Using the Boston Consulting Group approach, a company classifies all its strategic business units according to the growth share matrix. On the vertical axis, market growth rate provides a measure of market attractiveness. On the horizontal axis, relative market share serves as a measure of company strength in the market. By dividing the growth share matrix as indicated, four types of strategic business units can be distinguished:
Stars are high growth, high share, businesses or products. They often need heavy investment to finance their rapid growth. Eventually their growth will slow down and they will turn into cash cows.
Cash cows are low growth, high share businesses or products. These established and successful strategic business units need less investment to hold their market share. Thus, they produce a lot of cash that the company uses to pay its bills and to support other strategic business units that need investment.
Question marks are low share units in high growth markets. They require a lot of cash to hold their share, let lone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out.
Stars are high growth, high share, businesses or products. They often need heavy investment to finance their rapid growth. Eventually their growth will slow down and they will turn into cash cows.
Cash cows are low growth, high share businesses or products. These established and successful strategic business units need less investment to hold their market share. Thus, they produce a lot of cash that the company uses to pay its bills and to support other strategic business units that need investment.
Question marks are low share units in high growth markets. They require a lot of cash to hold their share, let lone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out.