One of a company’s biggest concerns can be cash flow. At Milner, we have used the BCG matrix with a number of clients to understand the relationship between cash use and cash generation in their business.
The BCG matrix, also known as the Boston Consulting Group Matrix, is a valuable tool for helping companies with their portfolio management – tracking R&D investments, and business unit returns in a disciplined and systematic way. The matrix enables you to determine which assets could produce future revenues and make investment decisions that ensure funds are allocated to the right assets. For example if a company is not developing many new products, it needs to consider where income will come from in future. This tool can reveal these portfolio weaknesses that may threaten a company’s future long-term cashflow.
The matrix was created in 1970 by Bruce Henderson to ensure long-term revenues by balancing products requiring investment with products that should be managed for remaining profits. The BCG matrix has two axes: relative market share (indicating profitability, through economies of scale) and market growth rate (indicating market attractiveness), which means assets can be classified into 4 categories: Question Marks, Rising Stars, Cash Cows or Dogs.
Ideally, the path of an asset through the matrix is to be launched into a growing market as a Question Mark, then grow share to become a Rising Star; as market growth slows the asset maintains share to become a Cash Cow, and eventually if its share falls it becomes a Dog. Executives need to make strategic decisions that drive assets onto this path, in order to maximise lifetime profitability.
To read more about the tool please click here to download the two-side article in pdf. If you have any questions or want to find out more about how to utilise the BCG Matrix within your company, please contact Jonathan by email or give him a call on +44 (0)1473 633121.< Back