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BUSINESS PORTFOLIO ANALYSIS AND MARKETING STRATEGY

IMPLEMENTATION: THE CASE OF BCG AND GENERAL ELECTRIC MATRIX

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International Journal of Social Science, Management and Human Development, Volume 7, Number 2,2017

ISSN: 2141 - 1162

© 2017 CARDS Publications

BUSINESS PORTFOLIO ANALYSIS AND MARKETING STRATEGY IMPLEMENTATION: THE

CASE OF BCG AND GENERAL ELECTRIC MATRIX

Didia, J.U.D. and Ateke, B.W.

Department of Marketing, Faculty of M a n a g e m e n t Sciences,
Rivers State University of Science and Technology, Port Harcourt, Rivers State, Nigeria
EmaiL: didiaJud@yahoo.com

ABSTRACT
The issue of diversification of business interests which conduces to business portfolio as a strategy in
surviving environmental uncertainties and upheavals has continued to draw requisite academic
attention. This paper reviews two classical strategy options in business portfolio management
notably, the Boston Consulting Group (BCG) and the General Electric (GE) 'matrix and their
marketing strategy implications. In view of the litany of literary perspectives regarding the relevance
of BCG and General Electric in marketing strategy application, we conclude that BCG and General
Electric models are useful instruments and play vital rotes in the success of marketing strategy.
Key Words: Portfolio Analysis, BCG, GE, Marketing Implementation.
INTRODUCTION
Human deprivations and inadequacies are better served through organized production as an
alternative to subsistence engagement. The essence of industrial organizations is the greater
accumulation and appropriation of productive resources for better and more profitable exploitation of
existential opportunities. This format of productive engagement presupposes the existence of
collaboration in terms of resources acquisition and ownership in the form of joint stock or
shareholding interests. Of course, the measure of success of this enterprise is the satisfaction of the
social and economic needs of society while ultimately attaining organizational self interest which is to
create value for its shareholders as represented by the market price of the company's stock (Van H.,
1990). Rayburn (1983) earlier contends that the primary goal of a business is to produce goods and
or services and sell at prices which recover all costs and yield an adequate return on invested capital.
Thus, in order to run a successful business and create exchanges that will both satisfy the societal
demand and fulfill the objectives of the firm, one needs a profound knowledge of the nature and
character of the market. Understanding the market for purposes of making profitable investment is
the primary and dominant factor in the quest to satisfy organizational and societal demands.

Bradley (2003) notes that organizations are conceived as being represented by three perspectives:
an investment perspective, a financial perspective and a market perspective Viewed from different
perspectives, what is central to all are profit and shareholder value. The achievement of these
touches on all marketing activities especially marketing strategy and more so on strategic marketing.
It involves the interplay and Interface between the organization and the environment, in terms of
environmental investment opportunities and organizational strength vis-d-vis environmental threats
and organizational weaknesses. It calls for the development and deployment of strategies to ensure
success in a dynamic and competitive market place. Indeed, it requires a thorough examination of
how sexy an industry is and an organization's distinctive/competitive readiness in a changing
environment. Achieving optimal performance and expected results therefore entails diversification of
business interests instead of the proverbial putting all eggs in one basket. However, it is important to
note that no company can afford everything it would like to do. Resources have to be allocated. The
essence of strategic planning is to allocate resources to those areas that have the greatest future
potential (Thompson etal, 1987).
When resources are allocated and Investments are made in areas with greatest future potential, It
gives rise to different businesses under one corporate management. This is called a portfolio of
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 International Journal of Social S c i e n c e , M a n a g e m e n t a n d H u m a n D e v e l o p m e n t , V o l u m e 7, N u m b e r 2, 2017

businesses. This portfolio of businesses must and should be constantly reviewed and analyzed to
determine their current operational status and competitiveness which Is subject to change because of
environmental dynamism and volatility. The business that has the greatest potential today might be
the least attractive tomorrow and vice versa.

Literary Perspectives
Portfolio Analysis
Organizations pursue elected and different objectives in order to raise shareholders' value.
Achievement of corporate objective rests on the organization's strategic thrust. Strategic planning
which is instrumental to the consummation of corporate goal requires action in three areas: the
management of a company's business a s an investment portfolio; assessing each business strength
by considering the market's growth rate and t h e company's position and fit in that market;
establishing a strategy for each business (Kotler, 2003). Inherent in the idea of managing company
businesses as an investment portfolio is diversification. The dynamism and volatility of business and
business environments demand that, as we have stated earlier, a company does not put all its eggs
in one basket. It must therefore have business and Investment interests that cut across not only
industry but geographical locations. It must envision operating as a multi-product, multi-division and
multi-business company to spread risk and sources of building shareholders' value. This is more so
when: it can leverage existing competencies and capabilities by expanding into businesses where
these same resource strengths are key success factors and valuable competitive assets; the company
can expand into industries whose technologies and products complement its present business;
diversifying into closely related businesses opens new avenues for reducing costs and when it has a
powerful and well-known brand n a m e that can be transferred to the products of other businesses
and thereby used as a lever for driving up the sales and profits of such business (Thompson et at,
2004).

Diversification is justified and makes good strategic and business sense only if it results in added
shareholder value. This is possible if diversification moves pass through important tests: industry
attractiveness test; the cost-of-entry test and the better-off test (Appelbaum, 2000). The result of
multiple investments spanning, in s o m e cases, several business interests in diverse locations is the
emergence of many businesses under the s a m e corporate ownership. This gives rise to the concept
of portfolio of businesses. The corporate headquarters therefore has responsibility for defining the
corporate mission, establishing strategic business units (SBUs), assigning resources to each strategic
business unit, planning new businesses, downsizing, or terminating older businesses (Kotier, 2003).
In trying to manage a portfolio of businesses, the value added by corporate managers depends
primarily on how good they are at deciding what new businesses to add, which ones to get rid of,
how best to deploy the parent company's financial resources in supporting the needs of its business
units and boosting overall corporate performance, and the quality of the decision-making guidance
they give to managers of their business subsidiaries (Thompson et at, 2004). The business and
responsibility of corporate managers in a diversified company could therefore, in sum, directly
translate into what we now call Portfolio Analysis. The formulation of corporate strategy thrust which
hallmark is the critical and constant evaluation of a group of businesses of the same ownership to
ascertain their present strength/competitiveness with a view to achieving resource allocation
optimality in terms of new business addition, harvesting older ones or divesting in non-performers,
represent the core of managerial responsibility in corporate portfolio management.

Techniques for Portfolio A n a l y s i s

The corporate diversification strategies of s o m e companies explain the ubiquitous presence they have
in several industries, with each strategic business unit assigned profit responsibility. General
electric (GE) at a time classified its business into 49 strategic business units (Kotler, 2003). The
businesses of many companies become amazingly diverse. Virgin's business, for instance, spans
airline, rail travel, music and cinema, financial services, drinks, clothing and cosmetic and a variety of
smaller enterprises (Hooly et a/, 2008). T h e process of balancing the activities across this variety of
business units involves portfolio planning and evaluation. Portfolio analysis is the foundation for
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 Business Portfolio Analysis and Marketing Strategy Implementation: Dldla, J.U.D. A Ateke, B.W.
The Case of BCG and General Electric Matrix

making important choices among the array of diverse business/investment interests. Among the
array of a company's investment interests are different types of businesses which Drucker (1973)
Identified as: Today's breadwinners - Tomorrow's breadwinners, Yesterday's breadwinners -
Developments, Sleepers - Investment in managerial ego and Failers. In dealing with the businesses,
a company faces a lot of dilemma because if left alone, they are unlikely to succeed, so a choice has
to be made between Investing in them and getting out. It is practically impossible to pursue to invest
in all attractive market no matter the size and resource base of the company. Therefore, portfolio
analysis is about making strategic choices and maintaining a delicate balance among the array of a
company's businesses. It is imperative that a balance be maintained between products that generate
cash now (Today's breadwinners) and other products that use cash now but promise to generate
cash in the future (Tomorrow's breadwinners).
Several methods or techniques have been developed for evaluating and assessing the balance of
businesses in a company's portfolio which equally guide resource allocation between them. But as
Grant (1995) notes, all share a number of key objectives. Some of these matrix techniques are: the
four-cell Boston Consulting Group (BCG) growth-share matrix and the nine-cell General Electric (GE)
matrix.

The Four-Quadrant BCG Growth Share Matrix:

This is the first business portfolio matrix to receive widespread usage. It is designed by the Boston
consulting group, a leading management consulting firm. The matrix is formed using industry growth
rate and relative market share as the axes. The industry growth rate on the vertical axis indicates the
annual growth rate of industry in which the business operates. The relative market share on the
horizontal axis, is the SBU's market share relative to that of its largest competitor in that market
segment. The market growth rate ranges from 0 - 20%. A market growth rate of 10% is considered
high. Also a relative market share of 0.1 means that the company's sales volume is only 10% of the
leader's, and a relative share of 10 means that the company's SBU is the leader.

Fig. 1: The Boston Consulting Group's Growth-Share Matrix

Stars Question marks/

Problem children
©

oo
O o
8 Cash cows Dogs
o
&
3
a
O o o
£ 4 A X X X X
tS) K
«^> —
© ©
no

Relative Market Share

I
Source: Kotler, P. (2003). Marketing Management, India, Pearson Edu. Bks, Inc.
Question marks represent businesses that operate in high-growth markets but have low relative market shares. It
requires a lot of cash because the company has to spend money on plants, equipment and personnel to keep up
with the fast growing market; Stars are market leaders in a high-growth market. They don't produce positive
cash flows. The company spends substantially to sustain the growth rate and to fight off competitors* attacks;
Cash cows: these are stars with falling growth rate that have the largest relative market share and produce a lot
of cash for the company. Investment has stopped and the business is the market leader, it enjoys economies of
scale and higher profit margin. Younger stars often require substantial investment capital beyond what they

97
 International Journal of Social Science, Management and Human Development, Volume 7, Number 2, 2017

generate and may turn to cash dogs. Cash cows are used to pay bills and support other businesses. Weak cash
cows arc candidates for harvesting and eventual divesture; dogs are businesses that have weak market shares in
low-growth markets, perhaps due to high costs, low-quality products etc. Dogs are unable to generate attractive
cash flows on a long term basis. The strategy prescription here is that of harvesting, divesting, or liquidation
depending on which yields the most attractive amount for redeployment.

The Nine-Cell General Electric Matrix:

The general electric matrix was developed with assistance from the consulting firm of McKinsey and company
as an alternative to the BCG matrix, which tried to avoid the pitfall of the latter. The GE model is a nine-cell
portfolio matrix based on two dimensions of long-term product/market attractiveness and business
strength/competitiveness. In this matrix, industry size is represented by a circle and the pie that slices within the
circle reflects the businesses market share. The vertical axis represents each industry's long-term attractiveness,
which is a composite weighting of market growth rate, market size, historical and projected industry
profitability, market structure and competitive intensity, scale economies, seasonality and cyclical influences,
technological and capital requirement, emerging threats and opportunities, and social, environmental, and
regulatory influences. It involves assigning each industry attractiveness factor a weight according to its
perceived importance, rating the business on each factor (using a 1 to 5 rating scale) and then obtaining a
weighted composite rating.

Fig. 2: The Nine-Cell General Electric Matrix

Strategy Prescriptions Relative market share
Profit margins relative to
G r o w and build competitors
Ability to compcte on price
Hold and maintain and quality
Knowledge of customer and
Harvest/divest market
Competitive strengths and
weaknesses
Technological capability
Caliber of management

M a r k e t size a n d growth rate

N C
C O
O Business strength/competitive position
LU
Industry profit margins
(historical a n d projected)
zLU Strong Average Weak
>
C o m p e t i t i v e intensity
Seasonality 5 High
Cyclicality
E c o n o m i e s o f scale
i
<
T e c h n o l o g y and capital >-
requirements en
L_ Medium
Social, environmental, legal. C O
zO>
a n d h u m a n impacts
E m e r g i n g opportunities and
threats
Barriers to entry and exist cc.
LU Low

J •—
e2?
•

o
—1
Source: Adopted from Allen (1979)

The business strength/competitive position, on the horizontal axis, is rated on factors as business
strength/competitive position comprising relative market share and profitability, ability to match rival
firms in cost and product quality, knowledge of customers and markets, how well the firm's skills and
competencies in the business match the various requirements for competitive success in the industry
(distribution network, promotion and marketing, access to scale economies, technological proficiency,
support services, manufacturing efficiency), adequacy of production capacity and caliber of

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 Business Portfolio Analysis and Marketing Strategy Implementation: Dldla, J.U.D. A Ateke, B. W.
The Case of BCG and General Electric Matrix

management. The two composite values for long-term product-market attractiveness and business
strength/competitive position are then used to plot each business position in the matrix.

Corporate Strategy Implications

BCG
The main contribution of the BCG growth-share matrix is the instruction it leaves for corporate
resource husbandry, in order to optimize long term strategic position and performance of the whole
corporate portfolio. Cash generated by cash cows are used to finance cash dogs (young stars) and
question marks that have potential for growth. When a star becomes successful and the market
growth slows to maturity, it turns to a cash cow. Thus the success sequence becomes problem
child/question mark to young star to self-supporting star and to cash cow. Weaker, less attractive
question marks become prime candidates for divestiture unless they can be kept profitable and viable
with their own internally generated funds to finance a hold and maintain strategy. Dogs should be
harvested unless they can contribute positive cash flow and not tie up assets and resources that
could be more profitably redeployed. The shortcomings of the BCG is mainly on the four cell provision
based on high-low classification thereby omitting the medium or average classification which majority
of businesses fall into. Secondly, all businesses do not neatly fall into the categorizations of question
marks, stars, cash cows and dogs. It is imperative rather to assess the trend in a firm's relative
market share i.e. is it gaining or losing ground and why? Thirdly, more variables are needed in the
assessment of long term attractiveness of business units other than market growth and relative
market share. Generally, it is instructive to note that this technique (BCG) does not apply in industries
(markets) with low growth rate (Czinkota etal, 1997).

General Electric
The nine cells in the GE matrix are grouped into three categories or zones as demarcated by the
lines. Vertical lines consist of three cells at the upper left where long-term industry attractiveness and
business strength/competitive position are favourable. The prescription here is grow and build. The
second zone (un-shaded) consists of three diagonal cells which stretch from lower left to the upper
right: businesses that fall in this zone usually carry a medium investment allocation priority in the
portfolio and attract a hold-and-maintain strategy. The third zone (horizontal lines) is composed of
the three cells in the lower right corner of the matrix; the strategy prescription for these is harvest or
divest or in some exceptional cases, rebuild and reposition using some turn around approach. The
weakness of this strategy however Is the lack of prescription of specific strategy beside the general
grow and build, hold and maintain or harvest or divest. It does not equally depict as it should the
positions of businesses that are about to emerge as winners because the product/market is enterinq
the takeoff stage (Hofer et at, 1978).
i
CONCLUSION
® s s e n c e o f b u s i n e s s organization is to better address societal inadequacies through accumulation
and deployment of vast resources generated by means of share holding. This has hitherto proved to
r o c ? 6 S . W a y 0 f s e r v i n g g r o u p i n t e r e s t a n d r a i s i n 9 shareholders' value. Discharging this corporate
nnnmt •!! e n t a i l s s P r e a d l n 9 o f risks and investment interest to as many attractive industrial
hnc£oc e f i S , t t h e o r g a n l z a t , o n h3S resources to exploit. This creates a portfolio of businesses This
vestJrrtL^ ,. 1 a l o t o f b u s i n e s s e s i n It- S ° m e are doing well today, some performed well
wi
corooS H " d 0 w e " tomorrow- ™ s scenario is of course not an original design of
n a90rS res onse to a
environmpnhfi f ^ P dynamic, often hostile, volatile and unpredictable
5 Therefore
of the n i r r n n l k f ' corporate managers are compelled to constantly evaluate the status
divest in n l r i1 T for 01e
W W 0 * * o f deciding which business to hold, build, maintain or
achieve
analvsis h « h °Ptional resource use. We therefore conclude that Business Portfolio
formulation a n d ^ m p l e m T n t e t i ^ ^ 6 ° r g a n i Z a t i 0 n a l undertaking for cor
P ° r a t e marketing strategy

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 International Journal of Social Science, Management and Human Development, Volume 7, Number 2, 2017

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