The Boston Consulting Group’s Strategy Institute is taking a fresh look at some of BCG’s classic thinking on strategy to explore its relevance to today’s business environment. This article, the fourth in the series, examines the growth share matrix, a portfolio management tool developed by BCG founder Bruce Henderson.

“We are managing our businesses with a laser-like focus on return on capital … rigorously testing our portfolio to identify which businesses to grow, run for cash, fix or sell.”

—The Dow Chemical Company, Annual Report 2012

More than 40 years after Bruce Henderson popularized BCG’s growth share matrix, the concept is very much alive. Companies continue to need a method to manage their portfolio of products, R&D investments, and business units in a disciplined and systematic way. Harvard Business Review recently named it one of the frameworks that changed the world. The matrix is central in business school teaching on strategy.

At the same time, the world has changed in ways that have a fundamental impact on the original intent of the matrix: since 1970, when it was introduced, conglomerates have become less prevalent, change has accelerated, and competitive advantage has become less durable. Given all that, is the BCG growth-share matrix still relevant? Yes, but with some important enhancements.

The Original Matrix

“A company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows.… Margins and cash generated are a function of market share.”

—Bruce Henderson, “The Product Portfolio,” 1970

At the height of its success, in the late 1970s and early 1980s, the growth share matrix (or approaches based on it) was used by about half of all Fortune 500 companies, according to estimates.¹

The matrix helped companies decide which markets and business units to invest in on the basis of two factors—company competitiveness and market attractiveness—with the underlying drivers for these factors being relative market share and growth rate, respectively. The logic was that market leadership, expressed through high relative share, resulted in sustainably superior returns. In the long run, the market leader obtained a self-reinforcing cost advantage through scale and experience that competitors found difficult to replicate. High growth rates signaled the markets in which leadership could be most easily built.

Putting these drivers in a matrix revealed four quadrants, each with a specific strategic imperative. Low-growth, high-share “cash cows” should be milked for cash to reinvest in high-growth, high-share “stars” with high future potential. High-growth, low-share “question marks” should be invested in or discarded, depending on their chances of becoming stars. Low-share, low-growth “pets” are essentially worthless and should be liquidated, divested, or repositioned given that their current positioning is unlikely to ever generate cash.