Types of Portfolio Analysis

Growth Share Matrix (Boston Consulting

Group)
Industry Attractiveness/Business Position
Matrix (General Electric)
Hofers product market evolution matrix

Growth Share Matrix (Boston

Consulting Group)
Classification of SBUs/products into four
cell matrix based on
Market Attractiveness
Indicator Industrys annual growth rate
10% traditional cutoff

Business Strength
Indicator Companys Market Share Relative to Largest
Competitor

Market Growth Rate

The Boston Consulting Groups

Growth-Share Matrix
20%18%16%14%12%10%8%6%4%2%0

Stars

?
?
?

Question marks

Dogs

Cash cows

6
10x 4x 2x 1.5x 1x

.5x .4x .3x .2x .1x

Relative Market Share

Star Strategies
Leader expanding industry
Generates large profits
Requires substantial
investments to sustain
growth
Farthest down on
experience curve relative
to competition
Increase sales e.g. new
markets, new channels of
distribution
Increase market share

Problem Child or ?
Low market share in
expanding industry
Needs substantial cash to
improve its position
Slow progress on
experience curve
Increase sales (limit to
niche or increase market
share (limit to niche)
Leave market

Cash Cow

Leader in mature or declining

industry
Can generate funds for other
SBUs
Maintain market share e.g.
ensure quality, build customer
loyalty, develop substitute
brands
Maximize Cash Flow e.g.
increase usage rate, rate of
replacement, modify expense
structure, raise prices

Dogs
Low market share in a
mature or declining
industry
Slow progress on
experience curve
Cost disadvantages and
few growth opportunities
Harvest or Divest
Concentrate on niches
requiring limited effort

Market Growth Rate

The Boston Consulting

Groups Growth-Share
Matrix

20%18%16%14%12%10%8%6%4%2%0

10x 4x 2x 1.5x 1x

.5x .4x .3x .2x .1x

Relative Market Share

Strategy Implications BCG

Star Leader in Expanding Industry
BUILD - Continue to increase market share if
necessary at expense of short-term earnings

Problem Child Low market share in Expanding

Industry
HARVEST if weak, BUILD if strong.
Assess chances of dominating segment. If good, go
after share. If bad, redefine business or withdraw.

Strategy Implications BCG

Cash Cow Leader in mature or declining
industry
HOLD - Maintain share and cost leadership until
further investment becomes marginal
Maximize cash flow

Dogs Low market share in a mature or

declining industry
DIVEST Plan an orderly withdrawal so as to maximize
cash flow or concentrate on niches that require limited
effort

Assumptions of Growth /Share

Matrix
High market share generates cash
revenues ?
High Market growth uses more cash
resources ?

Issues with Growth/Share Matrix

Market growth is not the only factor related to
cash usage.
Market growth is not necessarily related to
cash usage.
Market share is not necessarily related cash
generation.
Multiple factors lead to profitability.
Cash is not the only factor in evaluating a
portfolio.

Issues With Growth/Share

Matrix
Limited to industries where experience
curve is relevant
Appropriate for volume industries
Overlooks perils of growth
Measurement problems
Product-market definition problems
Difficult to implement strategies

GE-McKinsey 9-Box
Matrix

GE-McKinsey 9-Box
Matrix

GE-McKinsey 9-Box
Matrix

GE-McKinsey 9-Box
Matrix

MAIN ACTIONS

GE-McKinsey 9-Box
Matrix

DETAILED EXPLANATION

GE-McKinsey 9-Box
Matrix

Hofers Product Market Matrix

Product Market Evolution Matrix displays the

matrix where strategic business units are
graphically represented according to two
basic indicators:
Competitive position on the market
stage corresponding to the product/market
evolution.

Charles W. Hofer described seven stages

of the life cycle, each with certain
characteristics by which the position of the
market can be identified.

DEVELOPMENT
GROWTH
SHAKE-OUT
MATURITY
DECLINE
PETRIFICATION

Business unit A
It would to be a developing winner. Its relatively large share of
the market combined with its being at the development stage of
product- market evolution and its potential for being in a strong
competitive position make it a good candidate for receiving more
corporate resources.
Business unit B
It is somewhat similar to A. However, it has a relatively small
share of the market given its strong competitive position. A
strategy would have to be developed to overcome this low
market share in order to justify more investments.

Business unit C
It might be classified as a potential loser. A strategy must be
developed to overcome the low market share and weak
competitive position in order to justify future investments.
Business unit D
It is in a shakeout period, has a relatively large share of the
market, and is in a relatively strong position. Investment should
be made to maintain that position.

Business units E and F

They have relatively large market share and has strong
competitive position. It should be used for cash generation.
Business unit G
It has low market share and weak competitive position. It should
be managed to generate cash in the short run, if possible;
however, the long-run strategy will more the likely be divestment
or liquidation.

STRENGHTS
o
o
o
o
o
o

Set objective and allocate resources

Use of externally oriented data
Cash flow availability
Graphical communication of business mix
Identify developing winners
Illustrates distribution of business in an
industry
o Encourages promotion of competitive analysis
o Selective earmarking of financial resources
o Reduce risks, increases concentration and
involvement in competitive world.

WEAKNESS
o Difficulty in defining product/market
segment.
o Suggests impractical standard strategies.
o Naively following portfolio prescriptions
may reduce profit.
o Provides an illusion of scientific rigor.
o No clear idea what makes an industry
attractive .

The power of the Hofer matrix resides in the fact

that it may outline the distribution of strategic business
units during stages specific to life cycle of the market.
Similar to the McKinsey matrix, the present matrix
offers the company the possibility to make a diagnosis
regarding the portfolio, in order to establish if it exhibits
a balanced or unbalanced structure.
A balanced portfolio should be composed of
strategic business units of the type corresponding to
Stars and to Cash Cows and to a few Question
Marks, which have recently penetrated the market
or which are about to become Stars.