Strategic Management and Corporate Finance · Strategic Analysis and Planning

Strategic Planning Tools and Portfolio Models: BCG, GE and Ansoff

Updated 11 October 2026 · Fact-checked

Portfolio models help a diversified firm decide where to invest, hold or exit across its businesses. The BCG matrix uses market growth and relative market share. The GE matrix uses industry attractiveness and business strength. The Ansoff matrix maps growth options by product and market. Classify, then recommend a strategy.

Understand Strategic Planning Tools and Portfolio Models

A firm with many businesses cannot fund all of them equally. Portfolio analysis treats each business as an investment and asks which ones deserve cash, which should be held and which should be sold or closed. The tools below give you a structured way to answer that.

The BCG growth-share matrix plots each business unit on two axes: market growth rate (high or low) and relative market share (high or low). Relative market share is your share divided by the share of your largest competitor. This gives four boxes:

Stars: high growth, high share. They earn well but also need heavy investment to keep up. Build or hold them.
Cash cows: low growth, high share. They generate more cash than they need. Milk them to fund other units.
Question marks (problem children): high growth, low share. They absorb cash and may become stars or fail. Invest selectively or divest.
Dogs: low growth, low share. They give poor returns. Harvest, divest or liquidate, unless they serve a strategic purpose.

The GE nine-cell matrix (GE-McKinsey) is a finer tool. One axis is industry attractiveness (market size, growth, profitability, competition, and similar factors). The other is business strength or competitive position (share, brand, cost position, technology, and similar factors). Each axis is rated high, medium or low using weighted scores of several factors. The nine cells fall into three zones: invest/grow (top left), selective/earnings (diagonal middle), and harvest/divest (bottom right). Bubble size can show industry size, and a slice can show market share.

The Ansoff matrix is different: it is a growth-option tool, not a portfolio-ranking tool. It crosses products (existing or new) with markets (existing or new):

Market penetration: existing products, existing markets. Lowest risk.
Market development: existing products, new markets.
Product development: new products, existing markets.
Diversification: new products, new markets. Highest risk.

BCG is simple but uses only two variables and assumes market share drives profit. GE is more flexible and realistic but more subjective, because the factors and weights are chosen by the analyst. In exams, always apply the tool to the facts given and then state the strategic action.

Key rules to remember

Relative market share: Relative market share = Firm's market share ÷ Market share of the largest competitor; A value above 1 means the firm is the market leader (high share). A value below 1 means it trails the leader. Many texts use 1 as the cut-off between high and low.
Market growth rate: Market growth rate (%) = (Current year market size − Previous year market size) ÷ Previous year market size × 100; Compare with a cut-off given in the question (often around 10%). If none is given, state the cut-off you assume.
GE weighted score: Score of an axis = Σ (Weight of factor × Rating of factor); Weights on each axis should add up to 1 (or 100%). Convert the total score to high, medium or low using the bands given.
BCG strategy by box: Star → build/hold; Cash cow → hold/harvest; Question mark → invest selectively or divest; Dog → divest/harvest; State the action after classifying. Marks are lost if you only name the box.
Ansoff growth options: Existing product + existing market = penetration; existing product + new market = market development; new product + existing market = product development; new product + new market = diversification; Risk rises as you move away from the existing product and market.

How to solve Strategic Planning Tools and Portfolio Models questions

Use this sequence for any question on portfolio models or growth options. It keeps your answer in the provision, analysis and conclusion shape that examiners expect.

1Identify the tool asked for, or choose the one that fits: BCG for a simple unit-wise classification, GE for multi-factor assessment, Ansoff for growth direction.
2Write one or two lines on what the tool measures and its two axes.
3List the data from the case for each business unit or option. Compute relative market share, growth rate or weighted scores where numbers are given.
4Classify each unit into its box, cell or option, and show the cut-off or reasoning you used.
5Link each classification to a strategy: build, hold, harvest, divest, penetrate, develop or diversify.
6Comment on cash flow: which units fund which. This is where marks are won in BCG answers.
7Add one or two limitations of the tool relevant to the case.
8Conclude with a clear recommendation for the company.

Quickest way: Two-axis sort and one-line action

When to use it: Use this when time is short, for example in a 5 to 8 mark question with a few business units listed.

Draw a small grid for the tool and label the axes.
Place each unit in its box using the numbers given.
Write one line per unit: box name, reason, action.
Add a closing line on cash flow: cows fund stars and selected question marks.
Write one limitation if time allows.

Common mistakes in Strategic Planning Tools and Portfolio Models

Using absolute market share instead of relative market share in the BCG matrix.
The term share is used loosely and students skip the comparison with the leader.
Fix: Always divide the firm's share by the largest competitor's share before deciding high or low.
Naming the box but giving no strategy.
Students treat classification as the full answer.
Fix: After every box, add the action: build, hold, harvest or divest, with a reason.
Treating the Ansoff matrix as a portfolio tool like BCG.
All three appear under the same heading and are drawn as grids.
Fix: Remember that Ansoff compares growth routes by product and market. It does not rate existing business units.
Assuming every dog must be sold and every star is safe.
Students memorise one-word strategies.
Fix: Say that a dog may be kept if it supports other units or gives strategic value, and that stars need heavy cash to hold position.
Describing GE matrix axes as just market growth and share.
Students carry over BCG axes to GE.
Fix: Use industry attractiveness and business strength, each built from several weighted factors.
Skipping limitations and cash-flow comments.
Students run out of time or think they are optional.
Fix: Keep a standard two-line closing: cash flows between units and one limitation such as oversimplification or subjectivity.

Worked examples

Example 1

Sunrise Industries Ltd has three business units. Unit A: market growth 14%, its share 30%, largest competitor's share 15%. Unit B: market growth 4%, its share 40%, largest competitor's share 20%. Unit C: market growth 3%, its share 5%, largest competitor's share 25%. Using a 10% growth cut-off and relative share cut-off of 1, classify the units on the BCG matrix and suggest a strategy for each.

Show the solution

Relative share of A = 30 ÷ 15 = 2.0. Growth 14% is above 10%. High growth, high share: Star.
Relative share of B = 40 ÷ 20 = 2.0. Growth 4% is below 10%. Low growth, high share: Cash cow.
Relative share of C = 5 ÷ 25 = 0.2. Growth 3% is below 10%. Low growth, low share: Dog.
Strategy for A: invest to hold or build its leadership, as it needs cash to keep pace with growth.
Strategy for B: hold its position and use the surplus cash to fund A and other promising units.
Strategy for C: harvest or divest, unless it supports other units, since returns are weak and growth is low.
Cash flow: B funds A; C should not take fresh investment.

Answer: A is a Star (build/hold), B is a Cash cow (hold and milk to fund A), and C is a Dog (harvest or divest).

Example 2

A packaged-foods company in India sells biscuits in northern India. It is considering four moves: (i) a campaign to sell more biscuits to existing customers in the north; (ii) selling the same biscuits in southern states; (iii) launching a new range of health snacks in the north; (iv) launching health snacks in the south. Classify each under the Ansoff matrix and rank them by risk.

Show the solution

(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 ranking: penetration is lowest because the firm knows both product and market.
Market development and product development carry medium risk, since one element is new. Which is riskier depends on facts such as the firm's distribution reach and R&D capability.
Diversification is highest because both product and market are new.

Answer: (i) Market penetration, lowest risk; (ii) market development and (iii) product development, medium risk; (iv) diversification, highest risk.

Exam tips

Draw the grid even for short answers. It shows clear structure and earns presentation marks.
When numbers are given, show the relative share calculation line by line. Method marks matter.
If the question asks to compare BCG and GE, cover axes, number of cells, factors used, objectivity and suitability in a short list of points.
For case questions, tie your recommendation to the company facts, such as cash position or competitor strength, not just the textbook line.
Always end with one limitation of the tool. It signals analysis, not memory.

Practice questions from Strategic Analysis and Planning

Strategic Planning 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 Planning Tools and Portfolio Models: frequently asked questions

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

BCG uses two variables, market growth and relative market share, in a four-box grid. GE uses industry attractiveness and business strength, each made from several weighted factors, in a nine-cell grid. GE is more detailed but more subjective.

Is the Ansoff matrix a portfolio model?

Not in the same sense. It compares growth options by product and market and shows the risk of each. BCG and GE classify existing business units for resource allocation.

What are the limitations of the BCG matrix?

It uses only two variables and assumes high share always brings profit. It also treats each unit as independent and ignores synergies. Defining the market and the cut-off for high growth can be arbitrary.

How should I answer a BCG numerical question in the exam?

Compute relative market share for each unit and compare growth with the cut-off. Place each unit in its box, state the strategy and comment on cash flow between units.