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Choice of Market direction- Should a company build, hold or shrink its position in a given market
Harvest
Increases short-term cash flow Good for weak cash cows, question marks and dogs
Hold
Preserve market share Good for cash cow
Divest
Sell or liquidate Good for dogs and question marks
Portfolio planning
Designed to help a company make a decision on market selection and direction in an integrated manner for all its business. ( What about a business?) Decision on resource allocation
Ansoffs Matrix
Product Market Market Penetration Product Development Present New
Present
New
Market Development
Diversification
Words of wisdom
A multidivision company without an overall strategy is not even as good as the sum of its parts. It is merely a portfolio of nonliquid, nontradeable investments which has added overhead and constraints. Such closed-end investments properly sell at a discount from the sum of the parts. ( Henderson, BCG)
BCG approach
Differs in its method of assigning roles to products, divisions and integrating these roles into a portfolio strategy Roles based on cash flow potential and growth relative to competition
General Assumptions
Key characteristics on which products and markets can be meaningfully compared- for example, a 15 % share of one market can be weighed against a 10 % share of another market
The key characteristics are systematically related to performance measures such as profitability and cash flow. Thus there are certain laws of market place.
Assumptions ( Contd..)
It is necessary to invest in a product to achieve these desirable characteristics Companies are limited in the amount they can invest, because both financial and managerial resources are finite The portfolio can be internally subsidized Portfolio planning leads to better overall performance than if investment decisions on each product were made independently.
Fig: A Typical Product Portfolio Chart of a Comparatively Strong and Diversified Company
20%
10%
4.0
2.0
1.0
0.5
0.25
High
Low $
High
Low
A Hypothetical Case
Investment Possible Movements
PDT
A B C D
RMS.
2 .5 3 .25
> 10%
IND GROWTH
< 10%
> 10%
IND GROWTH
STAR (HI, HP) A Amul Butter Amul Butter (LI, HP) C CASH COW >1
< 10%
> 10%
IND GROWTH
QUESTION MARKS (HI, LP) B Amul Frozen Pizza (LP, LI) D DOG Frozen Pizza <1
RMS
< 10%
> 10%
IND GROWTH
< 10%
Growth-Gain Matrix
Any better!
10
INDUSTRY ATTRACTIVENESS High Medium Low Invest/grow High Selectivity / earning Harvest/divest Medium
Low