美世 - Business Portfolio Analysis

Business Portfolio Analysis Outline Introduction BCG (Boston Consulting Group) Matrix PIMS (Profit Impact of Market Strategy) GE(General Electric)/McKinsey Multi-Factor Matrix Introduction The creation of SBUs enables the setting of SBUs mission and objectives and the allocation of resources across SBUs in the organization Senior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysis Many models but only 3 are covered here: BCG, PIMS, & GE models BCG (Boston Consulting Group) Matrix Provides a framework for senior management in allocating resources across business units in a diversified firm by Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC) BCG Product Portfolio Matrix Dimensions Relative Market Share (Log Scale) Product Sales Growth Rate BCG Matrix (contd) The horizontal axis is the Relative Market Share shown in a log scale Vertical line is usually set as 1.0 Relative Market Share An SBU to the left of this line means it is the market leader in the industry or segment in which it operates Conversely, an SBU to the right of this line (1.o RMS) means it is not the leader BCG Matrix (contd) The vertical axis is the growth rate 5 levels may be used: product, product lines, market segment, SBU and business growth rate Horizontal line is usually set as 10% Growth Rate SBUs above the set value (10% line) represents high growth rates Conversely, SBUs below this value depicts slower growth rate Matrix Quadrants High Low High Low Product Sales Growth Rate Relative Market Share Key Assumptions of BCG Matrix Stable cost/price relationship Not valid if the firm is pricing on projected lower average unit costs in the future Market leader influences the average costs Profit margin is a function of market share This ignores profitable niches Strategic Perspectives of Products in Different Quadrants Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications Question Marks (Problem Children) Investmentheavy initial capacity expenditures and high R&D costs Earningsnegative to low Cash-flownegative (net cash user) Strategy Implications If possible to dominate segment, go after share. If not, redefine the business or withdraw Stars Investmentcontinue to invest for capacity expansion EarningsLow to high earnings Cash-flowNegative (net cash user) Strategy Implications Continue to increase market shareeven at the expense of short-term earnings Cows InvestmentCapacity maintenance EarningsHigh Cash-flowPositive (net cash contributor) Strategy Implications Maintain market share and cost leadership until further investment becomes marginal Dogs Investment Gradually reduce capacity EarningsHigh to low Cash-flow Positive (net cash contributor) if deliberately reducing capacity Strategy Implications Plan an orderly withdrawal to maximize cash flow Example of a BCG Matrix for a Fastener Supplier in South East Asia High Low High Low Product Sales Growth Rate Relative Market Share Anchoring Systems Powder Actuated Tools Cable Tray Systems Electric Power Tools Concrete Lifting Systems Note that the Anchoring System SBU is forecasted to move to new position BCG Matrix (Three Paths to Success) Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash Three Paths to Success (contd) High Low High Low Market Growth Rate Relative Market Share BCG Matrix (Three Paths to Failure) Over invest in cash cows and under invest in question marks Trade further opportunities for present cash flow Under invest in the stars Allow competitors to gain share in a high growth market Over milked the cash cows Three Paths to Failure (contd) High Low High Low Market Growth Rate Relative Market Share PIMS (Profit Impact of Marketing Strategy) Program Database of nearly 3,800 SBUs Representing more than 500 firms Member firms have been in the program from 2 to 12 years The program provides Par ROI (Return of Investment) Prediction of how ROI would change if policy change is made Important Strategic Principles Derived From PIMS In the long run, product quality is the single most important factor affecting performance Market share and profitability closely correlated High-investment intensity reduces profitability Cash implications of growth rate and relative market share are affected by many factors Vertical integration is profitable for some business only Most factors that boost ROI also contribute to value Examples of Application of some of the Principles of PIMS in ASPAC Pursue of product quality Australian Quality Council Hong Kong Awards for Industry (Quality cat.) Japan Quality Award Malaysias Prime Ministers Quality Award (Private Sector) Philippines Quality Award Singapore Quality Award Sri Lankas National Quality Award Thailand Quality Award Examples of Application of some of the Principles of PIMS in ASPAC (contd) Pursue of market share Nova Group and Europa Holdings of Singapore expanding their pubs and restaurants business (Source: The Straits Times; Dec 10, 1992; pp.2) High investment reduces profitability The acquisition of new machinery caused a reduction in SM Summit Holdings gross margin SM (Source: SM Summit Holdings Annual Report 2000) Limitations of PIMS Key market-share variable is sensitive to product-market definition Other variables depend on subjective judgements Inherent limitations of cross-section analysis Sample biased toward larger firms that are industry leaders GE(General Electric)/McKinsey Multi-Factor Matrix Originally developed by GEs planners drawing on McKinseys approaches Market attractiveness is based on as many relevant factors as are appropriate in a given context Business-position assessment also made on a many factors SBU needs to be rated on each factor GE Multifactor Portfolio Matrix Industry Attractiveness High High Medium Medium Low Low Invest/Grow Selectivity /e