Portfolio analysis: BCG, GE-McKinsey and Ansoff matrices
Portfolio tools place businesses on two axes to guide investment: BCG (growth vs relative share), GE-McKinsey (attractiveness vs strength, nine cells) and Ansoff (products vs markets).
BCG growth-share matrix
| Cell | Growth | Relative share | Cash | Usual strategy |
|---|---|---|---|---|
| Star | High | High | Earns a lot and uses a lot; roughly self-funding | Hold or build |
| Cash cow | Low | High | Large net cash generator | Hold and milk; fund others |
| Question mark (problem child, wildcat) | High | Low | Uses a lot of cash | Build selectively or divest |
| Dog | Low | Low | Little cash either way | Harvest or divest |
Worked example: relative market share
In a fast-growing segment, Brand X holds a 12% share and the leader holds 30%. In a mature segment, Brand Y holds 36% and the next largest rival holds 18%. Place each in the BCG matrix (dividing line: relative share 1.0).
- Relative market share = own share ÷ share of the largest rival.
- Brand X: 12 ÷ 30 = 0.4. Below 1.0, so low relative share.
- High growth and low relative share: Brand X is a question mark.
- Brand Y: 36 ÷ 18 = 2.0. Above 1.0, so high relative share (it leads).
- Low growth and high relative share: Brand Y is a cash cow.
- Check: 0.4 × 30 = 12 and 2.0 × 18 = 36.
Brand X is a question mark (0.4); Brand Y is a cash cow (2.0). Only a clear leader has a relative share above 1.0; every follower is below 1.0.
GE-McKinsey nine-cell matrix
| Zone | Cells | Strategy |
|---|---|---|
| Green | High attractiveness with strong or medium strength, and medium attractiveness with strong strength | Invest and grow |
| Yellow (amber) | The three diagonal cells: high-weak, medium-medium, low-strong | Selectivity: hold and earn |
| Red | Low attractiveness with weak or medium strength, and medium attractiveness with weak strength | Harvest or divest |
Worked example: GE industry attractiveness score
An SBU rates industry attractiveness on three weighted factors (ratings 1 to 5): market size (weight 0.40, rating 4), market growth (weight 0.35, rating 3) and competitive intensity (weight 0.25, rating 2). Find the score.
- Weighted score = weight × rating for each factor.
- Market size: 0.40 × 4 = 1.60.
- Market growth: 0.35 × 3 = 1.05.
- Competitive intensity: 0.25 × 2 = 0.50.
- Total = 1.60 + 1.05 + 0.50 = 3.15 out of 5.
- Check: weights sum to 0.40 + 0.35 + 0.25 = 1.00, as they must.
3.15 on a 1-5 scale. Split into equal thirds (1-2.33 low, 2.33-3.67 medium, 3.67-5 high), this is medium attractiveness. A business-strength score built the same way fixes the cell.
Ansoff product-market matrix (1957)
| Markets | Existing products | New products |
|---|---|---|
| Existing markets | Market penetration (lowest risk): Maruti's offers to win share from rivals | Product development: HUL launching new Surf excel variants for current buyers |
| New markets | Market development: Amul taking its milk to new states and export markets | Diversification (highest risk): ITC entering hotels |
Exam points
- BCG rests on the experience curve: a higher share means lower unit cost and more cash.
- Classic BCG dividing lines: about 10% market growth and a relative share of 1.0.
- Success sequence: question mark → star → cash cow. Disaster sequence: star → question mark → dog.
- BCG uses single measures for each axis; GE uses many weighted factors for each axis.
- Related tools: Shell's directional policy matrix (similar to GE), Hofer's product-market evolution matrix (15 cells) and Arthur D. Little's life-cycle matrix.
NET asks which cell gets which strategy, what the axes are (relative share, not absolute share), how many cells each matrix has, and who built it. Ansoff cells come up as scenario matches.
Typical MCQ: “In the BCG matrix, a business with low market growth but high relative market share is a:” Cash cow. Trap: a star also has high share, but in a high-growth market.
Typical MCQ: “Which Ansoff option carries the highest risk?” Diversification (new product in a new market). Trap: market penetration is the lowest-risk option.
Typical MCQ: “How many cells does the GE-McKinsey matrix have?” Nine (3 × 3). Trap: BCG has four; Hofer's matrix has fifteen.
BCG pets: the Star shines, the Cow gives milk (cash), the Question mark begs for cash, the Dog just sits. Ansoff: Penetration is safest, Diversification riskiest, the two 'developments' sit between.