Why the Quadrants of BCG Matrix are Named as Star, Dog, Cow, Problem Child
The BCG matrix's underlying assumptions are these:
(i) High market growth rate, by virtue of attracting competition, entails high resource usage for the firm;
(ii) High relative market share, by virtue of
economies of scale,
experience curve and power vis-a-vis channels and supplier of raw materials enables the firm to generate more resources.
Hence, the two axes can be better understood as "
resource use" and "
resource generation".
This makes it easy to understand that:
- A high-use low-generation is a problem child (or question mark, as called in many textbooks) that requires hand-holding and nurturing;
- A high use high-generation is a star that warrants continued support;
- A low use low-generation is a dog that can either be left alone or be divested; and
- A low-use high-generation is a cash cow that can be harvested.
Unfortunately, not many textbooks explain why the four quadrants are named so.
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