1. Models Tools Prescriptions Strategies PORTFOLIO ANALYSIS
C. M. Clarke-Hill

2. BUILDING SHAREHOLDER VALUE
How attractive is group of businesses firm is in?
How good is overall performance outlook over next five years?
If previous answers are not satisfactory, what should firm do to:
- Get out of some businesses
- Strengthen position of remaining
ones
- Acquire new businesses to boost
prospects for better performance

3. PORTFOLIO MODELS
A multidivisional firm has the problem of how to allocate resources and to back winners in their ‘portfolio’.
Certain Portfolio models are linked with:
The Product Life Cycle concept
The Experience Curve Concept
The PIMS Study

4. PORTFOLIO ANALYSIS
Portfolio Models can be used to provide strategic insights by:
Acting as a diagnostic aid
Providing a conceptual framework
Being a prescriptive guide
Being a planning tool

5. THE BOSTON CONSULTANCY GROUP MATRIX
PORTFOLIO ANALYSIS
THE BOSTON CONSULTANCY GROUP MATRIX

6. THE BCG MATRIX
The BCG Matrix is called the Growth Share Matrix because the model combines market growth and relative market share

7. ? BCG GROWTH SHARE MATRIX STAR QUESTION MARK CASH COW DOG M A R K E T
HIGH
STAR
QUESTION MARK M A R K E T G O W H ?
CASH COW
DOG
LOW
HIGH
RELATIVE MARKET SHARE
LOW

8. Market Growth Rate (Vertical) Relative Market Share (Horizontal)
TWO VARIABLES USED
Market Growth Rate (Vertical)
Relative Market Share (Horizontal)

9. MARKET GROWTH RATE
“High Growth” businesses are in markets growing faster than economy
“Low growth” businesses are in markets growing slower than economy

10. RELATIVE MARKET SHARE
Calculated by dividing firm’s market share by market share of firms largest rival
Typical dividing line between “high” and “low” relative market share businesses placed at about .75 or .8
Businesses on left are share leaders
Businesses on right are in below-average relative market share positions
Each business is a “circle” with size scaled to portion of total corporate revenues generated

11. ASSUMPTIONS UNDER WHICH THE MATRIX IS BASED
Cash Generated is proportional to
Relative Market Share
Cash is needed to keep pace with market growth rate
Additional cash is needed to increase market share
Growth rate eventually slows to allow cash to be generated

12. BCG STRATEGY PRESCRIPTIONS
Within the portfolio context there are FOUR basic strategies that can be pursued:
BUILD - a strategy of building market share
HOLD - a strategy of holding share relative to competitors and to market growth rate
HARVEST - a cash out strategy with little or no new investment
QUIT - a strategy of exit or withdrawal

13. BCG GROWTH SHARE MATRIX
HIGH
STAR M A R K E T G O W H
QUESTION MARK
Strategies: Build
Strategies: Build/Harvest
Quit
CASH COW
DOG
Strategies: Hold/Harvest
Strategies: Harvest/Quit
Build (?)
LOW
RELATIVE MARKET SHARE
HIGH
LOW
C. M. Clarke-Hill

14. PLC AND AN EXTENDED FORM OF GROWTH-SHARE MATRIX
Life Cycle Stage Extended Growth Share Types
Introduction Stage
Growth Stage
Maturity
Decline
Infants - negative cash flow
Stars
Question Marks
Cash Cows
Dogs
War Horses
Dodos

15. BCG CASH FLOW POSITION CHART
HIGH M A R K E T G O W H
STAR
QUESTION MARK
Large negative cash
flow
Modest positive or negative cash flow
Optimum Cash Flow
CASH COW
DOG
Large positive cash
flow
Modest positive or
negative cash flow
LOW
RELATIVE MARKET SHARE
HIGH
LOW

16. BCG PRODUCT DYNAMICS PORTFOLIO CHART
HIGH
STAR
QUESTION MARK M A R K E T G O W H
Success
Sequence
Disaster Sequence
CASH COW
DOG
LOW
HIGH
RELATIVE MARKET SHARE
LOW

17. USING THE MATRIX Check for internal balance Look for trends
Evaluate the competition
Consider factors not captured by the display
Develop possible target portfolios
Check for financial balance

18. PORTFOLIO BALANCE ?
The balanced portfolio is regarded as desirable - can we have other ‘unbalanced’ portfolios?
Too many stars?
Too many cash cows?
Too many question marks?
Too many dogs?

19. TOO MANY STARS - (HIGH GROWTH ORIENTED COMPANIES)
Problems of cash flow
High marketing investments in high growth markets are a pre-requisite to build or hold market share
NPD costs need to be funded & capitalised
Problems of high growth can be problematical - need for high borrowings

20. TOO MANY QUESTION MARKS
Negative cash flows can be problematic for development - can be undercapitalised
Question marks can become cash traps
High development costs must be capped
Question marks are costly in management time
Can question marks be ‘turned around’?

21. TOO MANY CASH COWS - (PROFIT ORIENTATED COMPANY)
Excessive cash inflows
Where is the future growth to come from ?
High profitability can be used to fund dividends
How do you plan for fading cash cows ?

22. TOO MANY DOGS - A COMPANY IN DECLINE
No growth
Modest cash flows
Where is the future to be
But DOGS can be profitable in the short run
Slow or fast decline in the business fortune

23. BCG BALANCED GROWTH SHARE MATRIX
HIGH
STAR
QUESTION MARK M A R K E T G O W H 10 5 2 3 6
CASH COW
DOG 4 1 9 8 7
LOW
HIGH
RELATIVE MARKET SHARE
LOW

24. WEAKNESSES OF GROWTH- SHARE MATRIX
Four-cell matrix hides fact that many businesses are in “average” growth rate markets and have “average” relative market share positions
Misleading simplification to categorise businesses into just four types
Matrix doesn’t identify which businesses offer best investment opportunities
Being a leader in a slow growth market doesn’t guarantee cash cow status.

25. WEAKNESSES OF GROWTH- SHARE MATRIX
Assessment of relative long-term attractiveness of business units requires more than just market growth and relative market share
Connection between relative market share and profitability is not as tight as experience curve effect implies. Many firms with small relative market shares are profitable.

26. DIRECTIONAL POLICY MATRIX
This model is an alternativeto the BCG Matrix, and is based on different criteria.
Market attractiveness
Business strengths

27. DPM Cont.
The two factors of Market Attractiveness and Business Strengths are COMPOSITE measures of potential opportunities open to the firm and the opportunities that the firm can take by leveraging its internal business strengths or competencies.

28. GENERAL ELECTRIC’S MARKET ATTRACTIVENESS - BUSINESS STRENGTH MATRIX
Strong
Average
Weak
High
Medium
Low

29. MARKET ATTRACTIVENESS
Market Size
Growth Rate
Profit Margin
Competition Intensity
Seasonality
Cyclicality
Social Impact
Regulation
Environment
Opportunities & Threats
Barriers to Exit/Entry
Technology & Capital

30. BUSINESS STRENGTH Market Share Core Competencies
Profit Margin vs Competitors
Ability to Match Price/Service
Relative Costs
Knowledge
Technological Ability
Management Caliber

31. CONSTRUCTING ATTRACTIVENESS/ BUSINESS STRENGTH MATRIX
Quantitative measures of market attractiveness and business strength used to plot each business unit’s position in the matrix
Each business unit appears as a circle. Area of the circle is proportional to size of market. Pie slices within circle reflect business’s market share.

32. RATING INDUSTRY ATTRACTIVENESS
Select factors to compare long term attractiveness of each market
Assign weights to each attractiveness factor
Rate each market on each attractiveness factor, using scale of 1 to 10
Calculate weighted ratings; sum to get to get an overall market attractiveness rating for each market

33. RATING BUSINESS POSITION/COMPETITIVE STRENGTH
Select factors to compare competitive strength of each business unit
Assign weight to each competitive strength factor
Rate each business on each factor using scale of 1 to 10
Calculate weighted ratings; sum to get an overall business unit strength rating for each business.

34. STRATEGY IMPLICATIONS OF ATTRACTIVENESS/STRENGTH MATRIX
Businesses in three cells at upper left have top investment priority. General strategic prescription is “grow and build”
Business in three diagonal cells given medium investment priority
Businesses in lower right of matrix are strong candidates for harvesting or divestment. May be candidates for “overhaul and reposition strategy”.

35. GENERAL ELECTRIC’S MARKET ATTRACTIVENESS - BUSINESS STRENGTH MATRIX
Strong
Average
Weak
High
Grow and Build
Medium
Medium
Harvest/Divest
Low
Overhaul and Reposition

36. ADVANTAGES OF ATTRACTIVENESS/STRENGTH MATRIX
Allows for intermediate rankings between high & low and strong & weak
Incorporates wider variety of strategically relevant variables
Stresses channelling of corporate resources to businesses with greatest potential for competitive advantage and superior performance.

37. WEAKNESSES OF ATTRACTIVENESS/STRENGTH MATRIX
No real guidance on specifics of business strategy
Most to be concluded is general strategic posture
Leaves issues of strategic coordination across businesses wide open, as well as issue of specific competitive approaches and action to take at business unit level
Tends to obscure businesses about to emerge as winners.

38. PORTFOLIO MODELS IN USE
Care when using such models
Models help - but - remember the assumptions
Different models can offer differing solutions
Use your judgement
Think of the ‘other’ factors

39. DIFFERENT MODELS - DIFFERENT RESULTS
Results of a study by Wind, Mahajan and Swire (1983) concluded that when using standardised portfolio models the classification of any business into a specific portfolio position depends on four factors

40. WIND, MAHAJAN AND SWIRE CONT.
The operational definition of the dimension used
The rule used to divide a dimension in high or low categories
The weighting of the variables used in constituting the composite dimensions
The specific portfolio model used

41. WIND et al, Cont
The issue here is that different models can offer different strategic solutions as SBUs can be classified in different positions
There may be unintended benefits - different portfolio models give different positions can cause a debate in the strategic process
Cash Cow or Dog?