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Stakeholder
theory
Ethics
Governance
CSR
Introduction to strategy
Vision/Mission
Management By Objectives
Expectation and Power
External Analysis
Strategic Analysis
Internal Analysis
PESTEL Industry CompetitorGeneric
Strategy
Value
ChainFinancial
Analysis
Portfolio AnalysisScale and
experience
Position Audit/Situational Analysis
Strengths
ThreatsOpportunities
Weaknesses Critical
Success
Factors
Balanced
Scorecard
The Resource
Based View of
Strategy
R
E
A
D
I
N
G
S
D
I
S
C
U
S
S
I
O
N
William Meaney MBA BSc. ACMA 2
Portfolio Theory
Learning Outcomes
After completing this lesson you should be able to
• Understand the concept of a portfolio
• Draw at least 2 of the models accurately – preferably the
Boston Box and the Ashridge or GE matrix
• Understand the link of portfolio theory to strategic choice
in the next section of the course
William Meaney MBA BSc. ACMA 3
Portfolio Strategy
• Boston Consulting Group (BCG)
• GE Multifactor Product Portfolio Matrix
• Directional Policy matrix
• The Relatedness Matrix
William Meaney MBA BSc. ACMA 4
6
Boston Consulting Group Matrix (BCG)
Stars
Industry
Growth
Rate
H
I
G
H
L
O
W
HIGH LOW
Relative Market Share
Question mark
or
Problem child
Cash Cow Dog
GF
B D
C
E
A< 10%
20%+
William Meaney MBA BSc. ACMA
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BCG Product Characteristics
Industry
Growth
Rate
H
I
G
H
L
O
W
Stars
• Market leaders
• Fast growing
• Substantial
profits
• Cash user
Cash Cow
• Profitable• Generate more
cash than needed
Question mark
• Rapid growth
• Poor profit
margins
• Heavy user of
cash
Dog
• Few growth
opportunities
• Cost
disadvantages
• Sales low
HIGH LOW
Relative Market Share
William Meaney MBA BSc. ACMA
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BCG Product/SBU designations for action
Industry
growth
rate
H
I
G
H
L
O
W
HIGH LOW
Relative Market Share
Stars
Maintain or
increase
market
share
Cash cow
Use profits to
maintain growth
Maintain
position
Question mark
Intensify
marketing effort
or leave
market
Dog
Reduce marketing
effort or divest
William Meaney MBA BSc. ACMA
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BCG Marketing Strategies
Industry
Growth
Rate
H
I
G
H
L
O
W
Stars
• Protect existing
share
• Reinvest £
• Attract new
users
Cash Cow
• Maintain share
• Use £ for R&D
• Invest in
Technology
and process dev.
Question mark
• Invest for
market share
• Buy share
• Become
niche
dominant
Dog
• Focus on niche
• Harvest
• Divest
• Abandon
• Drop
HIGH LOW
Relative Market ShareWilliam Meaney MBA BSc. ACMA
Industry
Growth
Rate
H
I
G
H
L
O
W
HIGH LOW
Relative Market Share
Cash Cow Dog
BD
CA< 10%
20%+
10
Boston Consulting Group Matrix (BCG)
Stars Question mark
or
Problem childGF E
William Meaney MBA BSc. ACMA
Funding Strategies in Different Circumstances
Source: Adapted from K. Ward, Corporate Financial Strategy, Butterworth/Heinemann,1993, Chapter 2.
William Meaney MBA BSc. ACMA 11
GE Multifactor Portfolio Matrix
General Electric matrix
• Portfolio analysis used for classifying
product lines and strategic business
units within a large company
• Developed by McKinsey consulting for
GE
• It assesses the area of the business in
term of two criteria– Industry attractiveness
– The strength of the business
William Meaney MBA BSc. ACMA 13
Fit between
SBUs CSF
and parent
skills
High
Low
Low HighFit between SBUs parenting
opportunities and parents skills
Ballast
Business
GSK want to buy
Pfizer
Alien
Business
GSK want to buy
Nintendo
Heartland
Business
GSK want to buy a
small Biotech
Company
Value Trap
Business
GSK want to buy a video
game company with a
good product but poor
marketing skills
The Ashridge Portfolio Display
William Meaney MBA BSc. ACMA 23
Customer Analysis
Area Detail
Key Customer Indentify • Name of each key customer
• Location
• Status in market
• Products they make and sell
• Size of firm
Customer History • First purchase date
• Who makes the buying decision in the customer’s organisations?
• What is the average order size, by product?
• What is the trend in size of orders?
• How is the useful life of the product judged?
Relationship of customer to product • What does the customer use the product for?
• Do the products form part of the customer’s own service/product
Relationship of customer to potential
market
• What is the size of the customer in relation to the total end-market
William Meaney MBA BSc. ACMA 24
Customer Profitability Analysis (CPA)
Customer A Customer B
No of Tubes 6,500 @ £21.25 10,000@ £20
Revenue (after discount) 138,125 200,000
Transport (22,750)
Admin (2,600) (2,000)
Profit 112,775 198,000
Margin 81.6% 99.0%
William Meaney MBA BSc. ACMA 25
How will this be useful in your exam?
• The examiner may provide sufficient information to do such an
analysis.
• However with new IT applications such as Customer
Profitability Analysis (CPA) and Product Profitability Analysis
(PPA) the portfolio models usefulness is questionable but
examiners do test the theory.
William Meaney MBA BSc. ACMA 26