Tools for assessing your product portfolios Boston Consulting Group’s (BCG) Matrix: Developed in the late 1960s, the BCG matrix plots a scatter graph to rank business units on the basis of their relative market shares and growth rates so companies can place a priority on their product portfolios. There are four categories: • Cash cows (high market share in a slow-growing industry) • Dogs (low market share, probably break-even, in a slow-growing industry) • Question marks (contain rapid growth but consume large amounts of funds) • Stars (high market share in a fast-growing industry).
Growth Share Matrix Relative Market Share LOW
Stars
question marks
cash cows
dogs
HIGH
HIGH
Steward suggests using multiple approaches to assess a portfolio. “The reality of the BCG growth-matrix is that BCG never intended it to be used without thought into other core issues like:
LOW
(Cash Usage)
medium low
The McKinsey/General Electric Matrix: The McKinsey/GE Matrix is similar to the BCG matrix in that it helps evaluate business units within a company portfolio. However, it uses a nine-box matrix to offer a systematic approach to determine where best to invest cash, according to the McKinsey Quarterly. Rather than rely on each business unit’s projections of its future prospects, the company can judge a unit by two factors in order to determine whether it’s going to do well in the future: the attractiveness of the relevant industry and the unit’s competitive strength within that industry.
1) What are the costs involved with achieving a given market share? 2) Do our “dogs” help us in other areas that we might not immediately recognize from the 2x2? 3) What is the “market” in which we are really competing? Are there international considerations that we need to assess as well?
high
A description of the BCG matrix with free worksheet is available at www.mindtools.com/pages/article/newTED_97.htm
Industry Attractiveness
Market Growth Rate
(Cash generation)
Strong
medium
low
Business Unit Strength A PDF of the McKinsey/GE Matrix is available at www.business-tools-templates.com. Tutorials for both matrixes are available by Jim Riley at www.tutor2u.net.
ENERGY
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