Portfolio AnalysisStrategic Implementation

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Portfolio Analysis

• Executives in charge of

firms involved in many

different businesses

must figure out how to

manage such portfolios.

Portfolio Analysis• General Electric (GE), for

example, competes in a very wide variety of industries, including financial services, insurance, television, theme parks, electricity generation, lightbulbs, robotics, medical equipment, railroad locomotives, and aircraft jet engines. When leading a company such as GE, executives must decide which units to grow, which ones to shrink, and which ones to abandon.

The Boston Consulting Group (BCG) Matrix

(BCG) Matrix• The Boston Consulting

Group (BCG) matrix is the best-known approach to portfolio planning. Using the matrix requires a firm’s businesses to be categorized as high or low along two dimensions: its share of the market and the growth rate of its industry.

Question Marks• Divisions in Quadrant I have a

low relative market share position, yet they compete in a high-growth industry. Generally these firms’ cash needs are high and their cash generation is low. These businesses are called Question Marks because the organization must decide whether to strengthen them by pursuing an intensive strategy.

Stars• Quadrant II businesses (Stars)

represent the organization’s best long-run opportunities for growth and profitability. Divisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strengthen their dominant positions. Forward, backward, and horizontal integration; market penetration; market development; and product development are appropriate strategies for these divisions to consider.

Cash Cows• Divisions positioned in

Quadrant III have a high relative market share position but compete in a low-growth industry. Called Cash Cows because they generate cash in excess of their needs, they are often milked. Many of today’s Cash Cows were yesterday’s Stars. Cash Cow divisions should be managed to maintain their strong position for as long as possible.

Dogs• Quadrant IV divisions of the

organization have a low relative market share position and compete in a slow- or no-market-growth industry; they are Dogs in the firm’s portfolio. Because of their weak internal and external position, these businesses are often liquidated, divested, or trimmed down through retrenchment.

GEC Model

GEC Model• In consulting

engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU).

GEC Model• The GE matrix attempts to

improve upon the BCG matrix in the following two ways:– The GE matrix generalizes the

axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market shares as a proxy for the strength of the business unit.

– The GE matrix has nine cells vs. four cells in the BCG matrix.

GEC Model

Strategic Implications

• Grow strong business

units in attractive

industries, average

business units in

attractive industries, and

strong business units in

average industries.

Strategic Implications

• Hold average businesses

in average industries,

strong businesses in weak

industries, and weak

business in attractive

industries.

Strategic Implications

• Harvest weak business

units in unattractive

industries, average

business units in

unattractive industries,

and weak business units

in average industries.