Portfolio Analysis BCG Tool for Analyzing Opportunities & Ability to Compete.
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Transcript of Portfolio Analysis BCG Tool for Analyzing Opportunities & Ability to Compete.
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Portfolio Analysis
BCG Tool for Analyzing Opportunities & Ability to Compete
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Types of Portfolio Analysis• Growth Share Matrix (Boston Consulting
Group)
• Industry Attractiveness/Business Position Matrix (General Electric)
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Growth Share Matrix (Boston Consulting Group)
• Classification of SBUs/products into four cell matrix based on– Market Attractiveness
• Indicator – Industry’s annual growth rate
• 10% traditional cutoff
– Business Strength• Indicator – Company’s Market Share Relative to Largest
Competitor
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The Boston Consulting Group’s Growth-Share Matrix
20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0M
arke
t G
row
th R
ate
10x 4x 2x 1.5x 1x Relative Market Share
.5x .4x .3x .2x .1x
Dogs 87
3 ?Question marks
? ?2
1
Cash cows
6
Stars
5
4
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Star Strategies
• Leader expanding industry• Generates large profits• Requires substantial
investments to sustain growth
• Farthest down on experience curve relative to competition
• Increase sales – e.g. new markets, new channels of distribution
• Increase market share
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Problem Child or ?
• Low market share in expanding industry
• Needs substantial cash to improve its position
• Slow progress on experience curve
• Increase sales (limit to niche or increase market share (limit to niche)
• Leave market
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Cash Cow
• Leader in mature or declining industry
• Can generate funds for other SBUs
• Maintain market share e.g. ensure quality, build customer loyalty, develop substitute brands
• Maximize Cash Flow e.g. increase usage rate, rate of replacement, modify expense structure, raise prices
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Dogs
• Low market share in a mature or declining industry
• Slow progress on experience curve
• Cost disadvantages and few growth opportunities
• Harvest or Divest• Concentrate on niches
requiring limited effort
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The Boston Consulting Group’s Growth-Share Matrix
20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0M
arke
t G
row
th R
ate
10x 4x 2x 1.5x 1x Relative Market Share
.5x .4x .3x .2x .1x
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Strategy Implications BCG
• Star – Leader in Expanding Industry– BUILD - Continue to increase market share – if
necessary at expense of short-term earnings
• Problem Child – Low market share in Expanding Industry– HARVEST if weak, BUILD if strong.– Assess chances of dominating segment. If good, go
after share. If bad, redefine business or withdraw.
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Strategy Implications BCG
• Cash Cow – Leader in mature or declining industry– HOLD - Maintain share and cost leadership until
further investment becomes marginal– Maximize cash flow
• Dogs – Low market share in a mature or declining industry– DIVEST Plan an orderly withdrawal so as to maximize
cash flow or concentrate on niches that require limited effort
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Assumptions of Growth /Share Matrix
• High market share generates cash revenues ?
• High Market growth uses more cash resources ?
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Issues with Growth/Share Matrix
• Market 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.
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Issues With Growth/Share Matrix
• Limited to industries where experience curve is relevant
• Appropriate for volume industries
• Overlooks perils of growth
• Measurement problems
• Product-market definition problems
• Difficult to implement strategies