’re making a BCG matrix for a watchmaker that has products on sale for 3 different target groups: women, men, and kids.
Step 2 – Enter the values
Step 2 is filling out the previously created table with all the necessary data. You can calculate market growth and relative market share using the formulas provided above.
Step 3 – Set up the BCG matrix
Now that you have completed the table, it is time to plot the BCG matrix. You now decide the limit values for the axes based on the table. Please note that there are different limits for each BCG matrix. Represent the products or product groups using different colours or symbols in the matrix, and include a legend to know which symbol or colour represents which product or service. Your completed BCG matrix will end up looking something like this: