In 1968 the founder of the Boston Consultant Group, Bruce Henderson, created the BCG matrix, changing the way companies valuated their business activities. This matrix clearly defines the components of a business portfolio, by segmenting a business’s strategic units – parts of the business that can function autonomously – into four basic categories: cash cows, rising stars, question marks and dogs.

After a company analyzes a market and identifies its various strengths, weaknesses, opportunities or threats, the company can evaluate the components of its portfolio. Understanding the four portfolio components and the importance of portfolio analysis will help a business assess its competitive position and potential growth.

The Cash Cows

The mature parts of the business are its cash cows. This portfolio component contains the well-developed and high-income business units. Cash cows have a large stake in the competitive market, and therefore bring in a steady stream of revenue. However, they also have low growth potential, meaning there are limited opportunities for further development or to obtain additional market share.

The benefit of cash cows is, aside from a management team, they require little capital to sustain their position in the market. In the couture fashion business, the cash cow could be the signature collection: It generates a steady income and has an established, though select, clientele. But the likelihood that there will be a sales boom in hand-crafted garments is slim.

The Rising Stars

Not every business unit in the portfolio can be a rising star. Though rising stars bring in a lot of revenue, they require more resources and capital to maintain. Rising stars come out on top of the components of a portfolio that have the most growth potential, and therefore can use a lot of the company’s resources.

For example, the same fashion company could have a lucrative prêt-a-porter line that appeals to a wide audience. Because a ready-to-wear collection can be distributed in more retail outlets than a couture collection, it requires more retail promotions and advertisements to keep it at the top of customers' minds. Though it will bring in more revenue than the couture collection, it also requires more resources.

The Question Marks

Companies question whether or not to continue investing in a business unit when it is not performing well in an emerging market. Question marks are the portfolio component that could have growth potential, because the markets they occupy have a lot of room for growth. Therefore, a company will have to determine if it is feasible to invest more into the business unit, with the hopes of turning it into a rising star.

A case in point would be if the fashion house launches a new collection of branded laptops, at a point in time where laptop sales were on the rise. The product extension isn’t performing well, but sales may improve if the fashion house upgrades the lap ftop software. The company has to decide whether it's worth investing additional money into the failing laptops, or to cut its losses.

The Low-Performing Dogs

Dogs are components of a portfolio that are low-performing business units in unsuitable competitive markets. These business units are just breaking even or losing money. An unattractive market could be the result of competitive saturation or market declination. It would be futile for a company to invest additional resources in business units that are ensconced in such a market climate.

For example, if after further market research, the fashion company discovered that the demand for laptops was waning due to the emergence of a newer, more portable form of technology, it wouldn’t make sense for the fashion company to further invest in the business unit.