Financial Management and Strategic Management · Strategic Analysis: Internal Environment

Strategic Analysis Tools: BCG Matrix and Portfolio Analysis

Updated 4 October 2026 · Fact-checked

The BCG matrix is a portfolio tool that plots each business unit by market growth rate and relative market share. It sorts units into stars, cash cows, question marks and dogs. You classify each unit, state its cash position and recommend build, hold, harvest or divest.

Understand Strategic Analysis Tools: BCG Matrix and Portfolio Analysis

A diversified company runs several businesses. It has limited cash, so it must decide which businesses to feed and which to cut. Portfolio analysis helps you decide this by looking at all the businesses together, not one at a time.

The BCG growth-share matrix (Boston Consulting Group) uses two axes. The vertical axis is market growth rate: how fast the industry is growing. The horizontal axis is relative market share: your unit's share compared with its largest rival. High growth demands cash for capacity and marketing. High relative share brings lower costs through scale and experience, so it generates cash.

This gives four boxes:

Stars: high growth, high share. They earn well but also need heavy investment to keep their lead. Strategy: build and hold the position.
Cash cows: low growth, high share. They earn more cash than they need. Strategy: hold or harvest, and use the cash to fund stars and selected question marks.
Question marks (also called problem children): high growth, low share. They use a lot of cash and earn little. Strategy: invest heavily to turn them into stars, or divest if the odds are poor.
Dogs: low growth, low share. They earn little and tie up capital. Strategy: divest, liquidate, or harvest. Keep one only if it supports another unit.

The ideal path is cash cow cash funding question marks, which become stars, which later become cash cows when the market matures. A healthy portfolio has balance. Too many question marks or dogs and too few cash cows and stars is a warning sign.

The matrix is simple, but it has limits. It reduces a business to two variables, it assumes market share drives profit, and it ignores synergy between units. The GE nine-cell matrix (industry attractiveness versus business strength) was built to overcome some of these limits.

Key rules to remember

Relative market share: Relative market share = Your unit's market share ÷ Market share of the largest competitor; A value above 1 means your unit is the market leader. Below 1 means it trails the leader. The dividing line is usually 1.0, though some texts use a different cut-off such as 1.5. The horizontal axis is often drawn on a log scale from high to low.
Market growth rate: Market growth rate = (Market size this year − Market size last year) ÷ Market size last year × 100; Use industry sales, not your own unit's sales. The high/low cut-off is often shown near 10%, but it is a convention. Use the cut-off given in the question.
Box classification: High growth + High share = Star | Low growth + High share = Cash cow | High growth + Low share = Question mark | Low growth + Low share = Dog; Learn this as growth first, share second.
Cash logic: Cash cow cash → funds Stars and chosen Question marks; This is the core idea behind balancing a portfolio.

How to solve Strategic Analysis Tools: BCG Matrix and Portfolio Analysis questions

Use this method for any BCG or portfolio question, whether it is a case, a data table or a theory answer.

1Read the question and list each business unit or product.
2Find the market growth rate and the market share of each unit. If asked, compute relative market share against the leading rival.
3Compare each figure with the cut-off given. If none is given, say what cut-off you assume.
4Place each unit in a box: star, cash cow, question mark or dog.
5For each unit, state the cash position (uses or generates cash) and the strategy: build, hold, harvest or divest.
6Comment on the whole portfolio: where cash comes from, where it should go, and whether it is balanced.
7Add a short limitation or caution if the question asks for evaluation or a critical view.

Quickest way: Two questions, four boxes

When to use it: Use this for MCQs and for the first minute of a written case.

For each unit ask: is the market growing fast? Is our share bigger than the leader's or close to it?
Match the two answers to the box. Growth is high for stars and question marks. Share is high for stars and cash cows.
MCQ trick: a cash cow generates cash and a question mark consumes cash. Eliminate options that reverse this.
MCQ trick: if the option says to divest a star or invest heavily in a dog, it is almost certainly wrong.
Written format: a short table or list of unit, box, reason, strategy. Then two lines on portfolio balance. Each unit classified with a reason earns its own step marks.

Common mistakes in Strategic Analysis Tools: BCG Matrix and Portfolio Analysis

Mixing up question marks and dogs.
Both have low share, so students look only at share.
Fix: Check growth first. High growth with low share is a question mark. Low growth with low share is a dog.
Using the unit's own sales growth instead of the market growth rate.
The word growth suggests the company's growth.
Fix: The vertical axis is industry growth. Use the market figure.
Using absolute market share instead of relative market share.
Market share is a familiar term.
Fix: Divide your share by the largest rival's share. A unit with 20% share against a rival with 40% has relative share 0.5, which is low.
Saying stars are cash generators.
Stars are profitable, so students assume surplus cash.
Fix: Stars usually need heavy investment to keep up with growth. Cash cows are the main cash source.
Recommending divestment of every dog automatically.
Memorised rule without reading the case.
Fix: Divest or harvest in general, but keep a dog if it supports other businesses or has strategic value. Say so.
Presenting the BCG matrix without any limitation.
Students think the tool is the full answer.
Fix: Add at least two limitations: only two variables used, and no allowance for synergies or for profit in low-share units.

Worked examples

Example 1

A company has four units. Industry growth and relative market share are: Unit A: growth 15%, relative share 1.8. Unit B: growth 4%, relative share 2.0. Unit C: growth 18%, relative share 0.3. Unit D: growth 3%, relative share 0.4. Take 10% growth and a relative share of 1.0 as the cut-offs. Classify each unit and suggest a strategy.

Show the solution

Unit A: growth 15% is above 10%, high. Relative share 1.8 is above 1.0, high. So A is a star.
Unit B: growth 4% is low. Relative share 2.0 is high. So B is a cash cow.
Unit C: growth 18% is high. Relative share 0.3 is low. So C is a question mark.
Unit D: growth 3% is low. Relative share 0.4 is low. So D is a dog.
Strategies: build and hold A with continued investment. Hold or harvest B and use its surplus cash. Invest selectively in C if it can gain share, else divest. Divest or harvest D unless it supports another unit.
Portfolio view: B funds A and C. The portfolio is reasonably balanced as it has a cash source and growth businesses.

Answer: A is a star, B a cash cow, C a question mark and D a dog. Build A, harvest B to fund A and C, invest selectively in C, and divest or harvest D.

Example 2

Unit X has a market share of 12%. The largest competitor holds 30%. The market grew from ₹800 crore to ₹920 crore. Taking 10% growth and a relative share of 1.0 as cut-offs, classify X and recommend a strategy.

Show the solution

Relative market share = 12 ÷ 30 = 0.4.
Market growth rate = (920 − 800) ÷ 800 × 100 = 120 ÷ 800 × 100 = 15%.
Growth of 15% is above 10%, so high. Relative share of 0.4 is below 1.0, so low.
High growth with low share makes X a question mark.
X will absorb cash because the market is growing fast, while it earns little because share is low.
Strategy: decide whether to invest heavily to raise share and move X to star, funded by cash cows, or to divest if the cost of gaining share is too high.

Answer: X is a question mark (relative share 0.4, growth 15%). Invest to build share if feasible, otherwise divest.

Exam tips

Start every answer with the classification and the reason in numbers, then the strategy. Examiners award marks for each.
Learn the four strategies by name: build, hold, harvest, divest. Use these words in answers.
For a compare question, remember: BCG uses market growth and relative share with four boxes. GE nine-cell uses industry attractiveness and business strength with nine cells, and considers more factors such as profitability and competitive position.
Always draw a small 2 × 2 grid when asked to show or illustrate the matrix. Label both axes and place each unit.
Keep two or three limitations ready: only two variables, growth is not the only sign of attractiveness, ignores synergy, and treats each unit as independent.

Practice questions from Strategic Analysis: Internal Environment

Strategic Analysis Tools: BCG Matrix and Portfolio Analysis in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Strategic Analysis Tools: BCG Matrix and Portfolio Analysis: frequently asked questions

What are stars, cash cows, question marks and dogs in the BCG matrix?

They are the four boxes. Stars have high growth and high share. Cash cows have low growth and high share. Question marks have high growth and low share. Dogs have low growth and low share.

What are the limitations of the BCG matrix?

It uses only two variables, market growth and relative share. It assumes high share always means high profit and ignores synergies between units. It also depends on how the market is defined, and it does not suggest how to actually grow a business.

How is the GE nine-cell matrix different from the BCG matrix?

The GE matrix plots industry attractiveness against business strength. Each axis combines several factors, and the grid has nine cells. It is more detailed than BCG, but it needs more judgement and is harder to apply.

How do I draw a BCG matrix in the exam?

Draw a 2 × 2 grid. Put market growth rate (high to low) on the vertical axis and relative market share (high to low) on the horizontal axis. Label the four boxes and place each unit in its box with a one-line strategy.