Fill the gaps with one of the following words: cash, successful, Stars, potential, Cows, marks and Dogs.
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.
Stars Question marks Cash cows Dogs
Using the BCG Box, 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 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
- Cash cows are low-growth businesses or products with a relatively high market share. These are mature,
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
are businesses or products with low market share but which operate in higher growth markets. This suggests that they have
, 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?
- Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough
to break-even, but they are rarely, if ever, worth investing in.