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Outline
Introduction BCG (Boston Consulting Group) Matrix PIMS (Profit Impact of Market Strategy) GE(General Electric)/McKinsey Multi-Factor Matrix
Introduction
setting of SBUs 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
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
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
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
Market leader influences the average costs Profit margin is a function of market
share
Question Marks
(Problem Children)
Investmentheavy initial capacity expenditures and high R&D costs Earningsnegative to low Cash-flownegative (net cash user) Strategy Implications
share. If not, redefine the business or withdraw
Stars
capacity expansion EarningsLow to high earnings Cash-flowNegative (net cash user) Strategy Implications
at the expense of short-term earnings
Cows
Dogs
Note that the Anchoring System SBU is forecasted to move to new position
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
Trade further opportunities for present Allow competitors to gain share in a high
growth market
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
policy change is made
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
Australian Quality Council Hong Kong Awards for Industry (Quality cat.) Japan Quality Award Malaysias Prime Minister's Quality Award
(Private Sector) Philippines Quality Award Singapore Quality Award Sri Lankas National Quality Award Thailand Quality Award
expanding their pubs and restaurants business (Source: The Straits Times; Dec 10, 1992; pp.2)
reduction in SM Summit Holdings gross margin SM (Source: SM Summit Holdings Annual Report 2000)
Limitations of PIMS
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
drawing on McKinseys 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
Protect Position
Invest to Build
Build selectively
Selectively Limited Build Medium selectively manage for expansion earnings or harvest
Low
Divest
Medium
Low
Harvest /Divest
Businesses may have been evaluated with respect to different criteria Sensitive to how a product market is
defined
factors to the subsequent development of both a firms position and the market attractiveness