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1、Business Portfolio Analysis,Outline,IntroductionBCG(Boston Consulting Group)MatrixPIMS(Profit Impact of Market Strategy)GE(General Electric)/McKinsey Multi-Factor Matrix,Introduction,The creation of SBUs enables the setting of SBUs mission and objectives and the allocation of resources across SBUs i
2、n the organizationSenior management need to have a framework to evaluate SBUs and to assign limited resources among them;hence portfolio analysisMany models but only 3 are covered here:BCG,PIMS,&GE models,BCG(Boston Consulting Group)Matrix,Provides a framework for senior management in allocating res
3、ources across business units in a diversified firm byBalancing cash flows among business units,andBalancing stages in the product life-cycle(PLC),BCG Product Portfolio Matrix Dimensions,BCG Matrix(contd),The horizontal axis is the Relative Market Share shown in a log scaleVertical line is usually se
4、t as 1.0 Relative Market ShareAn SBU to the left of this line means it is the market leader in the industry or segment in which it operatesConversely,an SBU to the right of this line(1.o RMS)means it is not the leader,BCG Matrix(contd),The vertical axis is the growth rate5 levels may be used:product
5、,product lines,market segment,SBU and business growth rateHorizontal line is usually set as 10%Growth RateSBUs above the set value(10%line)represents high growth ratesConversely,SBUs below this value depicts slower growth rate,Matrix Quadrants,Key Assumptions of BCG Matrix,Stable cost/price relation
6、shipNot valid if the firm is pricing on projected lower average unit costs in the futureMarket leader influences the average costsProfit margin is a function of market shareThis ignores profitable niches,Strategic Perspectives of Products in Different Quadrants,Four different strategic perspectivesI
7、nvestmentEarningsCash-flow,and Strategy Implications,Question Marks(Problem Children),Investmentheavy initial capacity expenditures and high R&D costsEarningsnegative to lowCash-flownegative(net cash user)Strategy ImplicationsIf possible to dominate segment,go after share.If not,redefine the busines
8、s or withdraw,Stars,Investmentcontinue to invest for capacity expansionEarningsLow to high earningsCash-flowNegative(net cash user)Strategy ImplicationsContinue to increase market shareeven at the expense of short-term earnings,Cows,InvestmentCapacity maintenanceEarningsHigh Cash-flowPositive(net ca
9、sh contributor)Strategy ImplicationsMaintain market share and cost leadership until further investment becomes marginal,Dogs,InvestmentGradually reduce capacityEarningsHigh to lowCash-flowPositive(net cash contributor)if deliberately reducing capacityStrategy ImplicationsPlan an orderly withdrawal t
10、o maximize cash flow,Example of a BCG Matrix for a Fastener Supplier in South East Asia,Anchoring Systems,Powder Actuated Tools,Cable Tray Systems,Electric Power Tools,Concrete Lifting Systems,Note that the Anchoring System SBU is forecasted to move to new position,BCG Matrix(Three Paths to Success)
11、,Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustainingStars need a lot of reinvestments and as the market matures,stars will degenerate into cash cows and the process will be repeated.As for dogs,segment the markets an
12、d nurse the dogs to health or manage for cash,Three Paths to Success(contd),BCG Matrix(Three Paths to Failure),Over invest in cash cows and under invest in question marksTrade further opportunities for present cash flow Under invest in the starsAllow competitors to gain share in a high growth market
13、 Over milked the cash cows,Three Paths to Failure(contd),PIMS(Profit Impact of Marketing Strategy)Program,Database of nearly 3,800 SBUs Representing more than 500 firmsMember firms have been in the program from 2 to 12 yearsThe program providesPar ROI(Return of Investment)Prediction of how ROI would
14、 change if policy change is made,Important Strategic Principles Derived From PIMS,In the long run,product quality is the single most important factor affecting performanceMarket share and profitability closely correlatedHigh-investment intensity reduces profitabilityCash implications of growth rate
15、and relative market share are affected by many factorsVertical integration is profitable for some business onlyMost factors that boost ROI also contribute to value,Examples of Application of some of the Principles of PIMS in ASPAC,Pursue of product qualityAustralian Quality CouncilHong Kong Awards f
16、or Industry(Quality cat.)Japan Quality AwardMalaysias Prime Ministers Quality Award(Private Sector)Philippines Quality AwardSingapore Quality AwardSri Lankas National Quality AwardThailand Quality Award,Examples of Application of some of the Principles of PIMS in ASPAC(contd),Pursue of market shareN
17、ova Group and Europa Holdings of Singapore expanding their pubs and restaurants business(Source:The Straits Times;Dec 10,1992;pp.2)High investment reduces profitabilityThe acquisition of new machinery caused a reduction in SM Summit Holdings gross margin SM(Source:SM Summit Holdings Annual Report 20
18、00),Limitations of PIMS,Key market-share variable is sensitive to product-market definitionOther variables depend on subjective judgementsInherent limitations of cross-section analysisSample biased toward larger firms that are industry leaders,GE(General Electric)/McKinsey Multi-Factor Matrix,Origin
19、ally developed by GEs planners drawing on McKinseys approachesMarket attractiveness is based on as many relevant factors as are appropriate in a given contextBusiness-position assessment also made on a many factorsSBU needs to be rated on each factor,GE Multifactor Portfolio Matrix,Industry Attracti
20、veness,Business Strengths,High,High,Medium,Medium,Low,Low,Invest/Grow,Selectivity/earnings,Harvest/Divest,Protect Position,Invest to Build,Build selectively,Build selectively,Selectively manage for earnings,Limited expansion or harvest,Protect&refocus,Divest,Manage for earnings,GE Multifactor Portfo
21、lio Matrix(Contd),Invest/Grow,Selectivity/earnings,Harvest/Divest,Some Limitations of the GE Model,Subjective measurements across SBUsProcess also highly subjectiveFrom the selection and weighting of factors to the subsequent development of both a firms position and the market attractiveness Businesses may have been evaluated with respect to different criteriaSensitive to how a product market is defined,
