Final answer:
The BCG matrix is used by companies to prioritize investments in their diverse business units and products by categorizing them based on market growth and market share. It helps in strategic decision-making, especially for firms with multiple products or business segments.
Step-by-step explanation:
The purpose of the BCG matrix, created by Bruce Henderson and the Boston Consulting Group, is to help companies with many businesses or products determine their investment priorities. The BCG matrix categorizes a company's business units or products into four categories (Stars, Question Marks, Cash Cows, and Dogs) based on market growth and market share. This helps companies to allocate resources and make strategic decisions by assessing the potential of their various business segments.
When a firm becomes established, with strategies that promise future profits, the reliance on personal relationships for investment lessens. Wider availability of information about the company's performance makes investing more attractive to external investors, such as bondholders and shareholders, who may not know the managers personally.