Portfolio Analysis

The BCG Matrix and the GE 99Cell Matrix for Evaluating Diversified Companies

8 Relative Market Share Dogs Low .BCG Matrix High Stars Industry Growth Question Marks Cash Cows Low High 1-0.

Characteristics of Cash Cows  A cash cow business generates cash surpluses over and above what is needed to sustain its present market position Such businesses are valuable because surplus cash can be used to   Pay corporate dividends  Finance new acquisitions  Invest in promising cash hogs Strategic objective: Fortify and defend present market objective: position--keep position--keep the business healthy!!!  .

Characteristics of Cash Hogs   A business is a cash hog when its internal cash flows are inadequate to fully fund its need for working capital and new capital investment the parent company has to continually pump in capital to ³feed the hog´ Strategic options  Aggressively invest in attractive cash hogs  Divest cash hogs lacking longlong-term potential .

3 Weak 1.7 Medium 3.GE Nine-Cell Matrix NineIndustry Attractiveness ‡ Market Size ‡ Growth Rate ‡ Profit Margin ‡ Intensity of Competition ‡ Seasonality ‡ Cyclicality ‡ Resource Requirements ‡ Social Impact ‡ Regulation ‡ Environment ‡ Opportunities & Threats ‡ Relative Market Share ‡ Reputation/ Image ‡ Bargaining Leverage ‡ Ability to Match Quality/Service ‡ Relative Costs ‡ Profit Margins ‡ Fit with KSFs 10.0 Strong 6.7 Average 3. 10 = Strong .3 Low 1.0 High 6.0 Rating Scale: 1 = Weak .

Strategy Implications of Attractiveness/Strength Matrix  Businesses in upper left corner   Accorded top investment priority  Strategic prescription is grow and build Businesses in three diagonal cells  Given medium investment priority  Invest to maintain position Businesses in lower right corner  Candidates for harvesting or divestiture  May be candidates for an overhaul and reposition strategy  .

The Attractiveness/Strength Matrix  Allows for intermediate rankings between high and low and between strong and weak Incorporates a wide variety of strategically relevant variables Stresses allocating corporate resources to businesses with greatest potential for     Competitive advantage and Superior performance .

 Decide Resource Allocation Priorities and Strategic Direction Objective: ³Get the biggest bang for the buck´ 23 6 in allocating corporate resources 45 Procedure:  Rank each business from highest to lowest priority for corporate resource support and new investment (steer resources to high opportunity areas and limit support to low opportunity areas)  Develop a general strategic direction for each business   .

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