2. Lecture Outline
• What is Portfolio Management
• What is Portfolio Analysis
• Boston Box
• McKinsey/GE Matrix
• AD Little Life-Cycle Matrix
3. Portfolio Management
• “enable strategic planners to select the
optimal strategies for the individual
products whilst achieving overall
corporate objectives”
(Mcnamee, 1985)
• Multi-business
• And/or multi-location
4. Portfolio Analysis
“ the strategic units that make up the company
and the attempts to evaluate current
effectiveness and vulnerabilities” (McDonald
et al, 1992)
– How much of our time and money should we
spend on our best products to ensure that
they continue to be successful?
– How much of our time and money should we
spend developing new costly products, most
of which will never be successful?
9. Hold Strategy
To enjoy continued
strong cashflow.
Relatively high
market share / low
market growth rate
‘Cash Cow’
opportunities
should be able to
maintain market
share at or around
existing levels
10. Build Strategy
To grow the
business.
Relatively low
relative market
share / high market
growth rate
‘Question Mark’
opportunities need
investment in order
to grow.
11. Harvest Strategy
To develop short
term cashflow
irrespective of the
long term
damaging effect to
the product or
business. This
strategy is
appropriate for any
weak products
where disposal in
the form of a sale
is unavailable or
not preferred due
to high exit barriers
13. Boston Box - Uses
• Simplifies complex situations
• Target setting tool
• Encourages strategists to view their
business as a collection of diversified cash
flows and investments
• Success sequences
• Disaster Sequences
14. Disadvantages
• Uses 2 factors only
• Many businesses are “Average”
• Dogs -10% mkt share –most fall into this
category
• Can use dogs as a tactical tool- barrier to
entry
• Cash flow? – Why not ROI?
16. General Electric’s Business Screen
C
Winners Winners
A Question
High B Marks
D
Industry Attractiveness
Winners
E Average
Businesses
Medium F
Losers
H
Losers
G
Low
Profit
Producers Losers Source: Adapted from Strategic
Management in GE, Corporate Planning
and Development, General Electric
Strong Average Weak Corporation. Used by permission of
General Electric Company.
Business Strength/Competitive Position
17. GE Matrix- uses
• More sophisticated than BCG – uses more
variables
• Condenses much information into 2
variables?
18. Limitations
• Complex and Weighty
• The numerical estimates can be
“objective”
• What about new products or business
units in growth industries.
19.
20. Uses
• The power of the Life-cycle matrix is the
story it tells about the distribution of the
firm’s businesses across the stages of the
industry evolution
21. Limitations
• Limited strategic prescription
• Once defined prescription is limited
• Some businesses “skip” cycles
• Go from Growth to Decline in a short time.
• Duration of “cycles”
• Eg. Mars (1930)
22. International Portfolio Analysis
2 Factors:
• Country’s attractiveness
• Market size, rate of growth, regulation
• Competitive strength
• Market share, product fit, contribution
margin, market support
23. Portfolio Matrix for Plotting Products by Country
Competitive Strengths
High Low
Dominate/Divest
High
Invest/Grow
Joint Venture
Country Attractiveness
Selective
Strategies
Harvest/Divest
Low
Combine/License
24. Portfolio Analysis
Advantages:
– Top management evaluates each of
firm’s businesses individually
– Use of externally-oriented data to
supplement management judgment
– Raises issue of cash flow availability
– Facilitates communication
25. Portfolio Analysis
Disadvantages:
– Difficult to define product/market
segments
– Standard strategies can miss
opportunities
– Illusion of scientific rigor
– Value-laden terms
