Operations Management and Strategic Management · Formulation and Implementation of Strategy

Strategic Analysis Tools and Portfolio Models Explained

Updated 10 October 2026 · Fact-checked

Strategic analysis tools help a firm decide where to compete and how. The BCG and GE matrices judge a portfolio of businesses, the Ansoff matrix picks a growth path using products and markets, and Porter's generic strategies choose a competitive approach: cost leadership, differentiation or focus. Name the tool, place the business, then recommend.

Understand Strategic Analysis Tools and Portfolio Models

A diversified company runs several businesses. Each needs cash, and each earns cash differently. Portfolio models help top management see the whole set at once and decide which business to build, hold, harvest or exit.

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 types. Stars have high growth and high share. They earn well but also need heavy investment. Cash cows have low growth and high share. They generate more cash than they need. Question marks (problem children) have high growth and low share. They need cash and a decision: invest to win share or drop them. Dogs have low growth and low share. They usually give poor returns, so the usual advice is to divest or harvest. The logic is to use cash cow surplus to fund stars and selected question marks.

The GE nine-cell matrix (GE-McKinsey) is a more detailed model. Its axes are industry attractiveness and business strength (competitive position). Each is rated high, medium or low, giving nine cells. Attractiveness depends on several factors such as market size, growth, profitability and competition. Business strength depends on factors such as share, brand, cost position and technology. Cells at top left call for invest and grow, the diagonal for selective investment, and bottom right for harvest or divest. Compared with BCG it uses many factors, not two, and has three levels, not two.

The Ansoff matrix is about growth, not portfolio review. It crosses products (existing or new) with markets (existing or new). Market penetration is existing products in existing markets. Market development is existing products in new markets. Product development is new products in existing markets. Diversification is new products in new markets, and it carries the highest risk.

Porter's generic strategies answer how to win against rivals. Cost leadership means being the lowest-cost producer in the industry, so you can price low or earn higher margins. Differentiation means offering something unique that buyers value and will pay extra for. Focus means serving a narrow segment, either with low cost (cost focus) or with differentiation (differentiation focus). A firm that tries to do everything with no clear edge is said to be stuck in the middle.

Key rules to remember

BCG relative market share: Relative market share = Your business's market share ÷ Share of the largest competitor; A value above 1 means you are the market leader. A value below 1 means a rival is larger. Many textbooks use 1 as the high/low cut-off, but check the cut-off the question gives.
BCG market growth rate: Market growth rate (%) = (Current year market sales − Previous year market sales) ÷ Previous year market sales × 100; Use the growth of the whole market, not of your own business. The high/low cut-off is usually given in the question (often around 10%).
BCG four categories: Star = high growth, high share | Cash cow = low growth, high share | Question mark = high growth, low share | Dog = low growth, low share; Learn each as a pair of growth and share.
GE matrix axes: Industry attractiveness (high/medium/low) × Business strength (high/medium/low) = 9 cells; Both axes are composite scores based on several weighted factors.
Ansoff matrix: Market penetration = existing product, existing market | Market development = existing product, new market | Product development = new product, existing market | Diversification = new product, new market; Risk is lowest in penetration and highest in diversification.
Porter's generic strategies: Cost leadership | Differentiation | Focus (cost focus or differentiation focus); Two axes: source of advantage (low cost or uniqueness) and scope (broad or narrow).

How to solve Strategic Analysis Tools and Portfolio Models questions

Use this order for any question on analysis tools and portfolio models, whether it is theory or a case.

1Read the question and identify the tool asked for, or the tool the data points to: growth and share data suggest BCG, many factors suggest GE, product-market choices suggest Ansoff, and competitive approach suggests Porter.
2Write a two-line definition of the tool with its axes.
3If data is given, compute what is needed: market growth rate and relative market share. Compare with the cut-offs in the question.
4Place each business in its cell or category and state the reason in one line using the figures.
5Give the strategic implication for each: build, hold, harvest, divest, penetrate, develop, diversify, or the Porter choice.
6Link the businesses: say how cash from one funds another.
7Add one limitation or caution, then end with a clear recommendation.

Quickest way: Two-axis placement shortcut

When to use it: Use for short notes, MCQs and case questions where time is tight.

Write the axes first: BCG is growth and share, GE is attractiveness and strength, Ansoff is product and market, Porter is advantage and scope.
For BCG, tick each business as high or low on both axes and read off the name.
Attach one standard action to each name: star build, cash cow hold and milk, question mark choose, dog divest.
For Ansoff, ask two questions: is the product new, is the market new.
For Porter, ask: is the edge low cost or uniqueness, and is the target broad or narrow.

Common mistakes in Strategic Analysis Tools and Portfolio Models

Using the firm's own growth rate instead of the market growth rate in BCG.
Students see sales figures of the business and use them directly.
Fix: Always use industry or market growth on the vertical axis. Business share is used only through relative market share.
Taking absolute market share instead of relative market share.
The word share looks familiar, so the comparison with the largest rival is skipped.
Fix: Divide your share by the largest competitor's share. A business with 20% share can still be low if a rival holds 40%.
Saying all dogs must be sold immediately.
Notes give divest as a one-word answer.
Fix: Say divest or harvest is usual, but a dog may be kept if it supports other businesses or gives a niche return.
Mixing up market development and product development in Ansoff.
The two names sound alike.
Fix: Name tells what is new: market development means a new market, product development means a new product.
Treating focus as just low price or small size.
Focus is confused with cost leadership.
Fix: Focus means a narrow segment target. It can win by low cost or by differentiation within that segment.
Saying GE matrix and BCG matrix are the same with more boxes.
Both are portfolio grids.
Fix: State that GE uses multi-factor composite measures on its axes and three levels, while BCG uses single measures of growth and share on two levels.

Worked examples

Example 1

Sundaram Foods has three businesses. Market growth and shares (own and largest rival) are: Biscuits: market growth 4%, own share 30%, rival 20%. Ready Mixes: market growth 15%, own share 8%, rival 32%. Snacks: market growth 14%, own share 24%, rival 20%. Taking 10% growth as high and relative share of 1 as the cut-off, classify each business under the BCG matrix and suggest a strategy.

Show the solution

Biscuits: relative share = 30 ÷ 20 = 1.5, which is high. Growth 4% is below 10%, so low. High share, low growth: cash cow.
Ready Mixes: relative share = 8 ÷ 32 = 0.25, which is low. Growth 15% is above 10%, so high. Low share, high growth: question mark.
Snacks: relative share = 24 ÷ 20 = 1.2, which is high. Growth 14% is high. High share, high growth: star.
Strategy: hold Biscuits and use its surplus cash. Invest in Snacks to keep leadership as the market grows. For Ready Mixes, study whether extra investment can lift share; if not, harvest or exit.

Answer: Biscuits is a cash cow (hold and milk), Ready Mixes is a question mark (selective investment or exit), Snacks is a star (invest to build). Cash from Biscuits should fund Snacks and, if chosen, Ready Mixes.

Example 2

Asha Textiles of Surat sells cotton sarees to retail shops in Gujarat. State the Ansoff growth option for each plan: (a) running discount schemes to sell more sarees to the same shops, (b) selling the same sarees through dealers in Tamil Nadu, (c) launching a range of readymade kurtis for the same Gujarat shops, (d) launching home furnishings in export markets.

Show the solution

Decide for each plan whether the product is new and whether the market is new.
(a) Same product, same market: market penetration.
(b) Same product, new market: market development.
(c) New product, same market: product development.
(d) New product, new market: diversification, which carries the highest risk.

Answer: (a) Market penetration; (b) Market development; (c) Product development; (d) Diversification.

Exam tips

Draw the BCG or GE grid in the answer when asked to explain or apply it. A small labelled diagram usually earns marks quickly.
In numerical BCG questions, show the calculation of relative share and growth before naming the category. Step marks come from the working.
For comparison questions such as GE vs BCG, write in two columns of points: axes, factors used, number of cells, and strategic guidance.
For Porter's strategies, give one Indian example for each and mention the risk, such as cost leaders being copied or differentiators losing their premium.
In MCQs, check which word gives the answer: new market, new product, low share, high growth. Match it with the definition and ignore long distractors.

Practice questions from Formulation and Implementation of Strategy

Strategic Analysis Tools and Portfolio Models 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 and Portfolio Models: frequently asked questions

What is the BCG matrix in simple words?

It is a grid that classifies a company's businesses by market growth rate and relative market share. The four types are stars, cash cows, question marks and dogs. It helps management decide where to invest and where to cut back.

What is the difference between the GE nine-cell matrix and the BCG matrix?

BCG uses two single measures, market growth and relative share, in a four-cell grid. The GE matrix uses industry attractiveness and business strength, each built from many factors, in a nine-cell grid. GE gives a more detailed view but needs more judgement.

What are Porter's three generic strategies?

They are cost leadership, differentiation and focus. Cost leadership wins through the lowest cost, differentiation through a unique offer that buyers value, and focus through serving a narrow segment. Focus can be based on cost or on differentiation.

Which Ansoff option is the riskiest?

Diversification, because both the product and the market are new to the firm. Market penetration is the least risky as it uses what the firm already knows.