7e231sbu portfolio approach

7/31/2019 7e231SBU Portfolio Approach

1/10

Corporate and Division

Strategic Planning Three characteristics of SBUs

Single business or collection of related

businesses that can be planned for

separately

Has its own set of competitors

Has a manager who is responsible forstrategic planning and profit


2/10

The Boston Consulting Groups

Growth-Share Matrix20%-20%-

18%-18%-

16%-16%-

14%-14%-

12%-12%-

10%-10%-

8%-8%-

6%-6%-4%-4%-

2%-2%-

00Marke

tGrowth

Rate

3

?

Question marks

? ?

?21

Cash cow

6

Dogs

8

710x10x 4x 2x 1.5x4x 2x 1.5x 1x1x

Relative Market Share

.5x .4x .3x .2x .1x.5x .4x .3x .2x .1x

Stars

5

4


3/10

Question Marks

High growth, low share Build into Stars or phase out Require cash to hold

market share

Question Marks

High growth, low share Build into Stars or phase out

Require cash to holdmarket share

Stars

High growth & share Profit potential May need heavy

investment to grow

Cash Cows

Low growth, high share

Established, successful SBUsProduce cash

Cash Cows

Low growth, high share

Established, successful SBUsProduce cash

Dogs

Low growth & share

Low profit potential

Dogs

Low growth & share

Low profit potential

MarketGrowth

Rate

Low

High

Boston Consulting Group (BCG) Approach

?

Relative Market Share

High Low


4/10

BCG Strategies

Build

Hold

Harvest

Divest

To increase market share by investing

heavily in marketing activities to beat

the competition

To defend current market share and

maintain customer loyalty

To increase short-term cash flow

regardless of the long-term effects

To sell or liquidate the unprofitable

business

Question mark

Strong cash cowStar

Weak cash cowDog, Question mark

DogQuestion mark

After the classification of its SBUs to determinewhat role each will play in the future


5/10

Corporate and Division Strategic

Planning

The General Electric Model


6/10

The GE Model

Invest/

grow

Invest/

grow

Selectivity/

earnings

Invest/

grow

Selectivity/

earnings

Harvest/

divest

Selectivity/

earnings

Harvest/

divest

Harvest/

divest

5.00

3.67

2.33

1.00MarketA

ttractivenes

s

High

Medium

Low

5.00 3.67 2.33 1.00

Business Strength

Strong Medium Weak


7/10

The GE Model

Market

Attractiveness

Business

Strength

Overall market size

Annual market growth rate

Historical profit margin

Competitive intensity

Technological requirements

Inflationary vulnerability

Energy requirements Environmental impact

Social/political/legal

Market share

Share growth

Product quality

Brand reputation

Distribution network

Promotional effectiveness

Productive capacity Productive efficiency

Unit costs

Material supplies

R&D performance

Managerial personnel


8/10

GE Strategies

Protect

position

Build

selectively

Protect

and refocus

Invest to

build

Selectivelymanage

for earnings

Manage

for earnings

Build

selectively

Limitedexpansion

or harvest

Divest

5.00

3.67

2.33

1.00

5.00 3.67 2.33 1.00

Business Strength

MarketA

ttractivenes

s

High

Medium

Low

Strong Medium Weak


9/10

Corporate and Division

Strategic Planning Critique of Portfolio Models

Help managers to think more strategically.

Understand economics better.

Pinpoint information gaps and importantissues

Eliminate weaker businesses.

Strengthen investment in promisingbusinesses.


10/10

Can be Difficult, Time-Consuming, & Costly to ImplementCan be Difficult, Time-Consuming, & Costly to Implement

Difficult to Define SBUs & Measure Market Share/ GrowthDifficult to Define SBUs & Measure Market Share/ Growth

Focus on Current Businesses; provide little advice for future planningFocus on Current Businesses; provide little advice for future planning

Can Lead to Unwise Expansion or DiversificationCan Lead to Unwise Expansion or Diversification

Problems With Matrix Approaches

7e231sbu portfolio approach

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