Important Topic !
Revise atleast two times
Product Portfolio Strategy - Introduction to
the Boston Consulting Box
Introduction
The business portfolio is the collection of businesses and products that make up the company.
The best business portfolio is one that fits the company's strengths and helps exploit the most
attractive opportunities.
The company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or
less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at
the same time deciding when products and businesses should no longer be retained.
Methods of Portfolio Planning
The two best-known portfolio planning methods are from the Boston Consulting Group (the
subject of this revision note) and by General Electric/Shell. In each method, the first step is to
identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit
of the company that has a separate mission and objectives and that can be planned independently
from the other businesses. An SBU can be a company division, a product line or even individual
brands - it all depends on how the company is organised.
The Boston Consulting Group Box ("BCG Box")
Using the BCG Box (an example is illustrated above) a company classifies all its SBU's
according to two dimensions:
On the horizontal axis: relative market share - this serves as a measure of SBU strength in the
market
On the vertical axis: market growth rate - this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished:
Stars - Stars are high growth businesses or products competing in markets where they are
relatively strong compared with the competition. Often they need heavy investment to sustain
their growth. Eventually their growth will slow and, assuming they maintain their relative market
share, will become cash cows.
Cash Cows - Cash cows are low-growth businesses or products with a relatively high market
share. These are mature, successful businesses with relatively little need for investment. They
need to be managed for continued profit - so that they continue to generate the strong cash flows
that the company needs for its Stars.
Question marks - Question marks are businesses or products with low market share but which
operate in higher growth markets. This suggests that they have potential, but may require
substantial investment in order to grow market share at the expense of more powerful
competitors. Management have to think hard about "question marks" - which ones should they
invest in? Which ones should they allow to fail or shrink?
Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative
share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them. In the diagram
above, the company has one large cash cow (the size of the circle is proportional to the SBU's
sales), a large dog and two, smaller stars and question marks.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
(1) Build Share: here the company can invest to increase market share (for example turning a
"question mark" into a star)
(2) Hold: here the company invests just enough to keep the SBU in its present position
(3) Harvest: here the company reduces the amount of investment in order to maximise the short-
term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash
Cows.
(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the
resources elsewhere (e.g. investing in the more promising "question marks").