Portfolio Management

The business portfolio is the collection of businesses and products that make up the
company. The best business portfolio is one that fits the company's strengths and helps
exploit the most attractive opportunities.
The company must:
(1 !nalyse its current business portfolio and decide "hich businesses should receive
more or less investment.
(# $evelop gro"th strategies for adding ne" products and businesses to the portfolio%
"hilst at the same time deciding "hen products and businesses should no longer be
retained.
The t"o best&kno"n portfolio planning methods are the 'oston (onsulting )roup
Portfolio Matrix ('() Matrix and the Mc*insey + )eneral ,lectric Matrix (), Matrix.
The first step is to identify the various -trategic 'usiness .nits (-'. in a company
portfolio. !n -'. is a unit of the company that has a separate mission and ob/ectives and
that can be planned independently from the other businesses. !n -'. can be a company
division% a product line or even individual brands & it all depends on ho" the company is
organised.
The BCG Growth-Share Matrix
The '() )ro"th&-hare Matrix is a portfolio planning model developed by 'ruce
0enderson of the 'oston (onsulting )roup in the early 1123's. 4t is based on the
observation that a company's business units can be classified into four categories based
on combinations of market gro"th and market share relative to the largest competitor%
hence the name 5gro"th&share5. Market gro"th serves as a proxy for industry
attractiveness% and relative market share serves as a proxy for competitive advantage. The
gro"th&share matrix thus maps the business unit positions "ithin these t"o important
determinants of profitability.
'() )ro"th&-hare Matrix
This frame"ork assumes that an increase in relative market share "ill result in an
increase in the generation of cash. This assumption often is true because of the
experience curve6 increased relative market share implies that the firm is moving for"ard
on the experience curve relative to its competitors% thus developing a cost advantage. !
second assumption is that a gro"ing market re7uires investment in assets to increase
capacity and therefore results in the consumption of cash. Thus the position of a business
on the gro"th&share matrix provides an indication of its cash generation and its cash
consumption.
0enderson reasoned that the cash re7uired by rapidly gro"ing business units could be
obtained from the firm's other business units that "ere at a more mature stage and
generating significant cash. 'y investing to become the market share leader in a rapidly
gro"ing market% the business unit could move along the experience curve and develop a
cost advantage. 8rom this reasoning% the '() )ro"th&-hare Matrix "as born.
The four categories are:
Dogs (Pets) & $ogs have lo" market share and a lo" gro"th rate and thus neither
generate nor consume a large amount of cash. 0o"ever% dogs are cash traps
because of the money tied up in a business that has little potential. -uch
businesses are candidates for divestiture.
Question mars & 9uestion marks are gro"ing rapidly and thus consume large
amounts of cash% but because they have lo" market shares they do not generate
much cash. The result is large net cash consumption. ! 7uestion mark (also
kno"n as a 5problem child5 has the potential to gain market share and become a
star% and eventually a cash co" "hen the market gro"th slo"s. 4f the 7uestion
mark does not succeed in becoming the market leader% then after perhaps years of
cash consumption it "ill degenerate into a dog "hen the market gro"th declines.
9uestion marks must be analy:ed carefully in order to determine "hether they are
"orth the investment re7uired to gro" market share.
Stars & -tars generate large amounts of cash because of their strong relative
market share% but also consume large amounts of cash because of their high
gro"th rate6 therefore the cash in each direction approximately nets out. 4f a star
can maintain its large market share% it "ill become a cash co" "hen the market
gro"th rate declines. The portfolio of a diversified company al"ays should have
stars that "ill become the next cash co"s and ensure future cash generation.
Cash !ows & !s leaders in a mature market% cash co"s exhibit a return on assets
that is greater than the market gro"th rate% and thus generate more cash than they
consume. -uch business units should be 5milked5% extracting the profits and
investing as little cash as possible. (ash co"s provide the cash re7uired to turn
7uestion marks into market leaders% to cover the administrative costs of the
company% to fund research and development% to service the corporate debt% and to
pay dividends to shareholders. 'ecause the cash co" generates a relatively stable
cash flo"% its value can be determined "ith reasonable accuracy by calculating
the present value of its cash stream using a discounted cash flo" analysis.
.nder the gro"th&share matrix model% as an industry matures and its gro"th rate
declines% a business unit "ill become either a cash co" or a dog% determined soley by
"hether it had become the market leader during the period of high gro"th.
;hile originally developed as a model for resource allocation among the various business
units in a corporation% the gro"th&share matrix also can be used for resource allocation
among products "ithin a single business unit. 4ts simplicity is its strength & the relative
positions of the firm's entire business portfolio can be displayed in a single diagram.
"imitations
The gro"th&share matrix once "as used "idely% but has since faded from popularity as
more comprehensive models have been developed. -ome of its "eaknesses are:
Market gro"th rate is only one factor in industry attractiveness% and relative
market share is only one factor in competitive advantage. The gro"th&share
matrix overlooks many other factors in these t"o important determinants of
profitability.
The frame"ork assumes that each business unit is independent of the others. 4n
some cases% a business unit that is a 5dog5 may be helping other business units
gain a competitive advantage.
The matrix depends heavily upon the breadth of the definition of the market. !
business unit may dominate its small niche% but have very lo" market share in the
overall industry. 4n such a case% the definition of the market can make the
difference bet"een a dog and a cash co".
;hile its importance has diminished% the '() matrix still can serve as a simple tool for
vie"ing a corporation's business portfolio at a glance% and may serve as a starting point
for discussing resource allocation among strategic business units.
The M!#inse$ % General &le!tri! Matrix
The Mc*insey+), Matrix overcomes a number of the disadvantages of the '() 'ox.
8irstly% maret attra!ti'eness replaces maret growth as the dimension of industry
attractiveness% and includes a broader range of factors other than /ust the market gro"th
rate. -econdly% !ompetiti'e strength replaces maret share as the dimension by "hich
the competitive position of each -'. is assessed.
G& % M!#inse$ Matrix

Business (nit Strength
)igh Me*ium "ow
)igh
Me*ium
"ow
+a!tors that ,ffe!t Maret ,ttra!ti'eness
;hilst any assessment of market attractiveness is necessarily sub/ective% there are several
factors "hich can help determine attractiveness. These are listed belo":
&Market -i:e
& Market gro"th
& Market profitability
& Pricing trends
& (ompetitive intensity + rivalry
& <verall risk of returns in the industry
& <pportunity to differentiate products and services
& -egmentation
& $istribution structure (e.g. retail% direct% "holesale
+a!tors that ,ffe!t Competiti'e Strength
& -trength of assets and competencies
& =elative brand strength
& Market share
& (ustomer loyalty
& =elative cost position (cost structure compared "ith competitors
& $istribution strength
& =ecord of technological or other innovation
& !ccess to financial and other investment resources

Competiti'e Strategies
-T=!T,)> !?$ M!=*,T P<-4T4<?
-o far in this chapter "e have considered the broader aspects of strategy as they affect the
overall stance of the organi:ation. 4n this section "e "ill examine some of the options
that apply most appropriation of scale is important "hen considering strategy. The
strategies "e discuss belo" may be regarded as detailed strategy for a ma/or global
organisation. <n the other hand% they may constitute the essence of corporate strategy for
a smaller company.
-trategies for market leaders
P4M- research has revealed the advantages of being the market leader. ! company in this
position may try to do three things.
(a. ,xpand the total market by seeking increased usage levels6 and ne" uses and
users. These aims correspond to market penetration and market development.
(b. Protect the current market share. The most common "ay of dong this is by means
of continuous product innovation.
(c. ,xpand market share. This may be pursued by enhancing the attractiveness of the
product offering in almost any "ay% including increased promotion% aggressive
pricing and improved distribution.
Military analogies have used to describe defective strategies for market leaders.
(a. Position defense relies upon not changing anything. This does not "ork very "ell.
(b. Mobile defense uses market broadening and diversification.
(c. 8lanking defense involves "ithdra"al from vulnerable markets and those "ith
lo" potential. 4t may amount to surrender.
(d. (ontraction defense involves "ithdra"al from vulnerable markets and those "ith
lo" potential. 4t may amount to surrender.
(e. Pre&emptive defense gathers information on potential attacks and then uses
competitive advantage to strike first. Product innovation and aggressive
promotion are important features.
(f. (ounter&offensive defense reacts to an attack in one of three "ays.
Meeting it head on% for example entering a price "ar.
,xploiting a "eakness in the attacker's strategy% perhaps by product
innovation
!ttacking the attacker's base% perhaps by cutting price in its strongest market.
-trategies for market challengers
The market challenger seeks to build market share in the hope of eventually overtaking
the existing leader. 0o"ever% this does not necessarily mean attacking the market leader
head&on. This is a risky strategy in any case% because of the leader's resources in cash%
promotion and innovation. 4nstead% the challenger may attack smaller regional firms or
companies of similar si:e to itself that are vulnerable through lack of resources or poor
management.
Military analogies have also been used to describe the challenger's attacking options.
(a. The head&on attack matches the target's marketing mix in detail% product for
product and so on. ! limited frontal attack may concentrate on selected desirable
customers.
(b. The flank attack is mounted upon a market segment% geographic region or area of
technology that the target has neglected.
(c. The encirclement attack consists of as large number of simultaneous flank attacks
as possible in order to over"helm the target.
(d. The bypass attack is indirect and ingressive. 4t focuses on unrelated products% ne"
geographic areas and technical leap&fogging to advance in the market.
(e. )uerilla attack consists of a series of aggressive% short&term moves to demoralise%
unbalance and destabilise the opponent. Tactics include drastic price cuts%
poaching staff% political lobbying and short bursts of promotional activity.
Strategies for maret followers
The market follo"er accepts the status 7uo and thus avoids the cost and risk associated
"ith innovation in product% price of distribution strategy. -uch a me&too strategy is based
on the leader's approach. This can be both profitable and stable. 0o"ever% to be
consistently successful% such a strategy must not simply imitate. The follo"er should
compete in the most appropriate segments% maintain its customer base and ensure that its
turnover gro"s in line "ith the general expansion of the market. 4t should be a"are that it
may constitute an attractive target for marker challengers. The follo"er must therefore
control its costs and exploit appropriate opportunities.
Strategies for maret ni!hers
!voiding competition by niching is a profitable strategy for small firms generally and for
larger organi:ations "here competition is intense. The key to niching is specialisation%
but there are other considerations.
(a. The chosen market must have some gro"th potential "hile being uninteresting to
ma/or competitors.
(b. The firm must be able to serve its customers sufficiently "ell to build up
sufficient good"ill to fend off any attacks.
(c 4t must be possible to build up sufficient si:e to be profitable and purchase
efficiently.
-ervicing a single niche can be risky: a sudden change in the market can lead to rapid
decline. Multiple niching can overcome this problem.
Strategic Evaluation:
Introduction
,valuation is an activity undertaken "ithin many different disciplines. 4n addition%
evaluation can be conceptuali:ed in a number of different "ays. This has lead to a
diversity of terms used to describe aspects of evaluation. 8or those attempting to find out
about evaluation and even in some discussions amongst evaluation professionals and
their clients% there can be considerable confusion "hen people attempt to compare terms
"hich relate to very different aspects of evaluation.
Evaluation approaches, purposes, methods and designs
! useful "ay of looking at evaluation is to distinguish bet"een approaches% purposes%
methods and designs. 4t can become particularly confusing if people having a discussion
about evaluation are talking at different conceptual levels. 8or example% a discussion
about "hat should be done in an evaluation "here one participant is talking about an
approach% e.g. empo"erment evaluation6 another about a purpose of evaluation% e.g.
outcome evaluation6 a third about a method @ e.g. key informant intervie"s6 and a fourth
about a design% e.g. a 7uasi&experimental design.
The follo"ing table lists some of the terminology used under the four headings:
approaches% purposes% methods and designs:
,pproa!hes Purposes
Metho*s Designs
.tilisation&focused
evaluation
,mpo"erment
evaluation
-takeholder
evaluation
)oal&free evaluation
?aturalistic or Ath
generation
evaluation
Theory 'ased
,valuation
8ormative ,valuation:
- Design
- Developmental
- Formative
- Implementation
Process ,valuation
<utcome ,valuation:
- Impact
- Outcome
(onsultation
Biterature revie"
(prospective evaluation
synthesis
,valuative revie" of
lessons from other
existing programmes
,valuative goal and
ob/ective setting
criti7ue
,valuative
implementation
(programme logic

,xperimental designs
9uasi experimental
designs:
& Non-intervention
control group with
pre-test and post-test
- Non-equivalent
dependent variables;
- Removed
intervention design
with pre-test and
post-test