This post focuses on one unique quadrant of the BCG Growth Share matrix – the Star. It goes deep and hand-on into the defining attributes that make a Star, discusses implication for strategy, and goes into applications in project management.
The Star – and Growth and Share as Strategic Factors
What is a Star – and what are the alternatives? Let’s get a little context.
Boston Consulting Group (BCG) is well-known for the famous Growth Share Matrix, developed by BCG founder Bruce Henderson back in 1968. The matrix provides a visual of how the growth environment and the relative market share play a major part in the type of organization.
Our focus for this post is on the Star – at upper left in the matrix. In that spot, industry growth is high, and market shore of the organization is high and usually means in the lead. The idea is that the greatest value accrues to those organizations that can attain the highest market share in their defined industry, where the industry is growing at a healthy clip (10% or more as defined by Richard Koch, a BCG alum, in his book, “The Star Principle: How It Can Make You Rich“.
But what is the context for the Star? Where does everyone else fit?
The matrix shows three alternatives:
- Cash Cow – With a leading market share in a less than high growth market, such an organization may be less valuable than a Star, but strong profitability provides a great cash flow harvest.
- Question Mark – Organizations can be on the cusp of greatness – where they are operating in a high growth environment, but may or may not achieve market share leadership.
- Dog – This least desirable position is where the organization is not in a high growth market – and in addition is not the leader in terms of market share in that market. That’s a recipe for low or nonexistent profitability.
When BCG developed the Growth Share Matrix back in 1968, it was an era of large conglomerates. These large organizations consisted of many businesses, and the approach as to build Stars, keep Cash Cows, try to make Stars out of Question Marks, and get rid of the Dogs.
But what about today? While there are still large conglomerates today, they are not dominant, and typically the greatest value is not there. Let’s focus in on where the value is with the Star in today’s environment.
7 Defining Attributes of a Star
Today, markets rise and fall rapidly – but also can rise for a long time. The result is rapid change, and huge opportunity. Thinking as an entrepreneur, an executive or investor, and as a project manager, let’s explore 7 factors that Richard Koch has outlined to build – even create from scratch – a Star.
- Divide the Market – There are large markets, and we have seen in today’s environment that they are often disrupted. This often happens when a piece of the market is extracted, redefined as a specialized niche, and served in a different and novel way.
- Select a High Growth Niche – The niche defined in #1 needs to be high growth – at least 10% per year as far as the eye can see. If the prospects in the niche are not for high growth, the prospects for building a Star are low.
- Target Your Customers – What is the ideal customer avatar? How clearly can you define it – and differentiate it from that of the larger market where you started?
- Define the Benefits of the New Niche – What are the specific benefits that derive from the definition of the new niche? It could be new features, elimination of certain features, low cost,….
- Ensure Profitable Variation – Being different is not enough. It must be profitably different! How can the business model for delivering in the niche be constructed to produce a very healthy profit?
- Name the Niche You Plan to Lead – Coming up with a good name means that you have come up with a good and clear niche definition. What specifically evokes a clear picture, in just few words, of the idea for the niche?
- Name the Brand to Complement the Category Name – You want to draw a portion of the constituency from the general market. Is there a way to create a new brand that is derived in some way from the broader market?
The idea here in this post is to outline the framework. For some great examples of Star businesses, I recommend Richard Koch’s book “The Star Principle“, which talks about Betfair, Coca Cola, and others.
Let’s consider how the idea of a “Star framework” effects the approaches to strategy.
Implications for Strategy
The original BCG Growth Share Matrix was built for a different environment. Let’s look more specifically at how the framework applies to entrepreneurs, executives, and investors.
- Entrepreneurs – In this digital era, the opportunities for carving up markets are nearly unlimited. The key is to isolate those ideas that have the potential for high growth as well as the possibility of achieving market share leadership – for market disruption. Entrepreneurs also need to be clear about their desires and chances for building a Star versus Question Mark or Cash Cow for their business.
- Executives – With an existing business in place, executives need to balance organizational culture, legacy businesses, and existing customers with future endeavors and changes. Developing a Star may or may not be in the best interest, or even possible, of the stakeholders.
- Investors – The framework outlined for identifying a Star makes it much simpler to screen candidates. It skips over detailed and cumbersome analysis that is unnecessary at least to identify if a business is a Star.
There may even be pieces of the Star framework identified above that can be helpful as a part of a customized strategic analysis. One of the most important ways of looking at it is to think about the ‘job to be done‘ that customers, clients, or anyone else you are serving.
Implications for Project Management
There are numerous application in the practice of project management for this Star framework. Here’s my take:
- Project Manager – What is the value of you project? Is it a Star? How wide are the applications for the organization? Can you make it into a Star? Be realistic.
- Portfolio Manager – What should realistically be the makeup of you portfolio? Will there be any Stars? Can you make anything into a Star? Can you devise projects to identify or create a Star? What projects are necessary that are not Stars?
- Program Manager – Like the executive in the Strategy section above, you have certain defined responsibilities to execute. These could be to create a Star, to steer something in a new direction, to build efficiencies to defend a position,…. What can you derive from the Star framework that can elevate the performance of you program?
A Star project does not necessarily have to be in a Star organization! There are many stable, sound, and productive organizations, whether in government, private and public businesses, and not-for-profit organizations! But perhaps some attributes of Star businesses can help to make them better, or at least provide some positive perspective.
Conclusion and Further Resources
This post focused on the Star quadrant of the BCG Growth Share matrix – the quadrant to the most attractive (potentially exponential) returns. It went hands-on into the defining attributes that make a Star, providing you with a template for evaluation and analysis. Finally, it discussed implications for strategy and applications in project management.
And consider these two excellent books by Richard Kock:
The following is a short (2 minutes) investor-centric video about the BCG Growth Share Matrix – and especially the Star: