Tuesday, August 7, 2012

Strategic Management | Corporate Portfolio Matrix & The Boston Consulting Group (BCG) Matrix

Discuss the corporate portfolio matrix and the Boston Consulting Group (BCG) matrix. 

When an organization's corporate strategy encompasses a number of businesses, managers can manage this collection, or portfolio, of businesses using a tool called a corporate portfolio matrix. This matrix provides a framework for understanding diverse businesses and helps managers establish priorities for allocating resources.

The first portfolio matrix—the BCG matrix—was developed by the Boston Consulting Group and introduced the idea that an organization's various businesses could be evaluated and plotted using a 2 × 2 matrix to identify which ones offered high potential and which were a drain on organizational resources. The horizontal axis represents market share (low or high) and the vertical axis indicates anticipated market growth (low or high). A business unit is evaluated using a SWOT analysis and placed in one of the four categories: dogs, cash cows, stars, and question marks.

a. Dogs - They should be sold off or liquidated as they have low market share in markets with low growth potential.

b. Cash Cows - These have low anticipated growth rate but high market share. Managers should"milk" them for as much as they can, limit any new investment in them, and use the large amounts of cash generated to invest in stars and question marks with strong potential to improve market share.

c. Stars - These have high anticipated growth rate and high market share. Heavy investment in stars will help take advantage of the market's growth and help maintain high market share. The stars eventually develop into cash cows as their markets mature and sales growth slows.

d. Question Marks - These have high anticipated growth rate but low market share. The hardest decision for managers relates to the question marks. After careful analysis, some will be sold off and others strategically nurtured into stars.

Source: Management, 11e (Robbins/Coulter)

1 comment:

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