A model developed by the consultancy of the same name in the 1970s. It is focused on the cash flows generated by products' and businesses' portfolios as a result of relative market share and growth. Market share is measured relative to the product's largest competitor. This technique became a staple of market strategies in the 1980s. In the Boston matrix products are classified according to their ability to either generate or to consume cash. These are the main categories with their famous labels for each dimension of the matrix.
The matrix is not static and the interrelationship between the various classifications makes the model very useful, particularly for developing market strategies. For example: stars are businesses or products with outstanding opportunities that do not generate excess cash because they are still growing market share in face of competition. They may well be self-financing. Stars of today may become the cash cows of the future. Excess cash is provided by the cash cows that are entering a period of low growth in mature markets but which need relatively little cash investment. Cash cows are assumed to enjoy lower cost, economies of scale, and high profit margins. Dogs, by contrast, have low market shares in low-growth markets and tend to generate either a loss or a relatively low profit. They typically take up more management time than warranted and, unless they can be strategically justified, such as contributing to overheads, are potential candidates for divestment. Problem children (or question marks) need considerable cash investment because they have a low relative share but high growth prospects. They are therefore cash users and could become stars of the future. Management must choose between further speculative investment and even withdrawal, depending on their prospects in their target markets.
The BCG remains a useful framework for portfolio analysis. It has, since the 1980s, been subject to various criticisms of its shortcomings and has become less reliable as a framework for practical marketing action. The main criticism levelled at the matrix is the assumption that all of a company's products and business units work in an interconnected life cycle. In this life cycle, the mature and profitable funds and fuels the new and growing while the old falters and eventually is terminated. Another one of the problems that practitioners have with the BCG matrix is that it is difficult to delineate and define what a ‘market’ is, and, consequently, to measure market share precisely. It does not take into account technological discontinuities that can alter the entire shape and dynamics of a marketplace within a very short space of time. Beyond that, some critics have also pointed out the underlying assumption that cash generation is always organic with a company and does not take into account many other ‘inorganic’ or external cash generating instruments that are available which could affect a portfolio and market position. Also, one would have to be careful in its uses—particularly using it as a guide to divestments and product withdrawals—as it offers an overly simplistic formula to determine ‘dog’ status. General Electric Corporation developed a more sophisticated analytical matrix model (known as the GE matrix) that used industry attractiveness and business strengths as the main axes of analysis.