Strategic portfolio planning, BCG matrix, GE McKinsey Matrix, Cash cow, dogs, question marks, stars
Strategic portfolio planning is a method used by businesses and organizations to identify, evaluate, and prioritize their various projects, programs, and initiatives.
This planning helps organizations align their resources and activities with their strategic goals and objectives.
The goal is to maximize the impact and value of the organization's efforts while minimizing risk and maximizing efficiency.
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The Boston Consulting Group (BCG) matrix is tool companies use to evaluate their strategic business units (SBUs) based on market growth rate and relative market share.
Because it assumes that profitability and market share are highly related, the BCG matrix is a valuable tool for making business and investment decisions.
Overall, the BCG matrix is a valuable tool for companies to evaluate their business units and make decisions about resource allocation.
However, it is subjective and should be used with other planning and analysis tools and managers' judgment before making any decisions.
When evaluating their business opportunities and making strategic decisions, market growth is essential for companies to consider.
Market growth measures the rate at which a market expands and is typically expressed as a percentage.
It is calculated by taking the difference between the current market size and the market size in a previous period, divided by the market size in the last period.
For example, if a market were worth $100 million last year and is now worth $120 million, the market growth rate would be 20%.
High market growth indicates that there is potential for a company to increase its sales and profits by expanding its offerings or increasing its market share in that market.
This can be an attractive opportunity for companies looking to grow and expand.
On the other hand, low or negative market growth indicates that a market may be saturated or declining.
In this case, a company may need to focus on cost-cutting measures or consider entering a different market to maintain or grow its business.
Market share is an essential factor in the Boston Consulting Group (BCG) matrix, tool companies use to evaluate their strategic business units (SBUs). Market share is a measure of the size of a company's business unit relative to its competitors and is typically expressed as a percentage.
The BCG matrix assumes that market share is related to profitability. Companies with a high market share are typically more profitable than those with a low market share because they have a larger market share and can generate more sales.
Managers can use the BCG matrix to categorize their strategic business units (SBUs) and products into four categories: stars, cash cows, question marks, and dogs.
Stars are SBUs and products with high growth and high market share and require significant investment to maintain growth.
Cash cows are SBUs and products with low growth and high market share and generate a lot of cash but have a limited future.
Question marks are SBUs and products with high growth and low market share and require investment to build market share.
Dogs are SBUs or products with low growth and low market share, are not profitable and have a limited future.
A cash cow is a product with low growth and a high market share. Examples of cash cow products include household names like Coca-Cola and Crest toothpaste. These products have a large share of a shrinking market, and although they generate a lot of cash, the revenues and sales grow slowly.
In the GE approach, growth products are those or business units with high growth potential and generate solid returns for the company. These products are typically located in markets or industries that are overgrowing and have a high potential for future growth.
The GE approach recommends that businesses invest in growth products to capitalize on growth opportunities and increase their market share. This can help the company generate higher returns and improve its overall performance.
The terms "harvest" and "divest" refer to strategies businesses can use to manage their product portfolios.
Harvesting refers to maximizing the profits from a product or business unit approaching the end of its life cycle. This may involve reducing costs, increasing prices, or finding new markets for the product.
Divesting, on the other hand, refers to selling or disposing of a product or business unit that is no longer considered a good fit for the company's overall strategy. Divesting can help businesses free up resources and focus on more promising opportunities.