Portfolio of Organization All the product and services group (SBU) offered by the organization
in the market.
Tools for Portfolio Analysis/Management of organizational portfolio:
1. BCG Matrix
It was developed by Boston Consulting Group.
BCG matrix is divided into four quadrants and is based on two parameters: Relative
Market Share & Market Growth Rate.
Relative Market Share refers to share of the organization in relation to its largest
competitor’s share.
Formula for Related Market Share = Firm’s Market Share / Largest competitor’s
market share
Market Growth Rate refers to the annual growth rate of the total market as
compared to last year.
Formula for Market Growth Rate = [{(Total Turnover in the market in current year /
Total Turnover in the market in last year) *100}-100%]
BCG matrix consist of four categories: Stars, Question Marks, Cash Cows & Dogs
a. Stars It represents SBU with high market share and high market growth
rate. Large spending is needed to protect market share. The Apple Smartwatch
is an example of a product where Apple has a high market share and the
smartwatch market is experiencing strong growth.
b. Questions Mark SBU with low market share and high market growth rate. It
has no certain future. With the right investment it has potential to become stars.
So based on their potential, organization can either increase their investment or
discard these question marks. A great example of a Question Mark would be the
BCG Matrix of Apple, where we see that Apple TV can be treated as a question mark,
as due to the heavy competition in the market, it is not reaching its true potential.
c. Cash Cows SBU with high market share but low market growth rate. These
products are already profitable with little growth potential in the mature slow-
growing market/industry. The desired strategy here is to invest as little as
possible and still maintain the market position. Taking the example of the BCG
Matrix of Apple, Cash Cows can be Apple iTunes and Apple MacBook. Even though
there is huge competition in the market, Apple's iTunes and MacBook systems have
attained the position of being a cash cow due to the loyalists who prefer Apple
products and services.
d. Dog SBU with low market share and low growth rate. These products are loss-
making and have no potential to become profitable. You want to stop investing in
a ‘Dog’, because there is nothing more to be gained from it. For Apple, its iPod
range would be called Dogs. Apple iPods were considered the next big thing in the line
of entertainment devices, but failed to impress a large chunk of their customers.
Different strategies that can be applied in BCG matrix are as follows:
i. Build Allocating more resources to increase or defend market share. It can be applied
to Stars or Question marks with prospects.
ii. Hold Allocating present level of resources to defend current market share. It can be
applied to strong cash cows.
iii. Harvest Allocating less resources and eventually withdrawing from business. It can be
applied to weak cash cows.
iv. Divest Not allocating any resources at all and liquidating them. It can be applied to
Dogs
GROWTH VECTOR MATRIX
It consists of four quadrants and two parameters: namely, Products and Markets
Market Penetration Increasing market share of existing products or services in
the existing market via promotion, price reduction, advertisements, etc.
Since it deals with the existing products, it does not require new capital
investment. Hence it is relatively low risk strategy.
e.g. Nike features popular athlete in its ad to attract additional customer.
Market Development Selling the existing product in the new market.
New market could mean any of the following:
a. New uses: developing new uses of the same product.
b. New segment: providing same product to new customers in the existing
market (e.g., college offers evening classes to students along with morning
and day classes)
c. New territory: selling the same product in new geographical location or
market.
Risk here is still reasonably low.
Product Development Selling the new products in the existing market. E.g.,
Disney used to make cartoons but now it also makes movies.
It is riskier than above two strategies as it is likely to require major investment for
new product development.
Diversification Adding new product line to the existing business i.e. selling new
products to new customers.
There are two major types of diversification strategy:
a. Related Diversification: It is of two types:
i. Horizontal diversification Company adds new product and services
that resembles or related to or complements the current products
and services and its current base. E.g. tv manufacturing company
now starts to manufacture laptops, washing machine and other
electronic items.
ii. Vertical diversification It occurs when company either goes back
to previous stages of its production cycle or moves forward to
subsequent stages of the same cycle.
It could be Backward e.g. when car manufacturing co. decides to
produce one or more raw materials that it needs by itself
It could be forward it textile/clothes manufacture starts to sell
shirt made from its clothes by itself.
b. Unrelated Diversification: Also know as conglomerate or heterogeneous
diversification, this means adding new product and services that are
completely new to the company and has no relation to its existing product or
market.
e.g., food company starts to produce tv, laptop, etc.
