Strategic Attributes and Performance in the BCG Matrix--A PIMS-Based Analysis of

Industrial Product Businesses

Author(s): Donald C. Hambrick, Ian C. MacMillan and Diana L. Day
Source: The Academy of Management Journal, Vol. 25, No. 3 (Sep., 1982), pp. 510-531
Published by: Academy of Management
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? Academy of Management Journal
1982, Vol. 25, No. 3, 510-531.

Strategic Attributes
and Performancein
the BCG Matrix-
A PIMS-Based Analysis of
Industrial Product Businesses
DONALD C. HAMBRICK
IAN C. MacMILLAN
DIANA L. DAY
Columbia University

Thispaper empiricallyexploresthe performanceten-

denciesand strategicattributesof businessesin thefour
cells of the Boston ConsultingGroupproductportfolio
matrix. Businesses differed in their performance and
strategicattributes,accordingto the two dimensionsof
the BCG matrix-product life cycle stage (growthrate)
and marketshare.
Most discussionsof business-levelstrategyfall into one of threegroups.
Firstare normativepropositionsabout whichstrategicactionsmake sense
under different conditions. These prescriptionstypicallyare set forth by
seasonedobserversof organizations(Andrews,1971;Glueck, 1976;Katz,
1970), but, so far, creationof these ideas has substantiallyoutpacedem-
piricaltests of theirvalidity.A second categoryof literatureis empirically
based, but aimedat demonstratinguniversal"laws" of strategy.Findings
on the pervasivepositiveeffects of marketshare(Chevalier,1972;Schoef-
fler, Buzzell,& Heany, 1974)and the experiencecurve(Boston Consulting
Group, 1968)are primaryexamples.The thirdgroup also is empiricalbut
concludesthat so manycontingentfactorsexist that strategymustbe high-
ly situational (Hatten, Schendel, & Cooper, 1978). In the latter vein,
Hofer (1975) set forth what he consideredto be a manageablelist of 20
contingent factors (narrowed down from 54) that affect strategy for
'The authors gratefully acknowledge sponsorship by the Strategy Research Center, Columbia Uni-
versity Graduate School of Business, and generous support from the Strategic Planning Institute,
Cambridge, Mass. Thomas Lenz, William Newman, Max Richards, Sidney Schoeffler, and Michael
Tushman made helpful suggestions on earlier drafts.

510

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1982 Hambrick, MacMillan, and Day 511

mature businesses. All possible combinations of these (assuming only two

values per variable) result in over a million possible configurations.
What is needed are empirically based "mid-range" theories about busi-
ness-level strategy. As Bourgeois noted, "The solution is for the re-
searcher to abstract a smaller number of more encompassing conceptual
categories with a broader range of generalizability" (1980, p. 29). This
paper pursues that advice by focusing on only two key contingent varia-
bles-the product life cycle and market share-and identifying their rela-
tionships with different strategic attributes and performance. The term
"strategic attributes" is preferred to "strategic action" because this essen-
tially is a cross-sectional study in which an array of strategic variables, in-
cluding those that are controllable only in the longer term (e.g., capital in-
tensity, productivity) are examined.
In the literature on business-level strategy, probably no constructs have
been deemed more significant than market share and the product life
cycle. However, there is little empirical research treating these as contin-
gent factors. The choice of these two constructs has the added advantage
that, taken together, they form the framework for a widely known model
for analyzing corporate strategy-the Boston Consulting Group (BCG)
product portfolio matrix (Henderson, 1979). (Purely speaking, the vertical
dimension of the BCG matrix is "market growth." For most products,
growth rates closely correspond with certain stages of the life cycle. The
conceptual distinction is that each stage typically is attributed with charac-
teristics in addition to growth rate, for example, customer adoption rates
and the nature of competition. The emphasis here on life cycle stage is not
inconsistent with BCG's strict emphasis on market growth.) If both the
product life cycle and market share have major significance, and if many
firms actually conceive of businesses along these two dimensions, then this
study has the potential for generating empirically strong and managerially
meaningful results.
Two broad questions are addressed in this paper:
1) How do businesses in the four cells of the BCG matrix tend to differ
in their performance on various key criteria (profitability, risk, cash
flow, market share change)?
2) How do businesses in the four cells of the BCG matrix tend to differ
in their strategic attributes?
A third research question, which follows from the first two, is addressed
in a companion paper (MacMillan, Hambrick, & Day, 1982).
3) Which strategic attributes are associated with the various perfor-
mance measures in each cell of the matrix?

Theoretical Review
Business-Level Strategy

The distinction between corporate-level strategy (what businesses to be

in) and business-level strategy (how to compete in a given business) is

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512 Academy of Management Journal September

established(Hofer & Schendel,1978;Vancil, 1976).This study focuses on

business-levelstrategy,whichis of interestto strategicunits(typicallydivi-
sions) in multibusinessfirms, or to single businessfirms. Although busi-
ness-level strategycenterson the conceptof "competing,"it is important
to stressthat it encompassesall the functionalareasof the business. Op-
tions in operations,marketing,distribution,R&D,finance, and personnel
all determinethe business'sbasis for competing.

ContingencyTheories

Contingencymodels, in whichthe appropriatenessof certainactionsare

deemedcontingenton particulargiven conditions, abound in the field of
organizationaltheory(Ford& Slocum, 1977).Relativelylittleprogresshas
been made in investigatingcontingent models of strategy. Hofer (1975)
made an eloquentcall for such research,and he also providedhis own no-
tions of what types of relationshipsmight exist. However,since his paper
appeared,essentiallyall empiricalinvestigatorsof business-levelstrategy
have had goals other than identifyingand testingcontingencies(Hattenet
al., 1978;Lenz, 1978;Miles& Snow, 1978).A notableexceptionis Harri-
gan's (1981)researchon factorsaffectingthe appropriatenessof different
strategiesin decliningindustries.
It is not clear which contingent variables will lead to the strongest
theory. Hofer (1975)lists 10 to 20 variables(dependingon life cycle stage)
in severalcategories:market,consumer,industrystructure,competition,
suppliers,macroenvironmental,and organizationalcharacteristics.Hofer
surmisedabout the importanceof each variablewithinits categorybut did
not suggestan overallpriority.He did proposethat "the most fundamen-
tal variablein determiningan appropriatebusinessstrategyis the stage of
the productlife cycle" (1975, p. 798).

ProductLifeCycle
The concept of the product life cycle is well established(Fox, 1973;
Hofer, 1975; Levitt, 1965; Wasson, 1974). Although scant empiricalre-
searchhas been done on the life cycle, theoristshave set forth an abun-
dance of prescriptionsabout which strategicbehaviorslead to success at
each stage.
For the early stages (introductoryand growth), theoristsgenerallylay
emphasison strategicactions aimed at gaininga strongcompetitivefoot-
hold, such as aggressivepricing, buildingcapacity, heavy marketingex-
penditures,and productR&D.For the laterstages(maturityand decline),
the emphasisis on extending/expandingthe productcategoryand seeking
efficienciesvia addingchannels,broadeningthe productline, verticallyin-
tegrating,avoidingpricecuts, and so on (Clifford, 1971;Fox, 1973;Hen-
derson, 1979;Wasson, 1974). Again, these prescriptionshave been based
more on seasonedobservationthan on systematicresearch.

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1982 Hambrick, MacMillan, and Day 513

There are common threads, but there also are various prescriptivein-
consistenciesamong life cycle theorists.For example,Wasson(1974)calls
for cost cuttingaccompaniedby pricecuttingin the maturitystage, where-
as Fox (1973) encouragesprice maintenance.Clifford (1971) claims that
"vigorous" advertisingand sales efforts are crucialin the growth stage,
yet Patton says that "marketingsteps to the centerof the stage" during
the maturitystage (1959, p. 12). Not only are thereunresolveddifferences
among theorists, but there also are confusing stances within given
theorists' prescriptions.For example, Wasson encouragesmature busi-
nesses to seek new markets,productexpansions,productimprovements,
and cost reductions.This array of suggestionsis so encompassingas to
leavethe strategistwith little senseof priorities,or any senseof whatmight
actuallywork.
MarketShare
Marketsharewas selectedas the second contingentfactor in this study,
on the rationalethat marketshare has been demonstratedempiricallyto
be a key factoraffectingthe performanceof businessunits. Althoughit is
possiblefor businessesto have (or buy) moremarketsharethan is optimal
(Fruhan,1972),the weightof evidenceindicatesthat high sharebusinesses
have significantlyhigherearningsthan do low sharebusinesses(Chevalier,
1972; Schoeffler et al., 1974). Hofer (1975) endorsesthe importanceof
marketshareby listing it as dominantamong all the organizationalattri-
butes he would include in contingencymodels for all except brand new
businesses.
Verylittle systematicresearchhas been conductedon differentstrategies
for differentsharepositions. Bloom and Kotler(1975), drawingon anec-
dotal evidence,counseledhigh sharecompaniesto evaluatethe risks(pri-
marilyregulatoryand public pressure)of their dominantpositions and to
adjusttheirsharesin light of those risks. Conversely,Hamermesh,Ander-
son, and Harris(1978)outlinedstrategiesfor low sharebusinesses.Based
on anecdotes, they offered these suggestionsto underdogs:conduct nar-
rowly targeted R&D; limit growth; diversify cautiously; and recruit a
strong-willed,hands-onchief executive.Theseauthors'prescriptionshave
an intuitiveallure, yet they are neitherprecisenor systematicallyderived.
Foremost, there is no indicationwhy they have any more applicabilityto
high share(or low share)businessesthan to others. A recent, more syste-
matic study by Woo and Cooper (1980)identifiesdiscreteclustersof high
performing,low share businesses,and it contraststhem with clustersof
low performing,low share businessesand high performing,high share
businesses.Their paper is a step toward more accurateunderstandingof
issues associatedwith marketshare.

Combiningthe Two Dimensions:The BCG Matrix

The choice of the product life cycle and market share as the two contin-
gent variables has an added attraction. When combined, they form the

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514 Academy of Management Journal September

framework for the BCG's product portfolio matrix (Henderson, 1979).

Although the matrix has limitations (Hofer & Schendel, 1978), it is widely
cited in academic and popular discussions of strategy. Other more refined
portfolio matrices, such as those used by Arthur D. Little (Patel &
Younger, 1978), Royal Dutch Shell (Robinson, Hickens, & Wade, 1978),
and General Electric (Taylor, 1976) generally are consistent with the BCG
framework, because they all incorporate an "attractiveness" dimension
(broader than, but encompassing, life cycle) and a "competitive position"
dimension (broader than, but encompassing, market share).
There is not unanimity as to what the dividing points on the two dimen-
sions of the matrix should be. BCG favors 10 percent real market growth
as the point of distinction between high and low market growth. The
group views market share in terms of the ratio of the share held by the
business relative to the share held by its leading competitor. A ratio of 1.0,
indicating highest market share, is commonly considered the dividing line
between high and low share. BCG also states that a ratio of 1.5 is neces-
sary to claim and exploit true dominance in a market (Hedley, 1977). In
the absence of systematic data on alternatives, the present study relies on
the 10 percent market growth rate and 1.0 relative market share as the
dividing points in the matrix.
Although a great deal has been written about the BCG matrix (and less
so about other portfolio matrices), the emphasis has been on how to allo-
cate resources among the four cells and what kinds of performance pat-
terns to seek for each. High share/low growth businesses (Cash Cows), for
example, should be managed for maximum generation of cash, and that
cash should be directed to newer, higher growth businesses (Wildcats and
Stars). Low growth/low share Dogs are seen as serious cash drains that
should be promptly harvested, liquidated, or divested.
No systematic evidence exists about whether the performance tenden-
cies of businesses in the four cells actually allow or warrant these prescrip-
tions. No information exists about the strategic tendencies of businesses in
the four cells. The goal of the present paper is to fill these voids in part. In
doing so, it will form the backdrop for a companion paper on the relation-
ships between strategic attributes and performance for each of the four
cells.
At this stage, it is not appropriate to set forth all plausible hypotheses.
However, two broad propositions may be stated: (1) Businesses in the
four cells will differ systematically in their performance (including in their
cash flow tendencies as argued by BCG); (2) Businesses in the four cells
will differ in their strategic attributes. Previous literature which should
contribute to more specific hypotheses has been speculative, imprecise,
and even contradictory. And the range of strategic variables and perfor-
mance measures to be examined make an inventory of hypotheses un-
wieldy. Thus, the approach will be to treat this as an exploratory study to
enhance understanding of a widely recognized but little-documented, stra-
tegic framework.

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1982 Hambrick, MacMillan, and Day 515

Method

ThePIMSDataBase
The data used in this study weredrawnfrom the Profit Impactof Mar-
ket Strategies(PIMS)project, an ongoing study of environmental,strate-
gic, and performancevariablesfor individualbusiness units. About 200
corporationssubmitdata annuallyon a total of about 2,000 of theirbusi-
ness units. Each business, often a division, is a distinct product-market
unit. For a technical summaryof the PIMS data base, see Schoeffler
(1977).
Andersonand Paine (1978) providea comprehensivecriticalreviewof
the PIMS data base. Most of theirconcernsare about how the PIMS data
had been statisticallyanalyzed and presented in previous studies. Al-
thoughthey raiselimitedconcernsabout the qualityof the data, they gen-
erallyacknowledgethe data base to be of high qualityand reliability.Two
factors that previouscriticshave not noted especiallycommendthe data.
First, PIMS staffershelp each businessinterpretand answerthe questions,
thus assuringa high degreeof data comparability.This featureis missing
from conventionalquestionnairestudies. Second, each company pays a
substantialsum to participatein PIMS, and the softwareis orientedsuch
that theirabilityto derivemeaningfulconclusionsfrom the data is particu-
larly a function of the accuracyof their own data. The businesseswould
appearto have a commitmentto thoroughnessand accuracythat is miss-
ing in most surveystudies. No conventionaltests of the reliabilityof the
data base (e.g., test-retest,multiplerespondentconsistency)are knownto
have been conducted.
The data base does have some limitations,includingthose noted by An-
derson and Paine. Foremost, the businessesin the data base cannot be
viewed as typicalof businessunits in general.On average,the participat-
ing businessesprobably are more sophisticated,more dominant within
their markets,and more effective in generalthan the total populationof
businessin the United States.

Categorizing the Businesses

The studyreportedhere is based on the most recentfour yearsof PIMS

data for businesses that manufactureindustrial products. Further re-
search,in progress,will extendthe analysisto the consumerproductsec-
tor.
The businessesin the sample were classified into the four cells of the
BCG matrixaccordingto their life cycle stage (marketgrowth rate) and
relativemarketshare. PIMS respondentsindicatethe business'slife cycle
stage by answeringthis question: "How would you describethe stage of
developmentof the types of productsor servicessold by this businessdur-
ing the last three years?"

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516 Academy of Management Journal September

-Introductory stage: Primary demand for product just starting to

grow; product/servicesstill unfamiliarto many potentialusers
-Growth stage:demandgrowingat 10 percentor moreannuallyin real
terms;technologyor competitivestructurestill changing
-Maturity stage:Productsor servicesfamiliarto vast majorityof pro-
spective users; technology and competitive structure reasonably
stable
-Decline stage: Productsviewedas commodities;weakercompetitors
beginningto exist.
Responsesto this straightforwardcategorizingquestionwereused in the
analysis. A more elaborate index for measuringlife cycle stages from
PIMS data has been shownto yield strikinglyequivalentresults(Christen-
sen, 1977).
The data base has relativelyfew businessesin the introductoryand de-
cline stages, so the study includedonly those in the growth and maturity
stages, a total of 1,028. Even though the label "life cycle" is being used,
the classificationis fully consistentwith BCG'sview of this as the "market
growth" dimension,becausepart of the PIMS definitionaldistinctionbe-
tween a growthbusinessand a maturebusinessis a realgrowthratein pri-
marydemandof 10 percent.
Relativemarketshareis defined as the ratio of the unit's marketshare
relativeto the shareof its leadingcompetitor(usinga four-yearaverage).
A relativemarketsharefigureof greaterthan 1.00 is consideredhigh rela-
tive marketshare; 1.00 or below is classifiedas low relativemarketshare.
The averagerelative share for the entire sample is 1.30 (supportingthe
speculationthat PIMS businessesare relativelydominant),and the stan-
dard deviationis 1.68, indicatingthat the businessesare not too heavily
clusteredaroundthe 1.0 dividingline. The four subsamplesare portrayed
in Figure 1.

Figure 1
The Subsamples of Industrial Products Businesses Studied

Stars Wildcats
Growth N=114 N=181
Product Real
Life Growth
Cycle 10% Year
Mature Cash Cows Dogs
N=315
N=3418

High 1.0 Low

Relative Market Share

Variables
Two types of variables are distinguishedin this study-strategic at-
tributes and performance. Environmentalvariables are not included.

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1982 Hambrick, MacMillan, and Day 517

As uncontrollables, they amount to additional contingent factors that

must be systematically treated in future studies.
The PIMS data base includes data on dozens of strategic attributes.
Only variables that have been prominent in previous PIMS findings or in
other strategy studies (e.g., product quality, capital intensity, capacity
utilization) were included in this study.
The strategic attributes, as grouped for analysis and discussion, are as
follows:
Resources and Resource Usage Expense Structure
Investment/revenue Manufacturing/revenue
Plant and equipment newness Product R&D/revenue
Capacity utilization Process R&D/revenue
Capacity/market size Sales force/revenue
Sales/employee Advertising and promotion/revenue
Working Capital Management Competitive Devices
Receivables/revenue Sales from new products
Inventory/revenue Relative sales from new products
Domain Relative prices
Relative product line breadth Relative direct costs
Relative customer type breadth Relative image
Relative number of customers Relative services
Customer fragmentation Relative advertising expenses
Vertical Integration Relative promotion expenses
Value/added revenue Relative sales force expenses
Relative integration backward
Relative integration forward
The definitions of the strategic attributes can be obtained from the au-
thors. In all cases, four year averages were used. Four performance mea-
sures were examined:
(1) Return on investment (ROI) (average of last two years): Pretax net
income minus allocated corporate overhead costs, as a percent of average
investment including fixed and working capital at net book value.
(2) Cash flow on investment (CFOI) (average of last two years): After-
tax income (estimated at 50 percent of pretax income) minus changes in
net investment, as a percentage of average investment.
(3) Return per risk (RPR): Average ROI divided by the variability of
ROI (calculated as the sum of the absolute differences between the four-
year average ROI and each year's ROI).
(4) Market share change (MSC): The change (annualized via least
squares) in this business's average share of the market (expressed as a per-
centage of the market) for the four-year period.
The rationale for using two-year averages for ROI and CFOI bears pri-
marily on the analyses to be reported in the companion paper (MacMillan
et al., 1982) and will be discussed there. The two-year vs. four-year time-
frame has little effect on the tendencies reported in this paper.

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518 Academy of Management Journal September

Method of Analysis

Reportingof means, with two-way analysis of variance, was used to

identify any tendenciesfor the four types of businessesto differ in their
performanceor strategicattributes,eitheraccordingto life cycle stage or
marketshare. Zero-ordercorrelationsamong performancemeasuresfor
each cell also are reported.
Results and Discussion

Performance Across the Four Cells

This study empiricallycorroboratesthe primarytheme espousedby the

originatorsof the BCG matrix (see Table 1): namely, the four types of
businesseshave significantlydifferenttendenciesto consume or generate
cash. The averageWildcathas a negativecash flow (-2.67 percent)["re-
quireslargecash inputs that it cannot generateitself" (Henderson,1979,
p. 164)].The averageStaressentiallygeneratesas muchcash as it uses (.74
percent) ["may or may not generate all of its own cash" (Henderson,
1979, p. 166)]. Cash Cows are net cash generators(10.10 percent)["gen-
eratelargeamountsof cash" (Henderson,1979,p. 164)].Theseresultsare
preinterestcharges(whicharenot reportedin the PIMSdata), and so must
be regardedas suggestingpatternsratherthan absolute figures.
The resultspresenta somewhatmorepositiveview of Dogs than that ex-
pressedby Henderson,who said that a Dog gives "no cash throwoff. The
productis essentiallyworthless,exceptin liquidation"(1979, p. 164). The
Dogs examinedin this study had averagenet positivecash flow on invest-
ment of 3.4 percent,whileholdingtheirmarketshares.Thiscashflow rate
from Dogs is more than is requiredto meet the cash needs of the average
Table 1
Performance Levels of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
2- Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Performance Measure (N= 181) (N= 114) (N= 315) (N= 418) Stage Share
Return on investment 20.55 29.58 30.00 18.48 **
(24.53) (22.59) (22.67) (21.68)
Cash flow on investment -2.67 .74 10.01 3.41 ** **
(18.79) (18.26) (17.03) (16.17)
ROI/ROI variability 2.37 3.96 4.57 2.80 ** **
(return per risk) (3.53) (5.20) (4.15) (4.68)
Market share change .39 .72 .38 .14 * *
(1.76) (2.97) (2.30) (1.55)
*p< .05
**p< .001

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1982 Hambrick, MacMillan, and Day 519

Wildcat(-2.67percent). If one assumesthat the absolutesize of the aver-

age Dog is largerthan the typical Wildcat (often fledgling operations),
then the absolute cash throw-off from some Dogs may be sufficient to
fund two or morepromisingnew ventures.It also shouldbe noted that the
standarddeviationof CFOI for Dogs is 16 percent,indicatingthat some
Dogs generatesubstantialamounts of cash. And the modest correlation
(r=-.07) betweenCFOI and MarketShareChange(Table2) for Dogs in-
dicates that cash flow can come other than through "harvesting."It ap-
pearsthat Dogs outperformthe expectationsplacedon them by BCG. In-
stead of focusing solely on harvestingor liquidationstrategiesfor Dogs,
researchersshould start dealing more positively and creativelywith this
type of business(e.g., Hamermeshet al., 1978;Woo & Cooper, 1980).
Consistentwith previousPIMS findings, ROI (reflectingaccrualprof-
its, not cash flow) was higherfor high sharethan for low sharebusinesses
(Buzzell, Gale & Sultan, 1975).Therewereno significantROI differences
across the two life cycle stages. Specifically, Stars (29.58) and Cows
(30.00) were roughly equal in outperformingWildcats(20.55) and Dogs
(18.48) on the ROI measure.
When ROI is adjusted for risk (4-year ROI variability),differences
acrossthe four cells reflectboth the profitabilityof high marketshareand
the profit stability of maturity. Cows score highest (4.57), due to their
dominancein relativelystable markets. Stars follow (3.96), due to their
dominance,but in turbulentmarkets.Dogs are next highest(2.80). Wild-
cats are lowest (2.37), reflectingtheirmoderateprofitabilityand unsettled
markets.These resultssupportthe establishedconcept that growth busi-
nesses are more uncertainthan maturebusinesses.They also reemphasize
the soundnessof carefullytendingmaturebusinesses-including Dogs.
Marketshare change was one of the performancemeasuresexamined.
As expected, there were indications of greater share increases in the
growthbusinessesthan in the maturebusinesses,reflectingboth the rela-
tively entrenchedpositions in matureindustriesand the presumedcharter
of maturebusinessesto seek primarilycash, not share. Also, high share
businessestended to gain more share than did their low share counter-
parts. Apparently,"the strong get stronger."Yet, there is no indication
that businessesattemptto gain or succeedin gainingtruly large sharein-
creases.In absoluteterms,the averageshareincreasesare modest(highest
is .72 percentfor Stars), as are the standarddeviations(highestis 3.0 per-
cent for Stars).A quest for a 5 percentto 10 percentshareincreaseappar-
ently is unusual,unrealistic,or both.
The results(Table 2) also shed light on the tradeoffs presumedto exist
betweenperformancemeasures,particularlycash flow and marketshare
gain. Nil correlationsbetween these two performancemeasuressuggest
that no realtradeoffexists(exceptfor Stars, for whichr= -.27, p< .01) or
that unaccountedfactors may be maskingindicationsof such a tradeoff.
The resultsalso indicatenil relationshipsbetween ROI and share change
for each cell. It is beyondthe scope of this paperto identifycircumstances

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520 Academy of Management Journal September

Table 2
Relationships Among Performance Measures
(Pearson Correlation Coefficients)
Wildcats (N= 181)
ROI CFOI RPR MSC
ROI
CFOI .68** -
RPR .45** .54** -
MSC .13 -.07 -.03
Stars (N= 114)
ROI CFOI RPR MSC
ROI
CFOI .61**
RPR .39** .53**
MSC -.15 -.27* -.07
Cash Cows (N= 315)
ROI CFOI RPR MSC
ROI
CFOI .61*
RPR .38** .46**
MSC -.04 -.07 -.12 -
Dogs (N=418)
ROI CFOI RPR MSC
ROI
CFOI .57**
RPR .39** .45**
MSC -.06 -.05 -.02
*p<.01
**p< .001

or strategiesthat will allow marketshare and cash flow or profits to in-

creasetogether.Factorssuch as the magnitudeof an attemptedsharein-
crease, competitors'strategiesand goals, and product differentiationno
doubt are among those that futureresearchshould includeas moderating
variablesin studyingtradeoffs between profits and share changing. The
presentresultssuggestthat a tradeoff may not alwaysexist. The findings
also raisequestionsabout the extentto whichmanagersshould be relieved
of profitabilityor cash flow goals whenthey also are chargedwith gaining
share.

StrategicAttributesof the Four Cells

The resultsindicatea host of significantdifferencesin the strategicattri-
butes of the four types of businesses.Some of the attributes,includingal-
most all those expressedin terms "relativeto competitors," varied pri-
marilyaccordingto marketshare. Severalothers variedaccordingto life
cycle stage. Still othersvariedaccordingto both dimensionsof the matrix.
Care must be taken in tryingto interpretthe attributesas eithercauses
or effects of the business'sposition in the matrix.For example,it will be
observedthat high sharebusinesseshave relativelybroaderproductlines
and customertypes than do low share businesses.Because the data are
cross-sectional,there is no way to disentanglethe extent to which broad
product/marketbases precede,accompany,or follow marketdominance.

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1982 Hambrick, MacMillan, and Day 521

Futurelongitudinaltreatmentof the PIMS data base could yield such in-

formation.
Resources and Resource Usage

It comes as no surprisethat high share businesseshave substantially

more of their markets'productioncapacitythan do low sharebusinesses
(Table 3). High sharebusinessesalso utilizetheir capacityat a higherrate
than do low sharebusinesses,probablyreflectingthe leaders'relativeease
in securingordersto fill capacity.The lower utilizationratesof low share
businessesindicate that those businesseseither built capacity in earlier
days when they held or anticipatedhighersharesor built capacityrecently
as part of a plan to gain share. That plant and equipmentnewness(net
P&E/gross P&E) varies accordingto the product life cycle, but not ac-
cordingto marketshare, suggeststhat low sharebusinessestypicallyhave
not engaged in recent capacity buildups, but ratherthey simply do not
have the marketpower to fill earlierbuilt capacitythe way a high share
businesscan.

Table 3
Strategic Attributes of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
Resources and Resource Usage
2-Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N=315) (N=418) Stage Share

Capacity/market 20.37 56.61 52.03 21.27 ***

(16.37) (25.85) (25.96) (15.40)
Capacity utilization 73.36 75.28 78.09 75.14 * **
(16.88) (15.60) (14.23) (16.04)
Plant and equipment 59.24 58.93 50.58 51.40 ***
newness (15.80) (14.09) (14.26) (14.84)
Investment/revenue 63.93 60.05 51.35 56.06 *** **
(36.12) (27.66) (24.72) (27.33)
Sales/employee 63.22 63.92 55.37 59.06 *** **
(44.29) (39.50) (36.49) (40.68)

**p< .01
***p<.001

Maturebusinesseshave highercapacityutilizationratesthan do growth

businesses.This may reflectthe relativestabilityand equilibriumthat ex-
ists in matureindustries(as indicatedby relativemarketsharestabilityas
discussed above), and perhaps also an efficiency orientation in mature
businesses.
Becausethe numeratorof investment/revenue(capitalintensity)is mea-
suredin termsof net investment,it is not surprisingthat growthbusinesses

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522 Academy of Management Journal September

have higher scores on this attribute than do mature businesses. Growth

businesses, on average, have newer, less depreciated assets [the correlation
between plant and equipment newness and investment/revenue was .34
(p>.01) for the entire sample, indicating a strong relationship between
newness and capital intensity]. The high capital intensity figure for growth
businesses also may reflect their presumably smaller revenue bases over
which they must spread investment. The disguised dollar figures in the
data base prevent any test of this speculation. To some extent, the finding
of high capital intensity for growth businesses runs counter to conven-
tional thought of businesses becoming more capital intensive over time, as
competition shifts to a volume or efficiency orientation.
The high sales/employee figure for growth businesses, compared to ma-
ture businesses, suggests that mature businesses have not dramatically re-
placed labor with capital assets. The higher employee productivity figure
for growth businesses may be partly attributable to the relatively stronger
pricing structure that exists in growth businesses (gross margins in growth
businesses average 30 percent, compared to 27 percent in mature busi-
nesses-a significant difference at the .05 level), which inflates their reve-
nue figures. Or Parkinson's Law may be operating: mature businesses are
choked with people (presumably administrators/staff) who, on average,
generate relatively little salable output.
Capital intensity is less for high share than for low share businesses.
This may reflect the smaller revenue bases of the low share businesses, or it
may suggest that low capital intensity provides flexibility and market re-
sponsiveness which, in turn, can lead to high market share.

Working Capital Management

Wildcats have a significantly higher receivables/revenue ratio than do

any of the other types of businesses (Table 4). This may reflect their at-
tempts to attract customers via liberal credit terms. This relatively
Table 4
Strategic Attributes of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
Working Capital Management
2-Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N= 315) (N= 418) Stage Share
Receivables/revenue 17.62 15.62 15.15 15.13
(11.77) (8.80) (7.47) (8.89)
Inventories/revenue 20.90 18.61 19.87 22.01
(11.71) (10.54) (10.59) (11.45)
*p< .01
**p< .001

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1982 Hambrick, MacMillan, and Day 523

mundaneway of competingas a low sharebusinessapparentlyis not the

norm for Dogs. A possibleexplanationis that rigidcreditnormsbuild up
over an industry'slife cycle, discouragingunusualcreditpractices.
An indictingexplanationfor the relativelyhigh inventoriesheld by low
sharebusinessesis that these businessesareless adeptat managingtheirin-
ventories,whichin turnraisesthe questionof whetherthey are morepoor-
ly managedin general.Theirlow sharescould promptsuch a speculation,
but the data from this study do not necessarilysupportit. Another, more
charitable,explanationfor the highinventoriesheld by Wildcatsand Dogs
is that they attemptto compete,usingthose inventoriesfor readydelivery.
This is anotherexampleof a relativelymundanecompetitivedevice, aimed
at what Katz(1970)would call "going for the crumbs"-those customers
in which the dominantplayershave little interest.

ExpenseStructure
This study also included an examinationof the expense structuresof
businesses,or how they add value (Table 5). Resultsindicatedifferences
primarilyaccordingto life cycle stage, and less so by marketshare.
Table 5
StrategicAttributesof Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with StandardDeviationsin Parentheses)
ExpenseStructure
2- Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N= 315) (N=418) Stage Share

Manufacturing/revenue 26.31 25.08 28.45 28.30 **

(12.06) (9.99) (11.50) (11.33)
Product R&D/revenue 2.63 2.76 1.68 1.76 *
(2.66) (2.51) (2.08) (2.28)
Process R&D/revenue .87 1.10 .53 .52 *
(1.24) (1.32) (.81) (.84)
Sales force expenditures/ 6.48 5.45 4.99 5.32 ** *
revenue (4.17) (4.21) (4.15) (4.35)
Advertising and promo- 1.02 .85 .71 .81 ** **
tion expense/revenue (1.15) (.93) (.92) (1.07)
*p< .05
**p<.01
***p<.001

Growthbusinessestend to spend proportionatelymore on what might

be called "future-oriented"expenses, that is, product R&D, process
R&D, advertising,and sales force, than do maturebusinesses.Threefac-
tors may be creatingthis difference.First, managersof growthbusinesses
may tend to view their businessesas having longer, brighterfuturesthan
do the managersof maturebusinesses,and thus they are more willingto

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524 Academy of Management Journal September

incur costs that will have an impactonly in the future. This is not a con-
vincing rationale. Sales force and advertisingexpensespresumablyhave
some importantnearand currenttermpayoffs even for maturebusinesses.
A second possibilityis that many of these mature businessesare being
managedfor cash throwoff, accordingto BCG prescriptions,and there-
fore nondirectexpensesare minimized.A thirdinterpretationstems from
the semifixed, rather than variable, nature of most of these "future-
oriented"expenses.Thus, in growth businesses,which may have smaller
revenuebases than maturebusinesses,these expensestake on dispropor-
tionate magnitudewhen expressedas a percentageof sales. This line of
reasoningalso may explainwhy low sharebusinesses(withrelativelysmall
revenuebases) have higher sales force and advertisingexpensesthan do
high sharebusinesses.
Mature businesses add more value through manufacturingthan do
growthbusinesses.This is an indicationof the relativeemphasisof mature
businesseson the "core technology"(Thompson, 1967)or "engineering"
(Miles& Snow, 1978)aspectsof the businessratherthan on the "domain"
or "entrepreneurial"aspects. In light of this emphasis, it could be ex-
pected that maturebusinesseswould spend a relativelyheavy amount on
processR&D,in an attemptto maketheirthroughoutfunctionseven more
efficient (Utterback& Abernathy, 1975).As alreadyobserved,the oppo-
site is true. Maturebusinesses,on average,spend about half as much of
their sales dollarson processR&Das do growthbusinesses.One explana-
tion is that organizationalstructures,climates,and technologicalorienta-
tions either foster R&Din general,or they do not. That is, productR&D
and processR&Dtend to go hand in hand. This speculationpales in light
of the only moderatecorrelation(r= .24, p > .01) betweenthe two typesof
R&Dexpensesfor the entiresample.
Anotherpossibleexplanationfor the relativelylow processR&Dexpen-
dituresby maturebusinessesis that thesebusinessesarebeingmanagedfor
cash throwoff in industrieswith severeprice competition,such that even
expenditureson processR&Dare viewedas profit detractors.
Domain

The term "domain" is used as Thompson(1967)did, to referto the ar-

ray of productsand marketsa businessstakes out for itself. Becausethe
main domainvariablesin the PIMS data base are expressedin termsrela-
tive to the competition,no differenceswere expectedacross stages of the
life cycle and, in fact, none were observed(Table 6).
Differencesin the domain breadthsof low and high share businesses
weresignificant.Starsand Cash Cows reportedmore relativeproductline
breadth, customertype breadth, and relativenumberof customersthan
did their low share counterparts.Becausethis is a cross-sectionalstudy,
thereis no way of determiningwhethera broaddomainis a meansof gain-
ing share, or whetherdomain broadeningis an activitytypicallypursued

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1982 Hambrick, MacMillan, and Day 525

Table 6
Strategic Attributes of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
Domain

2-Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N=315) (N=418) Stage Share
Relative product line 1.81 2.39 2.42 1.85 *
breadtha (.81) (.75) (.72) (.75)
Relative customer type 1.81 2.28 2.29 1.89 *
breadth (.62) (.65) (.66) (.59)
Relative number of 1.47 2.35 2.47 1.68 *
customers (.65) (.81) (.69) (.74)
Customer fragmentation 12.91 13.94 13.33 13.54
(10.32) (12.14) (11.51) (11.53)
aFor the sake of brevity and interpretability, means and ANOVA results are reported for ordinal
variables. A display of response distributions and chi-square statistics for the ordinal variables does
not suggest different patterns or conclusions.
*p < .001

by businesses that have already achieved dominance in a segment of a mar-

ket. What is clear is that the low share businesses tended toward "market
concentration" (Hofer & Schendel, 1978) or "focused" (Abell, 1980) stra-
tegies. They concentrated their efforts either because they recognized their
weak positions or were constrained by their weak positions.
There were no significant differences across the four cells in the
amounts of customer fragmentation, the variable that taps the extent to
which the business avoids relying on a few key customers. It could have
been expected that Wildcats, in particular, would have a small set of cus-
tomers with which they were establishing themselves. And, in fact, the
customer fragmentation score for Wildcats is the lowest (though not sig-
nificantly) of the four types. On average, though, none of the types has ex-
traordinarily more or less customer fragmentation than the others.

Vertical Integration

Just as high share businesses have broader domains than low share busi-
nesses, so do they also tend to be more vertically integrated (Table 7).
Their value added/revenue figures are higher than for low share busi-
nesses. And they indicate significantly more vertical integration (both
backward and forward), relative to their competition, than do low share
businesses.
As with domain breadth, there is no way of knowing from these data
whether vertical integration is a cause or an effect of high market share. A
reasonable speculation is that high share businesses tend to integrate ver-
tically to perpetuate their growth and that they integrate because their

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526 Academy of Management Journal September

Table 7
Strategic Attributes of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
Vertical Integration
2- Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N= 315) (N=418) Stage Share
Value added/revenue 56.13 61.14 59.57 54.77 **
(16.58) (13.63) (14.19) (14.84)
Relative V.I. backward 1.83 1.98 2.04 1.78 **
(.60) (.62) (.60) (.59)
Relative V.I. forward 1.89 1.97 1.99 1.92 *
(.52) (.50) (.49) (.47)
*p<.05
**p< .001

scale of operationsmakes it relativelydifficult to be assuredof outside

suppliesin the quantitiesand at the pricesthey desire(Williamson,1975;
Kreiken,1980).
Devices
Competitive
In examiningthe tendenciesof the four types of businessesto use vari-
ous competitivedevices,some strikingdifferencesare observed(Table 8).
Understandably,growth businesseshave highersales from new products
than do maturebusinesses.(Businessesin all four cells claim to have, on
average,highersales from new productsthan their competitors.This can
be reconciledonly by returningto the earliercontention that the PIMS
businessesare likelyto be more aggressive,and henceperhapsmore prone
to new productactivity, than are their non-PIMScompetitors.)Wildcats
have the highestnew productsales, and Dogs the lowest. This may reflect
a kind of self-fulfillmentof the BCG doctrine, in which Wildcats are
viewed, eitherby their own managersor their parentfirms' strategists,as
havingthe potentiallylongest and most rewardinghorizonsof any of the
four types, and thus most deservingof a new productorientation.Dogs,
typically viewed as having no promisingfuture (Henderson, 1979), are
viewed as not warrantingthe outlays associatedwith new products.
High sharebusinessesindicatethe relativelylow directcosts that should
accrue to them due to their accumulatedexperience(Henderson, 1979;
Hofer & Schendel, 1978). The typical prescriptionfor high share busi-
nesses in the growthstage is for them to drivecosts down and to price at
discouraginglylow levels. However,the Starsin the data base had relative-
ly high prices,perhapsreflectingthat they alreadywereestablishedleaders
insteadof strugglingfor leadership.Morebroadly,it warrantsnoting that
both Starsand Cash Cows are reapingdouble benefits from their market
power: relativelylow costs and relativelyhigh prices.

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1982 Hambrick, MacMillan, and Day 527

Table 8
Strategic Attributes of Businesses
in the Four Cells of the BCG Matrix
(Means Reported, with Standard Deviations in Parentheses)
Competitive Devices
2- Way Anova
(Main Effects)
Wildcats Stars Cash Cows Dogs Life Cycle Market
Strategic Attributes (N= 181) (N= 114) (N= 315) (N=418) Stage Share
Sales from new products 18.66 18.16 7.31 7.82
(20.69) (20.73) (12.97) (13.68)
Relative sales from new 4.01 2.08 .79 .50
products (11.80) (10.19) (6.21) (7.08)
Relative prices 103.20 105.00 104.30 102.70
(7.02) (7.40) (6.37) (5.13)
Relative direct costs 104.30 99.52 100.20 103.20
(7.68) (8.38) (7.13) (6.93)
Relative product quality 22.03 45.12 34.25 17.64 * *
(29.18) (29.77) (28.56) (25.38)
Relative image 3.21 4.06 3.96 3.26
(.86) (.71) (.78) (.81)
Relative services 3.27 4.00 3.83 3.28
(.80) (.83) (.82) (.79)
Relative advertising 2.19 2.75 2.82 2.29
expenses (.99) (1.11) (.96) (.93)
Relative sales promotion 2.39 3.03 2.99 2.51
expenses (.93) (1.07) (.89) (.86)
Relative sales force 2.76 3.09 3.12 2.79
expenses (1.01) (1.04) (1.02) (.93)
*p< .001

Stars and Cows apparently command their high prices through a broad
array of superiorities. They claim to have higher average product quality,
image, and services than their low share competitors. They claim to spend
relatively more on advertising, sales promotions, and sales forces than
their lesser adversaries. All of these measures are ordinal and somewhat
impressionistic, so there is some likelihood that the market leaders falsely
attribute to themselves strength in all categories (Nisbett & Wilson, 1977).
Still, some of the apparent differences are substantial, and they tend to
square with expectations. Businesses with various strengths would be ex-
pected to gain market share and, once dominant, they would be expected
to reinforce and add strengths with the slack generated from market lead-
ership (Cyert & March, 1963).

Conclusions

This paper has attempted to test and extend the BCG product portfolio
matrix. The primary theme of BCG-that the four cells of the matrix have
quite different tendencies to generate or consume cash-has been cor-
roborated. Significant differences among the four cells on other perfor-
mance measures-return on investment, return per risk, and market share
change-also were observed. Thus, each of the four types in the matrix-

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528 Academy of Management Journal September

Wildcats,Stars, Cows, and even Dogs-contributes in its own way to the

balancedperformanceof the corporation.Of particularnote is the finding
that the averageDog has a positive cash flow, even greaterthan the cash
needsof the averageWildcat.BCG'sschematic(Henderson,1979, p. 165)
portrayingoptimalcash flows could be revised,as in Figure2, on the basis
of these results.

Figure2
Cash Flows Within the BCG Matrix

Stars .Wildcats
'
avT 4
) I
Cows-" Dogs

BCG Prescription(Henderson,1979)
Revised, based on study - - - -

The results do not support BCG's advice that Dogs should be promptly
harvested or liquidated. This should come as a relief to many managers,
because more and more of their industries are maturing and because all
but the market leaders qualify as Dogs. What is needed is creative, positive
research and thinking about how Dogs can be managed for maximum long
term performance.
Another key, tentative conclusion to come from the study is that busi-
nesses may not always face sharp tradeoffs between share building and
cash flow or profitability. Only among Stars was there an inverse relation-
ship between market share change and any of the measures of returns.
Otherwise the relationships were nil, suggesting that multiple, seemingly
incompatible objectives can be pursued in tandem. More research is
needed on the circumstances that favor such "well-rounded" effectiveness
and on the internal features that can promote or stymie it.
The four types of businesses differ markedly in thgir strategic attributes.
Some attributes (e.g., R&D expenses, plant and equipment newness) vary
according to life cycle stage. Some (e.g., domain breadth, vertical integra-
tion, relative marketing expenditures) vary according to market share
position. Still others (e.g., capacity utilization, sales/employee) vary ac-
cording to both dimensions.
What emerges is an expanded understanding of the strategic profile of
each type of business:
Relative to the other cells, Wildcats tend to have low capacity utiliza-
tion, new plant and equipment, high current asset levels, high capital
intensity, high R&D expenses, high marketing expenses, narrow do-
mains, heavy new product activity, high direct costs, and competitive
devices that lag Star competitors on all fronts.

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1982 Hambrick, MacMillan, and Day 529

Stars tend to have new plant and equipment,high capacityutilization,

high R&D expenses, broad domains, high sales per employee, high
value added, and superiorityon a numberof competitivedevices.
Cows tend to haveveryhigh capacityutilization,dated plantand equip-
ment, low capital intensity, low sales per employee, low R&D and
marketingexpenditures,broad domains, and superiorityon essen-
tially all competitivedevicesexamined.
Dogs tend to havedatedplantand equipment,mediumcapitalintensity,
high inventorylevels, low R&D expenses, moderate marketingex-
penses, narrowdomains, low value added, and competitivedevices
that lag Cow competitorson all fronts.
Overall,thereis a clearindicationthat businessesdiffer in their perfor-
manceand strategicattributes,accordingto theirlife cyclestagesand mar-
ket shares.The importanceattachedto these two key constructsby Hofer
(1975) and others appearsnot to have been ill-placed.
This paper sheds empiricallight on an important,but heretofore ill-
documentedstrategicframework,but it also raises many questions. For
example, would consumer products or service businessesyield findings
differentfrom the industrialbusinessesstudiedhere?Would a sampleof
non-PIMSbusinessesyield similarfindings?
The only contingencyvariablesincludedwerelife cycle stageand market
share. Many othershave been suggestedin the literature(Hofer, 1975). If
businessesweresubdividedfurtherwithinthe four BCG cells accordingto
additionalcontingentfactors(e.g., concentrationrates, frequencyof pur-
chase, or advertisingintensity), what new findings would emerge?The
presentstudy should serveas a springboardfor addingcontingentfactors
towardthe goal of full scale contingencymodels as advocatedby Hofer.
The cross-sectionalnatureof this studyposes an obviousproblem.How
businessesmove among the four cells of the matrixor how their strategic
attributestend to changeas they move from cell to cell has not been exam-
ined. This shortcominghighlightsa key opportunityfor future PIMS re-
search.The data base has been in existencelong enoughthat some longitu-
dinal analysesshould now be possible.
Empiricalanalysisof the BCG matrixhas long been overdue, as have
analysesof many other normativeand conceptualdevices in the field of
strategy.This paperhas corroboratedand extendedthe publishedideas of
the Boston ConsultingGroup. It servesas an importantbackdropto an
accompanyingstudy of the relationshipsbetweenstrategicattributesand
performancein each of the four cells (MacMillanet al., 1982).
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Donald C. Hambrick is Associate Professor, Graduate School

of Business, Columbia University.
lan C. MacMillan is Associate Professor, Graduate School of
Business, Columbia University.
Diana L. Day is a doctoral student at the Graduate School of
Business, Columbia University.

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