Portfolio analysis

1 This technique examines the interrelationships between the range of products and/or services offered by an
organisation.
2 Analysis can take place at two levels
(a) Product/service level: the brands or products/services offered by the firm are examined to determine their
current position and prospects.
(b) Corporate level: the strategic business units of the diversified firm are examined for their interrelationships and
balance.
BCG matrix
3 The BCG matrix classifies products and/or services in terms of potential cash generation and cash expenditure
requirements. The matrix presupposes that there are only two factors that directly influence competitive position:
(a) The growth rate of the market segment the organisation serves
(b) The relative market share of the segment held by the organisation.

(a) A question mark (or problem child) is a product in a high growth market, but holding a relatively low market
share. Considerable expenditure may be required to turn a problem child into a rising star, consequently they tend
to be poor cash generators and show a negative cash flow.
(b) Stars are products or services with a high share of a high growth market. In the short term, they require
expenditure in excess of cash generated to main relative market position. However, they promise high returns in
the future.
(c) Cash cows hold a high share of a low growth, mature market. They generate more cash than they incur, and
finance growth of rising stars and problem children.

(d) A dog is a product with a low share of a low growth market. Often they are cash cows fallen on hard times, and
unless the trend can be reversed (classified as a war horse) they should be allowed to die off.

Uses of BCG analysis

4 Internal balance should be checked.
(a) Proper distribution of resources between products e.g. largest should be stars or cash cows
(b) Sufficient cash flows from cash cows to
(i) cover corporate overheads
(ii) permit investment in question marks and stars
(iii) pay interest on corporate debt
(iv) provide dividends to shareholders
(c) There should be sufficient successor products (and services) to replace declining stars
and cash cows
(i) to provide long-term funds to finance the strategic plan
(ii) to absorb cash surpluses now.
5 Assess trends by mapping matrix at regular intervals and superimposing on earlier matrices to reveal direction
and momentum of each product.
6 Evaluate competitors by creation of portfolios based on their products or business divisions.
7 Evaluate risk by adjusting portfolio to reflect impact of hypothetical scenarios or changes in key environmental
variables. This can be accomplished by sensitivity analysis.

Product-market mix
1 Growth is an important measure of corporate success.
Ansoff's matrix
2 Ansoff's matrix suggests how businesses can achieve growth.

Market penetration
3 (a) Maintain or to increase its share of current markets with current products, eg through competitive pricing,
advertising, sales promotion
(b) Secure dominance of growth markets
(c) Restructure a mature market by driving out competitors
(d) Increase usage by existing customers (eg airmiles, loyalty cards).
Market development
4 (a) New geographical areas and export markets
(b) Different package sizes for food and other domestic items
(c) New distribution channels to attract new customers
(d) Differential pricing policies to attract different types of customer and create new market segments.
Product development
5 Product development is the launch of new products into existing markets. Product development forces
competitors to innovate and discourages newcomers to the market.
Diversification
6 Diversification occurs when a company decides to make new products for new markets .
This often involves risk, so should be undertaken with care. It is often used to achieve:
(a) Growth. New products and new markets should be selected which offer prospects for growth which the existing
product-market mix does not.
(b) Investment of surplus funds not required for other expansion needs. (The funds could also be returned to
shareholders.)