Modern Day Design of the BCG Matrix

 

It should be remembered that the economic conditions and key business goals have changed substantially since the BCG matrix was initially developed in the late 1960s. As a result, a slight redesign of the matrix is probably required to make it more usable and logical to today’s business world.

Design of the X axis/relative market share

The X axis looks at relative market share. When this matrix was first constructed, it was primarily designed for manufacturing oriented
industries – where relative market share would create a cost leadership advantage, delivered through experience curve benefits and economies of scale

Therefore, the original BCG matrix design had the X axis is being split at a relative market share of 1.0. This means that in any industry that they could only ever be ONE brand/firm on the left side of the vertical axis – that is, an industry could only have one cash cow or one star.

All other firms/brands would have a relative market share less than the largest competitor and therefore be less than one – plotting all other brands/firms as either dogs or question marks.

In today’s more service oriented economy the role and importance of experience curve benefits/economies of scale has been reduced. As an example I give, the Apple iPhone would be classified as a question mark when using the original design of the matrix.

That is why, in the free download of the matrix on this website, I split the relative market share at 0.5. This is designed to ensure that all major players in an industry would be classified as either cash cows/stars – which is a more appropriate interpretation and usage of the BCG matrix in today’s environment.

Design of the Y axis/market growth rate

The y-axis should be set at a market growth rate that is relative to the country’s/market’s economic growth rate. For example, in recent years, China has had an exceptional level of economic growth, so that case you could set the growth rate quite high to be considered a star or a question mark.

Please note that the intention is to distinguish between growth markets and mature markets. Typically, a mature market grows at 2 to 3% year – and even may experience negative growth. I have set the difference between a growth market in a mature market at 10% – although in tough economic times you could set this as low as 7%.

The intention is to identify the differences between a competitive growth market and a more stable and less competitively aggressive mature market. (Remembering that the business goal in the late 1960s/early 1970s was a competitive advantage through cost leadership derived from experience curve benefits.)

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