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SHRI SIDH THAKURNATH COLLEGE OF

ARTS & COMMERCE,
ULHASNAGAR – 421 004
2015-2016

NAME: payal .m. bhagtani

CLASS: M-COM (PART I)(SEM-1)

ROLL NO: 1561131

SUBJECT: strategic management

PROJECT TOPIC: “portfolio analysis bcg
matrix and ge matrix”

SUBMITED TO: Varsha savlani

CERTIFICATE

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This is to certify that the project report titled “Portfolio Analysis

BCG Matrix & GE Matrix” has been completed satisfactorily in

partial fulfillment of M.COM PART I course of the University of

Mumbai, for the academic year 2015-2016 by PAYAL MEGHRAJ

BHAGTANI a student of S.S.T College of Arts and Commerce,

Ulhasnagar – 400 004.

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-----------------------------Signature of External Guide
Signature of Internal Guide

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S. I also wish to express gratitude to the respondents of the project without the kind co-operation of whom this one would not have been possible. COLLEGE which endow me with the valuable opportunity so interesting and critical topic is the subject of the present report. I don’t want to miss it. 3 . I thank my project guide “Varsha Sawlani” Sir for his valuable inputs in the Research and spending so much of their valuable time and efforts in helping with my topic. ACKNOWLEDGEMENT The most pleasant part of any project is to express Thankfulness and Give Honor towards all those who contributed to the smooth flow of the project work and this being the good opportunity.T. Sincere thanks to the institution of S.

GE/McKinsey Matrix 22 8 Conclusion 25 4 . Table of Contents Sr No. Particulars Page No 1 Introduction to BCG 5 2 Strength & Weakness of BCG 9 Matrix 3 Application to Competitive 12 Intelligence: Automotive Industry 4 GE/McKinsey Matrix 14 5 19 Strengths and Weaknesses 6 Application to Competitive 20 Intelligence: Apple Inc 7 BCG Matrix vs.

their respective advantages and disadvantages. on the other hand. Low-growth products with high market share. This portfolio should contain both high-growth and low-growth products/services. This project looks at two analytical techniques. 5 . generate lots of cash while needing minimal investment. every business organization should have a portfolio of products/services rather than just one product or service. It has since been used as a portfolio planning and analysis tool for marketing. as a tool to help his clients with efficient allocation of resources among different business units. In order to ensure successful long-term operation. Several different analytical techniques can be utilized in order to accomplish this task. brand management and strategy development. what CI situations they are best suited for. and provides an example of their use when applied to the CI scenario of the Smartphone industry. High-growth products have the potential to generate lots of cash but also require substantial amounts of investment.Introduction to BCG Competitive Intelligence (CI) often requires a great deal of analysis to convert gathered information into useable intelligence. Background The BCG Matrix (Growth-Share Matrix) was created in the late 1960s by the founder of the Boston Consulting Group. Bruce Henderson. the Boston Consulting Group (BCG) Matrix and the GE/McKinsey Matrix.

Market growth rate (attractiveness of the market in which a business unit operates) Relative market share (RMS) is the percentage of the total market that is being controlled by the company being analyzed. The BCG Matrix helps managers classify business units/products as low or high performers using the following criteria:  1. 6 .0 is considered a cut-off point. It is calculated using the following formula: RMS = Unit sales this year / Unit sales this year by a leading rival The relative market share is measured on a scale where 1.0 indicates that this company/product/business unit has a higher market share than the leading competitor.How it Works The BCG Matrix helps a company with multiple business units/products by determining the strengths of each business unit/product and the course of action for each business unit/product. Relative market share (strength of a business unit's position in that market)  2. An understanding of these factors will give the company the highest probability of winning against its competitors. since the intelligence generated can be used to develop portfolio management strategies. An RMS of more than 1.

high-market share. Question Marks .market share. a market growth rate of 10% has been used as a cut-off point for the purpose of classifying the units in the business portfolio.BUs/products characterized by low-market share in high-growth markets. These are well established and successful BUs that do not require substantial investment to keep their market share.BUs/products characterized by low-growth. Any unit with a growth rate of more than 10% would be placed in the high growth segment of the BCG Matrix. offering plenty of opportunity for everyone to make money. It is calculated using the following formula: MGR = (Individual sales this year . Stars – BUs/products characterized by high-growth and high. Eventually. Cash Cows . their growth will slow. and they will turn into cash cows. They often require heavy external investment to sustain their rapid growth as they may not be producing any positive cash flow. 3.individual sales last year) / Individual sales last year High growth markets are the ones where the total available markets share is expanding. They require a lot of financial resources to increase their share since they cannot 7 . Traditionally. They produce a lot of cash to be used for other business units (Stars and Question Marks) of the company. This classification places business units/products in the following four categories: 1.Market growth (MGR) is used as a measure of a market’s attractiveness. 2.

low-market share. they often have poor profitability. Stars. However. occasionally management might make a decision to hold a Dog for possible strategic repositioning as a Question Mark or Cash Cow. Cash Cows and Dogs  4. The business strategy for a Dog is most often to divest. In addition. 4. Identify major organizational business units (BUs) and identify RMS and MGR for each BU  2. Dogs . Classify the BUs as Question Marks.generate enough cash themselves. The BCG model follows the following major steps:  1. Plot the BUs on the BCG Matrix  3. Develop strategies for each BU based on their position and movement trends within the matrix 8 .BUs/products with low-growth. The crucial decision is to decide which Question Marks to phase out and which ones to grow into Stars.

Figure 1: An example of the BCG Matrix Strengths of the BCG Model:  The BCG Matrix allows for a visual presentation of the competitive position of all units in a business portfolio. 9 .

Businesses with low market share can be highly profitable as well.  Simple and easy to understand. marketing and operating decisions: o a.  Useful for the development of investment. Divest a business unit Weaknesses of the BCG Model:  The BCG model assumes that high market share and market growth are the only success factors. Sufficient investment to maintain the business unit's market share at the current level o c. The BCG model allows companies to develop a customized strategy for each product or business unit instead of having a one-size-fits-all approach. Technological competence 10 . we can conclude that high market share does not always lead to profitability.  It works well for companies with multiple divisions and products  Allows for quick and simple screening of business opportunities in order to determine investment priorities in the portfolio of products/business units. Based on numerous real life examples. Relative market strength is also determined by the following factors which the BCG does not take into account: a. Investment in the business unit in order to build its market share o b. Determine which business unit/product will function as a cash cow to provide necessary cash flow for the other business units/products o d.  It is used to identify how corporate cash resources can be best allocated to maximize a company’s future growth and profitability.

 It is a rather short-term model that doesn’t fully show how characteristics of business units change over the long term. Ability to maintain low manufacturing costs c. profitability. However. Human resources  The BCG model focuses on major competitors when analyzing the relative market share of a company.b. market density.  Assumes that high rates of profit are directly related to high market share  BCG is a primarily qualitative model  The Y axis represents the annual market growth which fails to see the full picture that goes beyond a one year span  It does not take into consideration other important factors such as: market barriers/restrictions. it neglects some small competitors with fast growing market shares. Distribution capabilities e. Financial strength of competition d. politics 11 .

At that time. For example. BUs and products. What if the management of major car manufacturers in the US had ran the BCG model under different scenarios (high gas prices. 10-15 years ago. The question is why are they selling it? Do they need the cash to fund a new Star? If GM tomorrow announces that they are selling its hybrid vehicle division. That happened because car manufacturers did not take into consideration the important factors of rising oil/gasoline prices and the changes in the environmental consciousness of the society. It is also important to constantly analyze business news to look at what other companies are selling/divesting or acquiring. If they are selling a product/BU with a small market share in a declining market then we know they are most probably selling a Dog. increased environmental awareness) to decide which cars would be Stars and Dogs under each of those scenarios? We believe that doing so would have better prepared the individual players in the industry for the rising competition with foreign car manufacturers. small cars were considered Dogs while SUVs were Stars. the automobile manufacturers in the US dismissed the market for small economy cars in favour of big SUVs. does it mean that they are in possession of a new technology that will revolutionize the entire industry? Looking at the competition through the prism of the BCG Matrix would help managers 12 .Application to Competitive Intelligence: Automotive Industry The BCG model could be helpful in situations where big economic swings produce significant changes in the original classification of companies.

In fact. business analysts at GM could develop various scenarios to predict the future of the automobile. Most of the breakthrough technologies today would appear in the Question Mark quadrant of the BCG Matrix. 13 . scarcity of resources. The BCG Matrix could also be used by business analysts for the purpose of forecasting future trends.ask the right questions and then collect necessary intelligence in the process of answering them. With the price of oil and other commodities rising. For example. Cash Cows and Dogs and forecast how the Matrix will change in the next 5-10 years under various scenarios (high inflation. in this context the BCG Matrix could become an important part of the business foresight which combines deep analysis of the past patterns and emerging trends with business insight. How will this picture change in 2-3 years from now? By monitoring and plotting these changes the business leaders at GM could get an insight into what will drive the future of the automotive industry in the future. Those who are able to come up with the most accurate foresight and timely capitalization on it will be the future leaders in the industry. change in consumer tastes and demands). These analysts would analyze whole industries/technologies using the BCG Matrix in order to predict future changes. Starts. Another application of the BCG Matrix in CI would be to see where the currently emerging technologies will be five years from now from the point of view of relative market share and market growth. they need to look beyond traditional technologies and sources of energy and evaluate other alternatives. From this point of view. the analysts could plot various traditional and breakthrough technologies on the BCG Matrix in order to determine the current Question Marks.

by that time. This raised internal concerns about the approach the organization had to investment decision making. How it Works The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix and it is primary used to perform business portfolio analysis on the strategic business units (SBU) of a corporation. It was considered not flexible enough to include all the broader issues that a company was facing while operating in a fast changing global environment. GE started to be interested in visual strategic frameworks like the Growth-Share Matrix created by the Boston Consulting Group (BCG) a few years before. A well balanced portfolio is one of the top priorities of a large 14 . A business portfolio is the collection of all the business units within a corporation and a large corporation has normally many SBUs. had approximately 150 different business units and was disappointed with the profits derived from its investments. While exploring new models to implement. GE. Each SBU is a distinctive and unique unit that falls under the same strategic hat. The GE/McKinsey Matrix solves most of the issues of the BCG model and proposes a more sophisticated and comprehensive approach to investment decision making. the BCG Matrix showed to have some limitations.GE/McKinsey Matrix Background The GE/McKinsey Matrix was developed jointly by McKinsey and General Electric in the early 1970s as a derivation of the BCG Matrix. However.

A unit can be a divisions or even a whole company owned by the parent organization. are the 'attractiveness' of the relevant industry and the unit's 'competitive strength' within the same industry. The strategic business units are the basic blocks that compose a business portfolio. Each axis is then divided into Low. Instead of looking solely at each unit's future prospects. 15 . which also serve as the axes of the matrix. Medium and High. a corporation can adopt a multi- dimensional approach based on two components that will indicate how well the unit will perform in the future. The two components used to evaluate businesses. The nine-box matrix provides decision makers with a systematic and effective framework for a decentralized corporation to make better supported investment decisions and for developing strategies for future product development or new market segment entries.organization.

Figure 2: Factors that influence the axes of the GE/McKinsey Matrix Six steps are necessary to implement the GE/McKinsey analysis:  1. Assign a weight to each factor  3. Perform a review / sensitivity analysis The plotted circles convey the information in the following way: 16 . Determine which factors are relevant for the corporation in the industry where it operates  2. Score each factor  4. Multiply the relative scores and weights  5. Sum all up and interpret the graph  6.

As a result. The units that fall above the diagonal indicate the investment and growth to be pursued. the executives of the corporation will have a clear and powerful analytic map for understanding and managing their entire multi-unit business. The size of the circle represents the market size of the SBU  The share owned by the SBU is expressed as a pie slice with its relative percentage inside  The expected future direction of the SBU is represented with an arrow The circles representing SBUs are then placed within the matrix. For example. finally the units below the diagonal might indicate divestments are necessary or otherwise that businesses can be kept only for cash reasons. 17 . the units along the diagonal require a thorough analysis and individual selection for investment. a strong unit in a weak industry is in a very different situation than a weak unit in a highly attractive industry. The placement of the units within the matrix is a necessary first step before the analysis phase that requires human judgement can begin.

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Figure 3: An example of the GE/McKinsey Matrix Strengths and Weaknesses The GE/McKinsey Matrix. 19 . it has several flaws and limitations:  No proven relationship between market attractiveness and business position. shares the aforementioned advantages of the BCG model.  The relationships between different units are not taken into account. as an extension of the BCG framework. Though the GE/McKinsey Matrix is more sophisticated than the BCG matrix and can provide higher value information for the executive management.

This includes easily obtainable information such as the current market size and market growth rate. smartphones (iPhones) and software to support these products. 20 . However. For the above limitations and issues.  The approach requires extensive data gathering. portable music players (iPods). The market attractiveness axis would be relatively easy for the competitor to assess if it is currently operating in that market. is a large technology company with several business units operating in different markets. could do so by placing its business units into a GE/McKinsey Matrix. A competitor wishing to gain competitive intelligence on the activities of Apple Inc. the GE/McKinsey Matrix can serve more as a quick strategic visual framework rather than as a resource allocation tool. since this consists of factors external to Apple. By analyzing this matrix. laptops.  Scoring is personal and subjective (risk of bias)  There is no hard and fast rule on how to weight elements. or divest.  The GE/McKinsey Matrix offers a broad strategy and does not indicate how best to implement it. develop selectively. some factors would have to be assessed subjectively. Apple Inc. Application to Competitive Intelligence: Apple Inc. such as barriers to entry and the state of technological development. tablet computers (iPads). it could determine which business units Apple is likely to invest in heavily. The core-competencies that lead to value creation are not taken into consideration. including desktop computers.

the media. such as tablet computers and Smartphone’s. Figure 4: Assessment of Apple business units in the GE/McKinsey Matrix From an assessment of the above GE/McKinsey Matrix. A competitor performing this analysis would realize that Apple is unlikely to divest any of 21 . a great deal of information could be obtained from secondary sources. and management strength. such as the Internet. However. such as customer loyalty. access to resources. the business unit strength axis would be more difficult to assess since it consists of factors internal to the company. it becomes clear that Apple is at least moderately strong in each of its business units and it competes in a number of attractive and fast-growing segments. and shareholder reports.In contrast.

since entry would require a large amount of funding for either R&D or the acquisition of the necessary technology and expertise. Although these models strongly focus on strategic decisions for large corporations. as these represent the areas of greatest opportunity. despite Apple’s early dominance. with the main objective of supporting managers in taking more informed investment and/or divestment decisions. gathering. fastest-growing markets (tablets and smartphones).these business units and is likely using its personal computer and music products as cash cows in order to fund R&D and growth in the faster-growing markets. The barriers to entry in all of these markets are considerable. 22 . BCG Matrix vs. and distributing intelligence about products. It can be defined as the action of defining. and it is a broader subject. Both models adopt visual frameworks that map internal strategic business units versus predetermined external factors. GE/McKinsey Matrix The BCG and the GE/McKinsey analytical models have been created and used for the last 40 years as portfolio analysis frameworks. they can also be effectively used in the more comprehensive competitive intelligence environment. Competitive intelligence is often wrongly identified with marketing practices or competitive analysis. competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization. Competitive intelligence does not deal only with products and competitors. analyzing. If the company performing this analysis decides to compete with Apple. customers. it should do so in the newest.

Assigning weights and scoring factors can be a very difficult work. This allows for more sophistication. Being more complex. In the GE/McKinsey Matrix. the framework takes a longer time to be implemented since the retrieval of all the necessary information could be lengthy. The GE/McKinsey and the BCG models can be effectively used in intelligence projects in different ways. respectively. and has to be done by expert hands. Another drawback of the tool is that it could be misleading if not used properly. in certain cases corporations can either loose the proper time to market or at the end of the collection process the data could be already old and thus not useful anymore. Often companies need to rely on external consultant organizations to get the necessary professionalism. When these are not done in the right way. results can lead executives in the wrong direction. Instead of considering only internal SBUs 23 . market attractiveness and competitive strength substitute the BCG's market growth and market share. a few differences have to be considered. Because of that. The market size of the business unit and the market share of the business under analysis are easily retrievable factors and the framework provides executives with a quick and valuable overview of the SBU's position. The GE/McKinsey Matrix is a far more sophisticated and powerful tool than the BCG Matrix because it takes into consideration more factors to measure the market attractiveness (external factors) and the strength of each SBU (internal factors). The BCG Matrix's advantage is being a simple and effective tool. Another difference is that GE/McKinsey is a 3*3 matrix while the BCG's is a 2*2.Going back to the models being analyzed.

which provides a better and more inclusive framework. The easy and quick approach that is the main advantage of this model. a particular attention should be given to the type and quality of data that is used with these tools. an effective approach would be to use the frameworks in analyzing the competitive landscape. The data has to always be validated with a non-correlated secondary source of information and corporations should tap both into internal and external data to get a broader picture. Ideally. This way. thus reducing the number of SBUs under analysis from many to just a few. The remaining competitors can be thoroughly analyzed with the GE/McKinsey Matrix. would let corporations perform a first skim. the two tools can be used together in sequence to take advantage of each other's strengths. corporations can see where internal SBUs stand compared to competitors'. initially when considering a large number of competitor's products. When running intelligence projects.compared to the market. the BCG Matrix can be adopted as a first step. Below is an example of internal and external sources that could be used: * Inside People (Internal to the organization) * Inside Documents (Internal to the organization) * Outside People (External to the organization) * Outside Documents (External to the organization) 24 . For example.

They can be used both internally as a strategy tool and externally as a competitive intelligence technique. users must be aware of their limitations and would be wise to use them primarily as an overview or as a complement to other analytical techniques. with their strength lying in their ease of use and interpretation.Conclusion Both the BCG and GE/McKinsey Matrix have proven over the years to be useful tools in order to assess the strength of a company’s portfolio of products relative to the attractiveness of the market they inhabit. Despite these strengths. 25 .