Portfolio Management

what are the 4 assumptions?

1) market growth has an adverse effect on cash flow 2) market share has a positive effect on cash flow 3) cash flow is not the same as profitability 4) it applies to product lines or SBU's

What is another model?

General Electric Market Attractiveness

what are three criticisms of the BCG growth-share matrix?

assumptions are misleading does not take into account the competitive advantage interdependencies across product lines are ignored

What are the strategic objectives for stars?

build sales and or market share invest repel competitive challenges

what are the strategic objectives for problem children?

build selectively focus on defendable niche where dominance can be achieved harvest or divest the rest

what does the BCG matrix suggest for balancing the portfolio?

competitive assessment of problem children and select one or two for investment and the rest should be harvested or divested

what are the 2 criticisms of this model?

harder to use than the BCG Matrix as it requires managerial agreement on which factors to use Flexibility allows a lot of opportunity for managerial bias to enter the analysis

what are the strategic objectives for dogs?

harvest or divest focus on defendable niches

what are the strategic objectives for cash cows?

hold sales and market share defend position use excess cash to support stars and selected problem children

What is the BCG matrix?

key portfolio management framework based on 4 assumptions

When market attractiveness is low, what should a company do if they have low, average and high competitive strength?

low - divest average - harvest high - harvest

When market attractiveness is average, what should a company do if they have low, average and high competitive strength?

low - harvest average - select high - select and build

When market attractiveness is high, what should a company do if they have low, average and high competitive strength?

low - harvest average - select and build high - invest and build

what are dogs and explain

low market share in low growth market produce low or negative cash flows

what are cash cows and explain

market leaders in low growth markets high profits in low growth market meaning low amounts of investment needed. large positive cash flow

what other criteria were taken into account?

market size and growth rate beatable rivals entry barriers social, political and legal factors

What are problem children and explain

products in high growth markets drain on cash flow low share products that are likely to be unprofitable can become stars but also fail

What are stars and explain

profitable because they are market leaders require large investments to finance growth and meet competitive challenges balanced cash flow

what other factors were used?

reputation distribution capability market knowledge service quality innovation capability cost advantages

What 5 things does portfolio planning entail?

resource allocation decisions monitoring and managing market performance build or hold current and future sales Boston Consulting Group Matrix

What is portfolio planning?

the process of managing a group of brands and product lines