Financial Management and Strategic Management · Strategic Choices

Strategic Analysis and Choice: BCG Matrix and Other Tools

Updated 4 October 2026 · Fact-checked

Strategic analysis and choice uses portfolio tools to judge each business unit or product and pick a strategy. The BCG matrix uses market growth and relative market share. GE uses industry attractiveness and business strength. ADL uses life cycle and competitive position. Ansoff links products and markets. Name the cell, then state the strategy.

Understand Strategic Analysis and Choice: BCG Matrix and Other Tools

A diversified firm runs several businesses. It cannot fund all of them equally. Portfolio analysis helps top management see which businesses deserve cash, which should earn cash, and which should be dropped. This is a corporate-level choice.

The BCG growth-share matrix plots each business on two axes: market growth rate (high or low) and relative market share (high or low). Relative market share means your share compared with your largest rival. This gives four cells. Stars are high growth, high share: they grow fast and need heavy investment, so you build or hold them. Cash cows are low growth, high share: they generate surplus cash, so you hold and milk them. Question marks are high growth, low share: they need much cash and the outcome is uncertain, so you invest selectively or divest. Dogs are low growth, low share: they give poor returns, so you divest, liquidate or harvest. The usual cash flow idea is that cash cows fund question marks, which you hope to turn into stars. Stars later become cash cows as the market matures.

The GE nine-cell matrix (also called the GE-McKinsey matrix) is more detailed. One axis is industry attractiveness (high, medium, low) and the other is business strength or competitive position (strong, average, weak). Each axis combines many factors, such as market size, growth, profitability, brand, cost position and technology. The cells form three zones. The top-left zone says invest and grow. The diagonal middle zone says selectivity: invest in a few, hold others. The bottom-right zone says harvest or divest.

The ADL matrix (Arthur D. Little) plots stage of industry maturity (embryonic, growth, mature, ageing) against competitive position (dominant, strong, favourable, tenable, weak). It suggests strategies by life cycle stage. The Hofer matrix plots competitive position (strong, average, weak) against stage of product-market evolution (development, growth, shakeout, maturity and saturation, decline). Three positions × five stages give 15 cells. The business is shown as a circle: the circle represents the size of the industry, and the shaded segment (pie slice) shows the business's market share.

The Ansoff product-market matrix is about growth direction, not portfolio position. Existing product in existing market: market penetration. Existing product in new market: market development. New product in existing market: product development. New product in new market: diversification. Risk rises as you move away from the present product and market, and diversification is the riskiest.

Key rules to remember

Relative market share (BCG): Relative market share = Your business's market share ÷ Market share of the largest competitor; Above 1 means you are the market leader (high share). Below 1 means you trail the leader. Many books use 1 as the dividing line, but check the question's data.
BCG four cells: High growth + high share = Star; Low growth + high share = Cash cow; High growth + low share = Question mark; Low growth + low share = Dog; Growth is on the vertical axis and relative share on the horizontal axis, with share usually shown high on the left.
BCG strategies: Star: build/hold; Cash cow: hold/harvest; Question mark: build selectively or divest; Dog: divest/liquidate/harvest; Always pair the cell with its strategy.
Ansoff matrix: Existing product + existing market = Market penetration; Existing product + new market = Market development; New product + existing market = Product development; New product + new market = Diversification; Risk is lowest in penetration and highest in diversification.
GE matrix axes: Industry attractiveness (high/medium/low) × Business strength (strong/average/weak) = 9 cells; Three zones: invest/grow, selectivity/earnings, harvest/divest.
ADL matrix axes: Industry maturity stage × Competitive position (dominant, strong, favourable, tenable, weak); Strategy depends on the combination, for example natural development, selective development, or withdrawal.

How to solve Strategic Analysis and Choice: BCG Matrix and Other Tools questions

Use this method for any question on portfolio tools, whether it is a theory answer, a case study or a scenario that asks you to classify businesses.

1Identify which tool the question names or implies: BCG, GE, ADL, Ansoff or Hofer. If none is named, choose the one that fits the data given.
2Write one line on what the tool does and what its two axes are.
3Pull the data from the question: market growth, market share, competitor share, industry attractiveness, strengths, or product and market details.
4Place each business or product in a cell. For BCG, compute relative market share if the question gives shares.
5Give a reason for each placement, quoting the numbers or facts.
6State the strategy for each cell, such as build, hold, harvest or divest.
7Add the cash flow link or a short limitation if marks allow, and end with a one-line conclusion for the firm.

Quickest way: Cell, reason, strategy in three lines

When to use it: Use this when you have limited time, in both MCQs and short written answers.

For BCG MCQs, read the growth and share words first. High growth with low share is always a question mark. Low growth with high share is always a cash cow.
For Ansoff MCQs, ask two questions: is the product new, and is the market new? The two answers give the cell.
For GE MCQs, remember the axes are attractiveness and strength, and the diagonal middle means selectivity.
For written answers, use a fixed format: tool and axes, then business, cell, reason, strategy. Use a small table-like list of bullets so the examiner can find each step mark.
Keep one example per cell from the question's own business names, not generic ones.
Finish with a conclusion on how to balance the portfolio.

Common mistakes in Strategic Analysis and Choice: BCG Matrix and Other Tools

Mixing up question marks and dogs
Both have low share, so students stop at that point.
Fix: Look at growth too. High growth with low share is a question mark. Low growth with low share is a dog.
Using absolute market share instead of relative market share in BCG
Students see a share of 30% and call it high without comparing it with the leader.
Fix: Compare with the largest rival. If the leader has 40%, your 30% gives a relative share of 0.75, which is low.
Confusing Ansoff market development with product development
Both sound like growth by newness.
Fix: Market development means the same product goes to a new market. Product development means a new product goes to the existing market.
Saying GE matrix has four cells or uses growth and share
Students mix it up with BCG.
Fix: GE has nine cells. Its axes are industry attractiveness and business strength, each built from several factors.
Naming the cell but not the strategy
Students treat classification as the whole answer.
Fix: Always attach build, hold, harvest or divest to each cell, with a short reason.
Writing that dogs must always be sold
Students memorise divest as the only option.
Fix: Say divest, liquidate or harvest, and note that a dog may be kept if it supports other businesses or has a niche.

Worked examples

Example 1

A company has four products. Product A: market growth 18%, own share 30%, largest rival 15%. Product B: growth 3%, own share 40%, largest rival 20%. Product C: growth 15%, own share 5%, largest rival 35%. Product D: growth 2%, own share 6%, largest rival 30%. Classify them on the BCG matrix (treat growth above 10% as high and relative share above 1 as high) and suggest a strategy for each.

Show the solution

Compute relative market share: A = 30 ÷ 15 = 2.0. B = 40 ÷ 20 = 2.0. C = 5 ÷ 35 = 0.14 (approx). D = 6 ÷ 30 = 0.2.
Product A: growth 18% is high and relative share 2.0 is high, so it is a Star. Strategy: invest to build and hold the leading position.
Product B: growth 3% is low and relative share 2.0 is high, so it is a Cash cow. Strategy: hold position and use its surplus cash to fund other businesses.
Product C: growth 15% is high and relative share 0.14 is low, so it is a Question mark. Strategy: invest selectively to gain share if it can become a star, otherwise divest.
Product D: growth 2% is low and relative share 0.2 is low, so it is a Dog. Strategy: divest, liquidate or harvest, unless it has strategic value.
Cash flow link: B's surplus can fund C, and A will become a cash cow when its market matures.

Answer: A is a Star (build), B is a Cash cow (hold and harvest cash), C is a Question mark (selective investment or divest), and D is a Dog (divest or harvest).

Example 2

A biscuit company sells its existing biscuits in its home state. State the Ansoff strategy in each case: (i) it runs a heavy promotion to raise sales in the home state; (ii) it starts selling the same biscuits in another country; (iii) it launches a new health-drink range in its home state; (iv) it launches a new packaged-water business in another country.

Show the solution

Ansoff classifies by whether the product is new and whether the market is new.
(i) Existing product, existing market: market penetration.
(ii) Existing product, new market: market development.
(iii) New product, existing market: product development.
(iv) New product, new market: diversification.
Risk is lowest in (i) and highest in (iv), because the firm has no experience with either the product or the market in (iv).

Answer: (i) Market penetration, (ii) Market development, (iii) Product development, (iv) Diversification, the riskiest of the four.

Exam tips

Draw a small 2×2 for BCG or Ansoff only if it takes under a minute. Labelled cells with a one-line strategy each are enough to earn marks.
In case studies, quote the numbers given for growth and share in your reason. Marks usually go to the reasoning, not only the label.
For differences between BCG and GE, use axes, number of cells, factors used and level of detail as your four points.
Learn the one-line strategy for every cell. MCQs often ask what to do with a given cell, not the name of the cell.
For ADL and Hofer, remember the two axes and the idea of life cycle against competitive position. Do not try to memorise every cell.

Practice questions from Strategic Choices

Strategic Analysis and Choice: BCG Matrix and Other Tools 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 and Choice: BCG Matrix and Other Tools: frequently asked questions

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

They are the four cells formed by market growth rate and relative market share. Stars have high growth and high share, cash cows have low growth and high share, question marks have high growth and low share, and dogs have low growth and low share.

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

GE uses industry attractiveness and business strength, each made of many factors, and has nine cells. BCG uses only market growth and relative share, with four cells. GE is more detailed but needs more judgement.

Is the Ansoff matrix a portfolio tool?

It is a growth-direction tool. It shows how a firm can grow through products and markets, and it ranks the options by risk. It is often studied with portfolio tools because both help in choosing a strategy.

What are the limitations of the BCG matrix?

It uses only two factors and simple high-low splits, so it can oversimplify. Market share may not always lead to profit, and it ignores links between businesses. A dog can still be useful to the firm in some cases.