Factors Influencing the Product Portfolio

As noted, the purpose behind developing a product portfolio is to allocate the firm’s resources so
as to optimize its long-term growth and profitability. It follows that to do this effectively one must select
measures assessing the actual or potential contribution of individual products to the portfolio.

The BCG Growth-Share Matrix

The Boston Consulting Group (BCG) growth-share matrix was developed by Bruce Henderson,
founder of BCG, in the late 1960s and dominated thinking about strategy for over a decade. The matrix
was developed from Henderson’s earlier work with experience curve effects which he applied as a
purchasing agent as Westinghouse to help explain the link between increased experience and lower
manufacturing costs.
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis
of their relative market shares and growth rates.
Cash cows is where a company has high market share in a slow-growing industry. These units typically
generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid
and boring, in a "mature" market, yet corporations value owning them due to their cash generating
qualities. They are to be "milked" continuously with as little investment as possible, since such
investment would be wasted in an industry with low growth.