Which statement about the BCG Matrix is true?

Which statement about the BCG Matrix is true?

• A. It focuses only on a single business unit.
• B. It ignores market growth.
• C. It uses only historical profitability.
• D. It is a portfolio evaluation tool that uses growth rate and relative market share to guide resource allocation across business units.

Answer: (D)

The BCG Matrix is a portfolio evaluation framework that uses two dimensions—market growth and relative market share—to guide resource allocation across business units. Growth rate captures how attractive the market is in which a unit competes, while relative market share compares a unit’s size to its largest competitor, indicating its competitive strength and potential cash generation. Plotting units on this two-by-two matrix creates categories like stars, cash cows, question marks, and dogs, which in turn suggests where to invest, where to harvest, where to develop, or where to divest. This approach is inherently portfolio-wide, not focused on a single unit, and it relies on market dynamics rather than solely on historical profitability. So the statement that it’s a portfolio evaluation tool that uses growth rate and relative market share to guide resource allocation across business units is the most accurate description.

The BCG Matrix is a portfolio evaluation framework that uses two dimensions—market growth and relative market share—to guide resource allocation across business units. Growth rate captures how attractive the market is in which a unit competes, while relative market share compares a unit’s size to its largest competitor, indicating its competitive strength and potential cash generation. Plotting units on this two-by-two matrix creates categories like stars, cash cows, question marks, and dogs, which in turn suggests where to invest, where to harvest, where to develop, or where to divest. This approach is inherently portfolio-wide, not focused on a single unit, and it relies on market dynamics rather than solely on historical profitability. So the statement that it’s a portfolio evaluation tool that uses growth rate and relative market share to guide resource allocation across business units is the most accurate description.