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Portfolio AnalysisBCG Tool for Analyzing Opportunities & Ability to Compete
Types of Portfolio AnalysisGrowth Share Matrix (Boston Consulting Group)Industry Attractiveness/Business Position Matrix (General Electric)
Growth Share Matrix (Boston Consulting Group)
Classification of SBUs/products into four cell matrix based onMarket AttractivenessIndicator Industrys annual growth rate10% traditional cutoffBusiness StrengthIndicator Companys Market Share Relative to Largest Competitor
The Boston Consulting Groups Growth-Share Matrix
Star StrategiesLeader expanding industryGenerates large profitsRequires substantial investments to sustain growthFarthest down on experience curve relative to competitionIncrease sales e.g. new markets, new channels of distributionIncrease market share
Problem Child or ?Low market share in expanding industryNeeds substantial cash to improve its positionSlow progress on experience curveIncrease sales (limit to niche or increase market share (limit to niche)Leave market
Cash CowLeader in mature or declining industryCan generate funds for other SBUsMaintain market share e.g. ensure quality, build customer loyalty, develop substitute brandsMaximize Cash Flow e.g. increase usage rate, rate of replacement, modify expense structure, raise prices
DogsLow market share in a mature or declining industrySlow progress on experience curveCost disadvantages and few growth opportunitiesHarvest or DivestConcentrate on niches requiring limited effort
The Boston Consulting Groups Growth-Share Matrix
Strategy Implications BCGStar Leader in Expanding IndustryBUILD - Continue to increase market share if necessary at expense of short-term earningsProblem Child Low market share in Expanding IndustryHARVEST if weak, BUILD if strong.Assess chances of dominating segment. If good, go after share. If bad, redefine business or withdraw.
Strategy Implications BCGCash Cow Leader in mature or declining industryHOLD - Maintain share and cost leadership until further investment becomes marginalMaximize cash flowDogs Low market share in a mature or declining industryDIVEST Plan an orderly withdrawal so as to maximize cash flow or concentrate on niches that require limited effort
Assumptions of Growth /Share MatrixHigh market share generates cash revenues ?High Market growth uses more cash resources ?
Issues with Growth/Share MatrixMarket growth is not the only factor related to cash usage.Market growth is not necessarily related to cash usage.Market share is not necessarily related cash generation.Multiple factors lead to profitability.Cash is not the only factor in evaluating a portfolio.
Issues With Growth/Share MatrixLimited to industries where experience curve is relevantAppropriate for volume industriesOverlooks perils of growthMeasurement problemsProduct-market definition problemsDifficult to implement strategies