2. Company's Portfolio
Portfolio : A business portfolio is a company’s set of
investments, holdings, products, businesses and
brands. A product portfolio is the product’s mix of market
segments. Marketing managers attempt to make a
product appeal to specific groups of people, called
segments. Examples of segments may be college
graduates, infant babies, men only , women only.
Strategic business units : The items in a business’s
portfolio may be called strategic business units, or
SBU's.
Having identified the business units that result from the
analysis, the company’s next task is to determine what
objectives, strategy and budget to assign to each
business unit.
3. MODELS FOR PORTFOLIO
ANALYSIS
Several models have been developed for use
when evaluating a company’s portfolio.Such
include :
Market share model,
the Growth share Matrix and
the multifactor portfoliomatrix.
4. Introduction
The Boston Consulting Group (BCG) is a global
management consulting firm with 82 offices in 46
countries founded in 1963.
The firm advises clients in the private, public, and
not-for-profit sectors around the world.
In the early 1970’s the Boston Consulting Group
(BCG) developed a model for managing a portfolio
of different strategic business units (SBUs) or
major product lines.
6. Why Need a model or BCG
Matrix ?
The chart is a graphical planning tool, where the
company’s products and services can be plotted
to help make key business decisions.
These decisions include whether to keep a
particular business unit, sell it or to invest more
in it. The y-axis of the graph represents rate of
market growth while the x-axis represents
market share.
A portfolio management tool based on product
life cycle theory.
8. Structure
The BCG GrowthShare Matrix is a four cell (2 by
2) matrix used to perform business portfolio
analysis as a step in the strategic planning
process. The BCG Growth Share Matrix positions
the various SBUs/product lines based on Market
Growth Rate and Market Share relative to the
most important competitor.
10. Market share ( X-axis )
Market share is the percentage of either
revenue or volume of sales that your
organization has of the total market.
In other words, the higher your market share,
the bigger the proportion of the market you
control and influence.
Relative market share is the firm’s or brands
market share is an index of its largest
competitor. In this way, relative market share
becomes a measure of competitive strength.
The formula for calculating relative market
share is as follows:
11. Market Growth ( Y- axis )
Market growth is the percentage growth
compared to the previous year. It is used as a
measure of how attractive a market is to
existing providers and potential new entrants.
High market growth creates an environment in
which it is relatively easy for organizations to
grow their profits, even if their market share
remains the same.
In contrast, if your product is in a low growth
market you will face intense competitive activity
and your organization will need to employ
significant effort just to retain its market share,
even if it is an established provider.
12. Cash Cows (high share, low
growth)
Cash cows: Cash cows are the leaders in the
marketplace and generate more cash than they
consume. These are business units or products
that have a high market share, but low growth
prospects. Cash cows provide the cash required
to turn question marks into market leaders, to
cover the administrative costs of the company,
to fund research and development, to service
the corporate debt, and to pay dividends to
shareholders. Companies are advised to invest
in cash cows to maintain the current level of
productivity, or to "milk" the gains passively.
So …...Cash Cows are
13. More Facts …
Cash cows are products or services that have
achieved market leader status, provide positive
cash flows and a return on assets (ROA) that
exceeds the market growth rate.
The return on assets (ROA) shows the
percentage of how profitable a company's
assets are in generating revenue.
The return on assets ratio, often called the
return on total assets, is a profitability ratio that
measures the net income produced by total
assets during a period by comparing net income
to the average total assets.
ROA can be computed as:
14. Stars ( High growth, High
Market Share)
Stars are leaders in business.
They also require heavy investment, to
maintain its large market share.
It leads to large amount cash consumption and
cash generation.
Attempts should be made to hold the market
share otherwise the star will become a CASH
COW.
15. Problem Child Or Question Mark
(low share, high growth)
A Question Mark has a low market share in a
fast-growing market. Whilst this type of product
is likely to generate some revenue it may not
be enough to sustain rapid growth and it may
become a net consumer of cash as it struggles
to retain its market share. Identifying those
Question Marks that have the potential to gain
sufficient market share to become a Star and
eventually a Cash Cow is critically important to
the future of any organization.
It is essential to define how much investment
the organization is prepared to allocate to a
Question Mark product in order to gain market
16. More facts ...
So the Question marks are products which may
give high returns but at the same time may also
flop and may have to be taken out of the
market. This uncertainty gives the quadrant the
name “Question Mark”. The major problem
associated with having Question marks is the
amount of investment which it might need and
whether the investment will give returns in the
end or whether it will be completely wasted.
Strategies for Question marks – As they are
new entry products with high growth rate, the
growth rate needs to be capitalized in such a
manner that question marks turn into high
17. Dogs (low share, low growth)
Product classified as dogs always have a weak
market share in a low growth market. These
products are very likely making a loss or a very
low profit at best. These products can be a big
drain on management time and resources.
The question for managers are whether the
investment currently being spent on keeping
these products alive, could be spent on making
something that would be more profitable. The
answer to this question is usually yes.
18. More facts ...
Strategies for Dogs – Depending on the
amount of cash which is already invested in this
quadrant, the company can either divest the
product altogether or it can revamp the product
through rebranding / innovation / adding
features etc.
However, moving a dog towards a star or a
cash cow is very difficult. It can be moved only
to the question mark region where again the
future of the product is unknown. Thus in cases
of Dog products, divestment strategy is used.
23. Sequences
Success Sequence in BCG Matrix – The Success
sequence of BCG matrix happens when a
question mark becomes a Star and finally it
becomes a cash cow. This is the best sequence
which really give a boost to the companies
profits and growth. The success sequence unlike
the disaster sequence is entirely dependent on
the right decision making.
Disaster sequence in BCG Matrix – Disaster
sequence of BCG matrix happens when a
product which is a cash cow, due to competitive
pressure might be moved to a star. It fails out
26. THE AIM IS ….
• to keep the cows,
• sell the dogs to finance the question marks
• and work to turn the cows into stars
• before they turn into dogs
