Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

BCG Matrix, Benchmarking and Other Strategic Tools

Updated 11 October 2026 · Fact-checked

The BCG matrix classifies a firm's business units by market growth rate and relative market share into stars, cash cows, question marks and dogs, guiding where to invest or exit. Benchmarking compares your performance with the best. The GE matrix and McKinsey 7S are related tools. In answers, define, classify, then recommend.

Understand Strategic Tools: BCG Matrix and Benchmarking

A company with many products or business units cannot back all of them equally. Portfolio tools help management decide where to put money, where to hold and where to leave. Internal appraisal tools help a firm judge how well it runs compared with others.

The BCG matrix (Boston Consulting Group) plots each strategic business unit (SBU) on two axes. The vertical axis is market growth rate (high or low). The horizontal axis is relative market share, your share divided by the share of your largest competitor (high or low). This gives four boxes.

Stars: high growth, high share. They earn well but need heavy investment to keep their lead. Strategy: build and invest.
Cash cows: low growth, high share. They generate more cash than they need. Strategy: hold or harvest, and use the cash to fund stars and question marks.
Question marks (problem children): high growth, low share. They need much cash and the outcome is uncertain. Strategy: invest selectively to turn them into stars, or divest.
Dogs: low growth, low share. They give poor returns. Strategy: divest, liquidate or harvest.

The usual healthy path is question mark to star to cash cow. Limits of the matrix: it uses only two factors, depends on how you define the market, and assumes market share drives profit. It also ignores links between units.

The GE nine-cell matrix (GE-McKinsey) is a fuller model. Its axes are industry attractiveness and business strength (competitive position), each rated high, medium or low. Each axis combines many factors, so it is more flexible than BCG. Cells are grouped as invest/grow, selective/earnings, and harvest/divest.

Benchmarking means comparing your processes, products or performance with the best performers, inside or outside your industry, to find gaps and improve. Common types are internal, competitive, functional and generic benchmarking. The McKinsey 7S framework checks internal fit through seven elements: strategy, structure, systems (hard elements) and shared values, skills, style, staff (soft elements). Strategy succeeds when all seven are aligned.

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 you are the market leader. In BCG, the cut-off between high and low is commonly taken as 1, unless the question gives another.
BCG classification: 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.
GE matrix axes: Industry attractiveness × Business strength, each rated high / medium / low; Gives nine cells. Both axes are composite scores of several factors.
McKinsey 7S: Hard: Strategy, Structure, Systems. Soft: Shared values, Skills, Style, Staff; Shared values sit at the centre because they link all the other elements.

How to solve Strategic Tools: BCG Matrix and Benchmarking questions

Use this method for any question on portfolio, benchmarking or 7S tools, whether it asks for a definition, a classification or a case-based recommendation.

1Identify what the question asks: explain, classify given units, compare two tools, or advise a company.
2Define the tool in one or two lines with its axes or elements.
3If units are given, compute relative market share where needed, then compare growth and share against the cut-offs.
4Place each unit in its box or category and name it correctly.
5State the strategy for each: build, hold, selective invest, harvest or divest.
6Link the units: show how cash from cash cows funds stars and promising question marks.
7Add one or two limitations or a note on fit with the company's facts.
8Close with a clear conclusion or recommendation.

Quickest way: Two-question test for BCG boxes

When to use it: Use when a case lists several products with growth and share data and you have little time.

Ask: is the market growing fast? That decides the top or bottom row.
Ask: is our share higher than the leader's, so relative share above 1, or clearly high? That decides the left or right column.
Write the label, then one strategy word: build, hold, select or divest.
Add one sentence on cash flow between units.

Common mistakes in Strategic Tools: BCG Matrix and Benchmarking

Using absolute market share instead of relative market share on the BCG axis.
The term 'market share' is familiar and the word 'relative' is skipped.
Fix: Divide your share by the largest rival's share before classifying.
Swapping question marks and dogs, or stars and cash cows.
Students remember names but not which axis decides what.
Fix: Growth decides star versus cash cow among high-share units. Share decides question mark versus dog among the two low-share boxes. Check both axes each time.
Saying every dog must be sold immediately.
Divest is memorised as the one rule.
Fix: Say divest, liquidate or harvest, and note a dog may be kept if it supports other units or has strategic value.
Saying the GE matrix and BCG matrix are the same with different names.
Both use grids and SBUs.
Fix: Compare them: BCG has four cells and two single-factor axes; GE has nine cells with composite axes of industry attractiveness and business strength.
Treating benchmarking as copying a competitor.
The word suggests imitation.
Fix: Define it as comparing with best practice, possibly from another industry, to find gaps and improve, not to copy blindly.
Listing the 7S names without explaining fit.
It is learned as a list.
Fix: Say what each S means in the case and show which elements are misaligned.

Worked examples

Example 1

Aarav Industries Ltd has four SBUs. The market growth rate and market shares are: P: growth 18%, own share 30%, largest rival 15%. Q: growth 4%, own share 40%, largest rival 20%. R: growth 16%, own share 5%, largest rival 30%. S: growth 3%, own share 6%, largest rival 30%. Classify them in the BCG matrix (take 10% growth and relative share of 1 as cut-offs) and suggest a strategy.

Show the solution

Compute relative share. P = 30 ÷ 15 = 2. Q = 40 ÷ 20 = 2. R = 5 ÷ 30 ≈ 0.17. S = 6 ÷ 30 = 0.2.
P: growth 18% is high and relative share 2 is high, so Star.
Q: growth 4% is low and relative share 2 is high, so Cash cow.
R: growth 16% is high and relative share 0.17 is low, so Question mark.
S: growth 3% is low and relative share 0.2 is low, so Dog.
Strategy: invest in P to hold its lead; milk Q and use its cash for P and for R; study R and invest selectively if it can gain share, else divest; divest or harvest S.

Answer: P is a Star, Q a Cash cow, R a Question mark and S a Dog. Build P, harvest Q to fund P and R, invest selectively in R, and divest or harvest S.

Example 2

Distinguish between the BCG matrix and the GE matrix, and explain how benchmarking helps a company in internal appraisal.

Show the solution

BCG axes: market growth rate and relative market share. GE axes: industry attractiveness and business strength.
BCG has four cells; GE has nine cells from three ratings on each axis.
BCG uses single measures for each axis. GE builds each axis from several factors such as market size, profitability, brand, technology and cost position, so it is more flexible but needs judgment.
BCG gives simple strategies (build, hold, harvest, divest). GE gives grouped strategies: invest/grow, selective, and harvest/divest.
Benchmarking compares the firm's processes and results with the best performers inside or outside its industry.
It shows performance gaps, sets realistic targets and spreads best practice, so the firm sees its internal strengths and weaknesses against a standard rather than in isolation.

Answer: BCG is a simple four-cell model on growth and relative share; GE is a nine-cell model on industry attractiveness and business strength built from many factors. Benchmarking supports internal appraisal by revealing gaps against best practice and setting improvement targets.

Exam tips

Draw a small 2×2 BCG grid with axes labelled in the answer. It earns quick marks and avoids confusion.
In a data-based case, show the relative share calculation even if the answer seems obvious.
For comparison questions, use a point-by-point layout: axes, cells, factors, use.
Tie every recommendation to the facts given in the case, such as cash needs or growth rate.
For 7S, name all seven elements and say which are hard and which are soft.

Practice questions from Analyzing the External and Internal Environment

Strategic Tools: BCG Matrix and Benchmarking in other exams

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

Strategic Tools: BCG Matrix and Benchmarking: frequently asked questions

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

They are the four categories of business units. Stars have high growth and high share, cash cows low growth and high share, question marks high growth and low share, and dogs low growth and low share. Each calls for a different strategy.

What is the difference between the BCG matrix and the GE matrix?

BCG uses market growth and relative market share in four cells. GE uses industry attractiveness and business strength, each a composite of many factors, in nine cells. GE is more detailed but less simple to apply.

What is benchmarking in strategic management?

It is the process of comparing your practices and performance with the best in your industry or elsewhere. The aim is to find gaps and adopt better methods to improve.

What are the elements of the McKinsey 7S framework?

They are strategy, structure, systems, shared values, skills, style and staff. The first three are hard elements and the other four are soft elements. The framework checks whether they fit together.