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
