1. business and industrial
2. company
3. earnings

Business Portfolio
Analysis
Asia-Pacific Marketing Federation
Certified Professional Marketer
Copyright
Marketing Institute of Singapore
Outline
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Introduction
BCG (Boston Consulting Group)
Matrix
PIMS (Profit Impact of Market
Strategy)
GE(General Electric)/McKinsey
Multi-Factor Matrix
Introduction
 The creation of SBUs enables the
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setting of SBU’s mission and objectives
and the allocation of resources across
SBUs in the organization
Senior management need to have a
framework to evaluate SBUs and to
assign limited resources among them;
hence portfolio analysis
Many models but only 3 are covered
here: BCG, PIMS, & GE models
BCG (Boston Consulting
Group) Matrix
Provides a framework for senior
management in allocating
resources across business units in a
diversified firm by
Balancing cash flows among business
units, and
Balancing stages in the product lifecycle (PLC)
BCG Product Portfolio Matrix
Dimensions
Product
Sales
Growth
Rate
Relative Market Share (Log Scale)
BCG Matrix (cont’d)
 The horizontal axis is the Relative Market
Share shown in a log scale
 Vertical line is usually set as 1.0 Relative
Market Share
 An SBU to the left of this line means it is
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the market leader in the industry or
segment in which it operates
Conversely, an SBU to the right of this line
(1.o RMS) means it is not the leader
BCG Matrix (cont’d)
The vertical axis is the growth rate
 5 levels may be used: product, product lines,
market segment, SBU and business growth rate
 Horizontal line is usually set as 10% Growth
Rate
 SBUs above the set value (10% line) represents
high growth rates
 Conversely, SBUs below this value depicts
slower growth rate
Matrix Quadrants
Relative Market Share
High
Low
High
Product
Sales
Growth
Rate
Low
Key Assumptions of BCG
Matrix
 Stable cost/price relationship
 Not valid if the firm is pricing on projected
lower average unit costs in the future
 Market leader influences the average
costs
 Profit margin is a function of market
share
 This ignores profitable niches
Strategic Perspectives of Products
in Different Quadrants
Four different strategic perspectives
Investment
Earnings
Cash-flow, and
Strategy Implications
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Question Marks
(Problem Children)
 Investment—heavy initial capacity
expenditures and high R&D costs
 Earnings—negative to low
 Cash-flow—negative (net cash user)
 Strategy Implications
 If possible to dominate segment, go after
share. If not, redefine the business or
withdraw
Stars
 Investment—continue to invest for
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capacity expansion
Earnings—Low to high earnings
Cash-flow—Negative (net cash user)
Strategy Implications
 Continue to increase market share—even
at the expense of short-term earnings
Cows
Investment—Capacity maintenance
Earnings—High
Cash-flow—Positive (net cash
contributor)
Strategy Implications

 Maintain market share and cost leadership
until further investment becomes marginal
Dogs
 Investment
 Gradually reduce capacity
 Earnings—High to low
 Cash-flow
 Positive (net cash contributor) if
deliberately reducing capacity
 Strategy Implications
 Plan an orderly withdrawal to maximize
cash flow
Example of a BCG Matrix for a
Fastener Supplier in South East Asia
Relative Market Share
High
Low
High
Anchoring
Systems
Product
Sales
Growth
Rate
Cable Tray
Systems
Electric
Power Tools
Low
Powder
Actuated
Tools
Concrete
Lifting
Systems
Note that the Anchoring System SBU is forecasted to move to new position
BCG Matrix
(Three Paths to Success)
 Continuously generate cash cows and use
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the cash throw-up by the cash cows to
invest in the question marks that are not
self-sustaining
Stars need a lot of reinvestments and as
the market matures, stars will degenerate
into cash cows and the process will be
repeated.
As for dogs, segment the markets and
nurse the dogs to health or manage for
cash
Three Paths to Success
(cont’d)
Relative Market Share
High
Low
High
Market
Growth
Rate
Low
BCG Matrix
(Three Paths to Failure)
 Over invest in cash cows and under
invest in question marks
 Trade further opportunities for present
cash flow
 Under invest in the stars
 Allow competitors to gain share in a high
growth market
 Over milked the cash cows
Three Paths to Failure (cont’d)
Relative Market Share
High
Low
High
Market
Growth
Rate
Low
PIMS (Profit Impact of
Marketing Strategy) Program
 Database of nearly 3,800 SBUs
Representing more than 500 firms
 Member firms have been in the
program from 2 to 12 years
 The program provides
 Par ROI (Return of Investment)
 Prediction of how ROI would change if
policy change is made
Important Strategic Principles
Derived From PIMS
 In the long run, product quality is the single
most important factor affecting performance
 Market share and profitability closely correlated
 High-investment intensity reduces profitability
 Cash implications of growth rate and relative
market share are affected by many factors
 Vertical integration is profitable for some
business only
 Most factors that boost ROI also contribute to
value
Examples of Application of some of
the Principles of PIMS in ASPAC
Pursue of product quality
 Australian Quality Council
 Hong Kong Awards for Industry (Quality cat.)
 Japan Quality Award
 Malaysia’s Prime Minister's Quality Award
(Private Sector)
 Philippines Quality Award
 Singapore Quality Award
 Sri Lanka’s National Quality Award
 Thailand Quality Award
Examples of Application of some of the
Principles of PIMS in ASPAC (cont’d)
 Pursue of market share
 Nova Group and Europa Holdings of Singapore
expanding their pubs and restaurants business
(Source: The Straits Times; Dec 10, 1992; pp.2)
 High investment reduces profitability
 The acquisition of new machinery caused a
reduction in SM Summit Holdings gross margin SM
(Source: SM Summit Holding’s Annual Report
2000)
Limitations of PIMS
 Key market-share variable is sensitive
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to product-market definition
Other variables depend on subjective
judgements
Inherent limitations of cross-section
analysis
Sample biased toward larger firms that
are industry leaders
GE(General Electric)/McKinsey
Multi-Factor Matrix
 Originally developed by GE’s planners
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drawing on McKinsey’s approaches
Market attractiveness is based on as
many relevant factors as are
appropriate in a given context
Business-position assessment also
made on a many factors
 SBU needs to be rated on each factor
GE Multifactor Portfolio Matrix
High
High
Industry Attractiveness
Medium
Low
Protect
Position
Invest to
Build
Build
selectively
Selectively Limited
Build
Medium selectively manage for expansion
earnings
or harvest
Low
Protect & Manage for
refocus
earnings
Divest
Invest/Grow
Selectivity
/earnings
Harvest
/Divest
GE Multifactor Portfolio Matrix (Cont’d)
High
Industry Attractiveness
Medium
Low
High
Medium
Invest/Grow
Selectivity
/earnings
Low
Harvest
/Divest
Some Limitations of the GE
Model
 Subjective measurements across SBUs
 Process also highly subjective
 From the selection and weighting of
factors to the subsequent development of
both a firm’s position and the market
attractiveness
 Businesses may have been evaluated
with respect to different criteria
 Sensitive to how a product market is
defined