The BCG matrix and the Internal-External (IE) matrix are designed specifically to enhance a multidivisional firm’s effort to formulate strategies. BCG is a private management firm based in Boston.
The BCG matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate. The BCG matrix allows a multidivisional organization to manage its portfolio businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization. Relative market share position is defined as the ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.
Relative market share position is given in the x-axis of the BCG matrix. The midpoint on the x-axis usually is set at 0.50, corresponding to a division that has half the market share of the leading firm in the industry. The y-axis represents the industry growth rate in sales, measured in percentage terms. The growth rate percentage on the y-axis could range from -20 to +20 percentages, with 0.0 being the midpoint.
A graphical representation of a BCG matrix appears in the following diagram. Divisions located in Quadrant I of the BCG matrix are called Questions marks, those located in Quadrant II are called Stars, those located in Quadrant III are called Cash Cows, and those that are located in Quadrant IV are called Dogs.
Relative Market Share Position
High Low
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