Marketing Myopia the Boston Matrix Analysis

Marketing Myopia — The Boston Matrix Analysis (BCG Matrix)

For approximately the last two decades, the discipline of marketing has been under constant scrutiny to gauge its relevance and usefulness in both practical business strategies and academia. Marketing pedagogy and strategies are critiqued to have become irrelevant and myopic and their blind adoption by organizations is raising heated debate amongst academics surrounding the efficacy and limitations and the law-like generalisation of such strategies.

According to most curriculums of some of the best business schools in the world, the Boston Consulting Group’s (BCG) growth share matrix is one of the most recognised and persistent tools in strategic management. The 2×2 matrix assists organisations in multi-product, multi-market situations and considers products in terms of two determinants: market share and market growth, allowing firms to categorise products in terms of profit generating ‘cash cows’, rapidly growing ‘star’ products, the questionable ‘problem child’ and the infamous low growth, low market share ‘dog’ category.
BCG growth share matrix

With regards to the functionality of the BCG Matrix, Bruce Henderson, founder of the BCG group, provocatively claimed that “such a single chart, with a projected position for five years out, is sufficient alone to tell a company’s profitability, debt capacity, and growth potential and competitive strength”. After its inception, the BCG matrix was being used by over 100 major U.S. companies. By 1975, Lorange Institute of business in Zurich, referred to the matrix as “the common method of corporate planning” and claimed that the matrix was now universally applied, however, this view can now be considered somewhat oversimplified and relatively outdated now.

So far in this debate, academia has supporters on both sides of the boxing ring. Professor Chris Hackley of Royal Hollway, University of London, in his book Marketing: A Critical Introduction functionally critiques and evaluates marketing strategies in terms of their internal coherence and evidence base, and the success of their transition into actual practice and the results they may generate. In his publication he claims that the Matrix may retain its popularity, however, it has minimal organisational use as most firms do not possess the accounting sophistication to assess profitable offerings let alone determine relative market share, however, research conducted by A. Morrison and R. Wensley in their document ‘Boxed Up or Boxed In?’ emphasise that the matrix was proposed as a relatively simple way of gathering information about portfolio positioning because the alternative methods such as the NPV, or risk analysis, were too complex to work with to attain reliable figures.

Research statistics over the years suggest that between 1972 and 1982, the BCG matrix was used by 45% of the Fortune 500 companies, however, at the turn of the 21st century, the BCG matrix can be seen as being at the decline stage of its own life cycle, and quantifying as a ‘dog’ in its own categorisation. In the application of this particular marketing tool, there has been reported evidence of a Fortune 500 CEO’s perplexity at having to divest a staple product of a company as it was measuring up to be a ‘dog’ by 3 percentage points according to the BCG matrix analysis. However, when the strategies were revised to only divest non-profit generating products, instead of all the seemingly ‘dog’ products, the results were more profitable by 17% proving that ‘dogs’ can be viable and profitable for years and can be useful in synergising resources and supporting other products. The BCG matrix implies the conclusion that market domination can only be achieved through lower cost and competitive success hence high market share is sought. However, even in the light of the experience curve, high market share is not always a direct path to high profits, nor are high profit generating products always market leaders.
boston consulting group matrix

In Chris Hackley’s view, the ‘dog’ product being profitable or being employed as a niche, proposes that often firms have to supply various combinations of market offerings through cross-selling or post- purchase selling, regardless of whether if they are profitable or not. A popular example of this is represented by the bleach market leader Clorox (who already dominated 60% of the powdered bleach market), in preparation for an onslaught from P&G launching a new product, introduced a sub-brand; Wave to simply occupy the low growth, low profit quadrants and to guard their territory and keep the wolves at bay without the expectation of the product to gain a relatively large market share in the future. ‘Dogs’ therefore, are often used as a defense strategy rather than a growth one.

Slow growth markets can also often yield high profits if ‘dogs’ are viewed as niches or opportunities, instead of potential failure threats or ambiguous strategic points. For example, Southwest Airlines, although known for its no-frills, low-cost service has become a ruthless competitor for major airlines. The most overlooked aspect of Southwest’s profit-winning strategy is its superior asset utilisation. By structuring flight schedules to return planes from the gate to the air in as little as 20 minutes, Southwest flies its planes 20-30% more hours than other major airlines. By deploying a point-to-point route network, instead of the hub-and-spoke model used by most major carriers, Southwest Airlines minimises the domino effect of flight delays and gains maximum use of its assets. This goes to show that the application of the BCG can only acknowledges maximum competition and can often leave firms complacent to rising competition. In actual practicality, ‘dogs’ may present opportunities and often generate more cash than ‘cash cows’ which begs for copious amounts of model revaluation in the light of a more contemporary and elaborate market structure. However, the viability of the niche strategy used to cope with ‘dogs’ can decrease if a full or extensive product line is not required to support sales, services etc, and the specialised product may not generate adequate volume or gross-margins to survive in the market for long.

Chris Hackley’s typology for critiquing marketing models challenges the intellectual basis and historical forces that sustain marketing pedagogy and further argues that the BCG matrix provides a lot of unnecessary strategy jargon such as ‘portfolio management’ and that the matrix works as a simplifier rather than an enhancer. Out of umpteen business factors and environmental conditions it selects market share/growth as the main focus and shows precisely how to apply them to develop strategies to collect limited and specific information rather than exploring the possibility of new horizons and creative spaces, however there are academics that refute any evaluation of a business portfolio using only two dimensions is likely to be misleading and ambiguous. High market share is not always likely to rein a firm cost advantage, nor is industry growth the only factor that determines industry attractiveness, other factors should also be considered, such as the core competences of the firm, customer needs and focus, barriers to entry, the capability of a firm’s managers to cope in the markets and such others. Market strategy can also often be dependent on factors other than industry growth and market share, such as strategies based on branding criteria, non- profit generating functions, environmental benefit, CSR activities, and socio-economic factors to list a few. The BCG matrix is an economics laden concept and assumes that relative potential costs determine outcomes. However, too great a focus on cost economics may divert focus from other uncertainties attached both to market and competitive response and may not spread equally across all areas of business. For example, state owned businesses operating domestically such as state electric utility have much higher market shares than shipbuilding enterprises with low market share internationally, hence comparability between the two based on the matrix is low.
BCG matrix examples

The matrix is also criticised for the imprecise nature of its four quadrants, because of the difficulties it faces in predicting future growth, however, Professor David Campbell in his publication ‘Global and Transnational Business: Strategy and Management’ argues that the concept of the BCG matrix was never of a panacea that covered all aspects of strategy. It is merely a device that allows organisations to assess when to ‘push’ or ‘drop’ a product and assists in recognising windows of opportunities.

It can also be argues that the BCG matrix provides superficial and oversimplified labels for categorisation and 1/3rd of these labels are prune to misapplication as the BCG philosophy is usually applied as a prescription for kick the ‘dogs’, cloister the ‘cows’, invest in the ‘stars’ and monitor the ‘problem child’. However, as far as healthy debate is concerned, it can be proposed that though the BCG matrix does demonstrate that the criticisms of the technique may be valid, they is the possibility that these difficulties beset any strategic planning exercise and can be accountable to cautionary tales against over-simplified or thoughtless use and because of its seductively simple nature, it is upon the consideration and skill of the manager as to how they apply the matrix that can make it a successful tool or a straight jacket for their business.

In light of these issues, it is clear that the interpretation and application of the BCG matrix (Boston Matrix) posses numerous problems. The academic literature on strategy, whether effective or false still moulds the behaviours and practices of those who digest its content, however, it has been argued with regards to the BCG matrix, that improvements can be made on the basis of more consideration towards a less rigid discourse including consumer demand, environmental factors, segmentation and niche markets etc. to create more relevance in actual practicality of the matrix rather than persisting as a relatively outdated academic theory.