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Portfolio Analysis

The Boston Consulting Group approach


THE GROWTH-SHARE MATRIX (The Brand Portfolio Matrix)
20%

Stars
4

Question Marks
3 2 1

15%

Market Growth rate

10%

Cash Cow

Dogs

5%

7 8

10x

5x

1x

.5x

.2x

.1x

Relative Market Share

The General Electric Model


Market Attractiveness-Competitive-Position Portfolio Classification and Strategies
Business Strength
Strong
5.00

Medium

Weak

Market Attractiveness

3.67

2.33

1.00 5.00 3.67

Low

Medium

High

2.33

1.00

GE Matrix
Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows: Market size is represented by the size of the circle. Market share is shown by using the circle as a pie chart. The expected future position of the circle is portrayed by means of an arrow.

Each business is rated in terms of two major dimensions Market (Industry) Attractiveness Business Strength If one of these factors is missing the business will not produce outstanding results. The GE Model leads strategic planners to look at more factors in evaluating an actual or potential business than BCG matrix does. To measure these two dimensions, strategic planners must identify the factors underlying each dimension and find a way to measure them and combine then into an index. Clearly evaluating these factors requires data and assessment from marketing and other company personnel Management rates each factor from 1 (very unattractive) to 5 (very attractive) .The ratings are multiplied by weights reflecting the factors relative importance, to arrive at the values which are summed for each dimension.

Industry attractiveness and business unit strength are calculated by first identifying criteria for each, determining the value of each parameter in the criteria, and multiplying that value by a weighting factor. The result is a quantitative measure of industry attractiveness and the business unit's relative performance in that industry Industry attractiveness = factor value1 x factor weighting1 + factor value2 x factor weighting2+

Vertical Axis Market Attractiveness

Horizontal Axis Business Strength Market share Growth in market share Brand equity Distribution channel access Production capacity Profit margins relative to competitors

Market growth rate Market size Demand variability Industry profitability Industry rivalry Global opportunities Macro environmental factors

Market Attractiveness
Weight
Overall Market Size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerability Energy requirements Environmental impact 0.20 0.20 0.15 0.15 0.15 0.05 0.05 0.05 1.00

Rating (1-5)
4 5 4 2 4 3 2 3

Value
0.80 1.00 0.60 0.30 0.60 0.15 0.10 0.15 3.70

The General Electric Model


Business Strength
Strong
PROTECT POSITION Invest to grow at maximum digestible rate

Medium
INVEST TO BUILD Challenge for leadership Build selectively on strengths Reinforce vulnerable areas

Weak
BUILD SELECTIVELY Specialize around limited strengths Select ways to overcome weakness Withdraw if indications of sustainable growth are lacking LIMITED EXPANSION OR HARVEST Look for ways to expand without high risk; otherwise minimize investment and rationalize operations

Market Attractiveness

High

Concentrate effort on maintaining strength

BUILD SELECTIVELY

Medium

Invest heavily in most attractive segments Build up ability to counter competition Emphasize profitability by raising productivity PROTECT AND REFOCUS

SLECTIVITY/MANAGE FOR EARNINGS Protect existing program Concentrate investments in segments where profitability is good and risks are relatively low MANAGE FOR EARNINGS Protect position in most profitable segments Upgrade product line Minimize investment

DIVEST Sell on time that will minimize cash value Cut fixed costs and avoid investment meanwhile

Low

Manage for current earnings Concentrate on attractive segments Defend strengths

LIMITATIONS OF GE- MATRIX


Valuation of the realization of the various factors Aggregation of the indicators is difficult Core competencies are not represented Interactions between Strategic Business Units are not considered There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it.