portfolio - Management Class

advertisement
PORTFOLIO ANALYSIS
Models
Tools
Prescriptions
Strategies
C. M. Clarke-Hill
BUILDING
SHAREHOLDER VALUE
 How attractive is group of businesses firm is
in?
 How good is overall performance outlook over
next five years?
 If previous answers are not satisfactory, what
should firm do to:
- Get out of some businesses
- Strengthen position of remaining
ones
- Acquire new businesses to boost
prospects for better performance
PORTFOLIO MODELS
A multidivisional firm has the
problem of how to allocate resources
and to back winners in their
‘portfolio’.
Certain Portfolio models are linked
with:
The Product Life Cycle concept
The Experience Curve Concept
The PIMS Study
PORTFOLIO ANALYSIS
 Portfolio Models can be used to
provide strategic insights by:
— Acting as a diagnostic aid
— Providing a conceptual
framework
— Being a prescriptive guide
— Being a planning tool
PORTFOLIO ANALYSIS
THE BOSTON
CONSULTANCY
GROUP MATRIX
THE BCG MATRIX
The BCG Matrix is called
the Growth Share
Matrix because the
model combines market
growth and relative
market share
BCG GROWTH SHARE MATRIX
HIGH
M
A
R
K
E
T
G
R
O
W
T
H
STAR
QUESTION MARK
?
CASH COW
DOG
LOW
HIGH
RELATIVE MARKET SHARE
LOW
TWO VARIABLES USED
Market Growth Rate
(Vertical)
Relative Market
Share (Horizontal)
MARKET GROWTH RATE
“High Growth” businesses
are in markets growing
faster than economy
“Low growth” businesses are
in markets growing slower
than economy
RELATIVE MARKET SHARE
 Calculated by dividing firm’s market share
by market share of firms largest rival
 Typical dividing line between “high” and
“low” relative market share businesses
placed at about .75 or .8
 Businesses on left are share leaders
 Businesses on right are in below-average
relative market share positions
 Each business is a “circle” with size
scaled to portion of total corporate
revenues generated
ASSUMPTIONS UNDER WHICH
THE MATRIX IS BASED
Cash Generated is proportional to
Relative Market Share
Cash is needed to keep pace with
market growth rate
Additional cash is needed to increase
market share
Growth rate eventually slows to allow
cash to be generated
BCG STRATEGY PRESCRIPTIONS
 Within the portfolio context there are FOUR
basic strategies that can be pursued:
BUILD - a strategy of building market
share
HOLD - a strategy of holding share
relative to competitors and to market
growth rate
HARVEST - a cash out strategy with little
or no new investment
QUIT - a strategy of exit or withdrawal
BCG GROWTH SHARE MATRIX
HIGH
M
A
R
K
E
T
G
R
O
W
T
H
LOW
STAR
QUESTION MARK
Strategies: Build
CASH COW
Strategies: Hold/Harvest
HIGH
C. M. Clarke-Hill
Strategies: Build/Harvest
Quit
DOG
Strategies: Harvest/Quit
Build (?)
RELATIVE MARKET SHARE
LOW
PLC AND AN EXTENDED FORM
OF GROWTH-SHARE MATRIX
Life Cycle Stage
Extended Growth Share Types
 Introduction Stage  Infants - negative cash
flow
 Growth Stage
 Stars
 Question Marks
 Maturity
 Cash Cows
 Dogs
 Decline
 War Horses
 Dodos
M
A
R
K
E
T
G
R
O
W
T
H
BCG CASH FLOW POSITION
CHART
HIGH
STAR
Modest positive
or negative
cash flow
CASH COW
Large positive cash
flow
QUESTION MARK
Large negative cash
flow
Optimum Cash Flow
DOG
Modest positive or
negative cash flow
LOW
HIGH
RELATIVE MARKET SHARE
LOW
BCG PRODUCT DYNAMICS PORTFOLIO CHART
HIGH
M
A
R
K
E
T
G
R
O
W
T
H
STAR
QUESTION MARK
Success
Sequence
Disaster Sequence
CASH COW
DOG
LOW
HIGH
RELATIVE MARKET SHARE
LOW
USING THE MATRIX
Check for internal balance
Look for trends
Evaluate the competition
Consider factors not captured by
the display
Develop possible target portfolios
Check for financial balance
PORTFOLIO BALANCE ?
The balanced portfolio is
regarded as desirable - can we
have other ‘unbalanced’
portfolios?
Too
Too
Too
Too
many
many
many
many
stars?
cash cows?
question marks?
dogs?
TOO MANY STARS - (HIGH
GROWTH ORIENTED
COMPANIES)
Problems of cash flow
High marketing investments in high
growth markets are a pre-requisite to
build or hold market share
NPD costs need to be funded &
capitalised
Problems of high growth can be
problematical - need for high
borrowings
TOO MANY QUESTION MARKS
 Negative cash flows can be problematic for
development - can be undercapitalised
 Question marks can become cash traps
 High development costs must be capped
 Question marks are costly in management
time
 Can question marks be ‘turned around’?
TOO MANY CASH COWS (PROFIT ORIENTATED COMPANY)
Excessive cash inflows
Where is the future growth to
come from ?
High profitability can be used
to fund dividends
How do you plan for fading cash
cows ?
TOO MANY DOGS A COMPANY IN DECLINE
No growth
Modest cash flows
Where is the future to be
But DOGS can be profitable in the
short run
Slow or fast decline in the business
fortune
BCG BALANCED GROWTH SHARE MATRIX
HIGH
M
A
R
K
E
T
G
R
O
W
T
H
STAR
QUESTION MARK
10
2
5
3
6
CASH COW
DOG
4
1
9
8
7
LOW
HIGH
RELATIVE MARKET SHARE
LOW
WEAKNESSES OF
GROWTH- SHARE MATRIX
 Four-cell matrix hides fact that many
businesses are in “average” growth rate
markets and have “average” relative market
share positions
 Misleading simplification to categorise
businesses into just four types
 Matrix doesn’t identify which businesses
offer best investment opportunities
 Being a leader in a slow growth market
doesn’t guarantee cash cow status.
WEAKNESSES OF
GROWTH- SHARE MATRIX
Assessment of relative long-term
attractiveness of business units
requires more than just market
growth and relative market share
Connection between relative market
share and profitability is not as tight
as experience curve effect implies.
Many firms with small relative
market shares are profitable.
DIRECTIONAL
POLICY MATRIX
This model is an alternativeto
the BCG Matrix, and is
based on different criteria.
Market attractiveness
Business strengths
DPM Cont.
The two factors of Market
Attractiveness and Business
Strengths are COMPOSITE measures
of potential opportunities open to
the firm and the opportunities that
the firm can take by leveraging its
internal business strengths or
competencies.
GENERAL ELECTRIC’S MARKET
ATTRACTIVENESS - BUSINESS
STRENGTH MATRIX
Strong
High
Medium
Low
Average
Weak
MARKET ATTRACTIVENESS
 Market Size
 Growth Rate
 Profit Margin
 Competition
Intensity
 Seasonality
 Cyclicality
 Social Impact
 Regulation
 Environment
 Opportunities &
Threats
 Barriers to
Exit/Entry
 Technology &
Capital
BUSINESS STRENGTH
Market Share
Core Competencies
Profit Margin vs Competitors
Ability to Match Price/Service
Relative Costs
Knowledge
Technological Ability
Management Caliber
CONSTRUCTING
ATTRACTIVENESS/ BUSINESS
STRENGTH MATRIX
Quantitative measures of market
attractiveness and business strength
used to plot each business unit’s
position in the matrix
Each business unit appears as a circle.
Area of the circle is proportional to
size of market. Pie slices within circle
reflect business’s market share.
RATING INDUSTRY
ATTRACTIVENESS
Select factors to compare long term
attractiveness of each market
Assign weights to each attractiveness
factor
Rate each market on each
attractiveness factor, using scale of 1
to 10
Calculate weighted ratings; sum to get
to get an overall market
attractiveness rating for each market
RATING BUSINESS
POSITION/COMPETITIVE
STRENGTH
Select factors to compare
competitive strength of each
business unit
Assign weight to each competitive
strength factor
Rate each business on each factor
using scale of 1 to 10
Calculate weighted ratings; sum to
get an overall business unit strength
rating for each business.
STRATEGY IMPLICATIONS OF
ATTRACTIVENESS/STRENGTH MATRIX
Businesses in three cells at upper left
have top investment priority. General
strategic prescription is “grow and
build”
Business in three diagonal cells given
medium investment priority
Businesses in lower right of matrix are
strong candidates for harvesting or
divestment. May be candidates for
“overhaul and reposition strategy”.
GENERAL ELECTRIC’S MARKET
ATTRACTIVENESS - BUSINESS
STRENGTH MATRIX
Strong
High
Medium
Average
Weak
Grow and Build
Medium
Harvest/Divest
Low
Overhaul and Reposition
ADVANTAGES OF
ATTRACTIVENESS/STRENGTH MATRIX
Allows for intermediate rankings
between high & low and strong & weak
Incorporates wider variety of
strategically relevant variables
Stresses channelling of corporate
resources to businesses with greatest
potential for competitive advantage and
superior performance.
WEAKNESSES OF
ATTRACTIVENESS/STRENGTH
MATRIX
 No real guidance on specifics of business
strategy
 Most to be concluded is general strategic
posture
 Leaves issues of strategic coordination
across businesses wide open, as well as
issue of specific competitive approaches and
action to take at business unit level
 Tends to obscure businesses about to
emerge as winners.
PORTFOLIO MODELS
IN USE
Care when using such models
Models help - but - remember
the assumptions
Different models can offer
differing solutions
Use your judgement
Think of the ‘other’ factors
DIFFERENT MODELS DIFFERENT RESULTS
Results of a study by Wind,
Mahajan and Swire (1983)
concluded that when using
standardised portfolio models
the classification of any
business into a specific
portfolio position depends on
four factors
WIND, MAHAJAN AND SWIRE
CONT.
The operational definition of the
dimension used
The rule used to divide a
dimension in high or low categories
The weighting of the variables
used in constituting the composite
dimensions
The specific portfolio model used
WIND et al, Cont
The issue here is that different
models can offer different
strategic solutions as SBUs can be
classified in different positions
There may be unintended benefits different portfolio models give
different positions can cause a
debate in the strategic process
Cash Cow or Dog?
Related documents
Download