Brief portfolio analysis. Theoretical foundations of portfolio analysis. Analysis using the BCG matrix

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

BCG matrix

The "market growth - relative share of the enterprise" matrix was developed in the 60s by the Boston Consulting Group, its use allows the company to determine the position of each of its business units in terms of their market share relative to the main competitors and the annual growth rate in the industry (the rate of expansion market).

The basis for compiling the matrix is the assumption that an increase in the market share of a business unit leads to a decrease in unit costs and an increase in the rate of return on investment as a result of the experience curve effect.

The effect of the "experience curve" effect is that for each doubling of the volume of production or sales, there is a consistent decrease in unit costs by a certain amount. Practice has established that the range of this reduction, depending on the characteristics of production, can vary from 10% to 30%. The more complex and knowledge-intensive the product is, the higher the effect.

Assume that the cost of production and marketing is 100 monetary units with a total volume of 1000 units of product. In this case, doubling the volume of production and sales to 2000 will lead to a decrease in unit costs by 20%, which is 80 monetary units. A further doubling to 4,000 would again reduce unit costs by 20% to 64 currency units, and so on. Thus, an enterprise that achieves a doubling of the volume of production and sales of its products receives additional competitive advantages based on relative cost savings with the same quality of goods.

The construction of the BCG matrix includes the following steps:

Based on the strategic analysis, the range of change in the size of growth or contraction of all target markets within a certain area is determined. These indicators are indicated on the vertical axis of the matrix. For example, if the market development forecast shows that the maximum growth in the planning period for certain products can be 20%, and for other products the market is predicted to shrink, and the maximum size of this reduction will be 10%, then for this area the range will be from -10 to 20 per cent
The horizontal axis indicates the range of change in the relative market share (RMO) of the enterprise. Relative share is the share of dividing the market share of the enterprise by the market share of the leading competitor. For example, if the market share of an enterprise for the reporting period was 10%, and the main competitor controlled 20% of the market, then the enterprise's ODR will be:

ODR=10%/20%=0.5
But if, with the same market share of the enterprise, the competitor had 5%, then in this case the ODR will equal: ODR = 10% / 5% = 2.0
ODR below one indicates a weak competitive position in the market. The more ODR exceeds one, the higher is the competitiveness of a given enterprise or a separate business unit.

The use of relative market share to assess the market position of an enterprise in the BCG matrix is more reasonable in comparison with the market share indicator, since 10% of the market for an enterprise characterizes a stronger market position if the leading competitor occupies only 5%, and vice versa, those same 10% market share indicates low competitiveness if the leading competitor occupies, for example, 30% of the market.

The resulting matrix field is divided by horizontal and vertical lines into four quadrants. The horizontal line of the matrix can run at the level of the arithmetic mean growth rate of the markets (or at the level of the country's GDP growth rate). The vertical line can pass through the ODR indicator =1. It is believed that at this value of the ODR, the benefits of the experience curve effect begin to affect.

Fig.7.1. Matrix "Market Growth" - relative market share.

For each business unit, future growth rates are estimated, relative market share is calculated, and the data thus obtained determines its status in the matrix. Each business unit is depicted as a circle, the dimensions of which correspond to the share of sales in the total turnover of the enterprise. You can also use indicators of the share of business unit income in the total income of the enterprise. Dark circles can be the listed products of leading competitors.
For each type of business unit, an appropriate marketing strategy is formulated.

Tab. 7.1. Marketing strategies according to the BCG matrix.

STARS	QUESTION MARKS
Characteristics - market leaders; - rapid growth of the market; - significant profits; - require large investments. Strategies - protection of the achieved market share; - reinvestment of income in development; - expanding the range of goods and services.	Characteristics - fast growth; - insignificant profits; - Significant need for financial resources. Strategies - expanding market share through intensive marketing; - increasing the competitiveness of goods by improving consumer qualities.
CAIRY COWS
Characteristics - significant profits - receive significantly more financial resources than they require; - low growth rates of the market. Strategies - maintaining market advantages; - investing in new technologies and development; - maintaining the policy of the price leader; - use of free funds to maintain other products of the company.	Characteristics - the market is not developing, lack of prospects for the development of new business; - lack of profits; - low competitiveness. Strategies - curtailment of business activity, exit from the market; - the use of released funds to support other products of the company.

"Difficult Children" these are new products produced in industries with high growth rates. Products or business units can be very promising, but they require significant financial support from the center. The main strategic question is when to stop funding these products and remove them from the corporate portfolio. If it is done too early, there is a threat of losing the future "star", and if it is done too late, funds that could be invested in other projects will support an industry that is already able to provide for itself.

"Stars" - these are market leaders who are usually at the top of their product cycle. They themselves bring in enough funds to maintain a high share of a dynamically developing market. Despite the strategic attractiveness of this product's position, its net income is quite low, as significant investments are required to ensure high growth rates. Stars tend to be cash cows in the long run, and this happens if the market slows down.

"Cash Cows" - These are business units or products that have a leading position in a market with a low growth rate. Their attractiveness is explained by the fact that they do not require large investments and provide significant cash flows. Such business units not only pay for themselves, but also provide investment in new projects on which the future state of the enterprise depends.

"Dogs" - business units or products that occupy a small part of the market and do not have opportunities for growth, because they are in unattractive industries. Net cash flows in such business units are zero or negative. If there is no special reason to keep them, then these business units should be disposed of.

The best variant of a balanced portfolio of an enterprise is as follows: 2-3 goods are “cash cows”, 1-2 are “stars”, several “difficult children”.

Thus, if growth in the volume of activities and relative market share are chosen as indicators of development prospects and competitive position, then the BCG matrix can be effectively used as a tool for analyzing and choosing a marketing strategy and allocating strategic resources. If the development prospects and competition conditions are more complex, characterized by a large number of variables, then the two-dimensional matrix is no longer relevant.

The BCG matrix has the following disadvantages:
does not take into account the fact that most enterprises operate in markets with medium growth rates and have a relative market share that is neither small nor large;
some enterprises or business units cannot be attributed to any of the groups proposed in the matrix, so not all organizations can use its concept;
the matrix loses its value and cannot be used in the absence or reduction of growth rates.

McKinsey matrix

An alternative approach, which makes it possible to avoid some of the shortcomings of the BCG matrix, was proposed by the consulting company McKinsey for one of the largest and most diversified companies in the world, General Electric. An attempt to analyze the rather diverse portfolio of General Electric led to the idea of constructing a matrix of nine cells based on two parameters - the long-term attractiveness of the industry and the strengths (competitiveness) of the enterprise.

1. At the first stage, it is necessary to establish a list of indicators that will be used to assess the attractiveness of the market and the competitiveness of the enterprise.
Criteria for determining the long-term attractiveness of an industry include market size and growth rates, technological requirements, the severity of competition, barriers to entry and exit, seasonal and cyclical factors, capital requirements, threats and opportunities that form in the industry, social, environmental factors and the degree of their regulation.
Factors that are taken into account in evaluating competitiveness include market share, relative cost composition, ability to compete with competitors for product quality, knowledge of customers and markets, level of technological know-how, management skills, and profitability relative to competitors.
2. Depending on the degree of influence on the final assessment, for each indicator, it is necessary to establish a coefficient of relative significance. For the convenience of selecting these coefficients, it is recommended that their sum for each group of indicators be 1.
3. For each indicator of the attractiveness of the market and the competitiveness of the enterprise, a rating scale is established. The most convenient scoring ranges for calculation are from 1 to 5 or from 1 to 10 points. At the same time, it is established that the lowest score for the manifestation of an individual criterion will be equal to 1, and the highest - 5 or 10 points, respectively.
4. Information that characterizes the attractiveness of the area or market, which was collected at the stages of strategic analysis, is used to conduct an expert assessment of the attractiveness of the market. The use of the total sum of significance coefficients, which is equal to 1 and the assessment range from 1 to 10 points, indicates that the maximum assessment of the attractiveness of the market can be 10 points.

Tab. 7.3. Calculation of the overall assessment of market attractiveness

Indicators	Weight factor	Evaluation of indicators	final grade
1. Market capacity
2. Market growth rate
3. Profitability of operations
4. Level of competition
5. Stability of demand
6. Amount of required investments
7. Market risk
8. Availability of raw materials, materials, components
9. Demand saturation level
10. State regulation

Having received the actual final score for a particular market (in our example, 6.1 points), you can calculate the overall level of attractiveness of the market by dividing the final score by the maximum possible score: 6.1/10=0.61. Depending on the level of attractiveness, the entire range is divided into three evaluation intervals, which have the following characteristics:

Thus, according to the results of the considered example, we come to the conclusion that the market has an average attractiveness for the strategic orientation of the enterprise.
5. The assessment of the level of competitiveness of the business unit is carried out in a similar way.
6. Based on the obtained levels of market attractiveness and competitiveness of the business unit, a strategic analysis matrix is built. The horizontal axis indicates the intervals of levels of market attractiveness, and the vertical axis indicates different levels of competitiveness of the business unit.
Depending on the indicators obtained, all strategic subdivisions of the enterprise are placed in the corresponding quadrants of the matrix (Fig. 7.2).

Rice. 7.2. McKinsey matrix
7. For each quadrant of the matrix, the corresponding general options for marketing strategies are established, which should be detailed and specified depending on the specialization and conditions of operation of individual business units of the enterprise.

In the McKinsey matrix, the size of the industry is displayed as a circle of a certain diameter and with certain coordinates of the center, and part of the circle displays the share of the business unit (organization) in the market.

Winner 1 is characterized by a high degree of market attractiveness and rather large advantages of organizing on it. The organization is likely to be the undisputed leader or one of the leaders. A threat to it may be the possible strengthening of the positions of individual competitors.
"Winner 2" is characterized by a high degree of market attractiveness and an average level of relative advantages of the organization. Such an organization is a leader in its industry and at the same time does not lag far behind the leader. The strategic objective of such an organization will be to first identify its strengths and weaknesses, and then make the necessary investments to maximize the benefits of strengths and improve weak positions.

The “Winner 3” position is inherent in organizations whose market attractiveness is kept at an average level, but at the same time their advantages in such a market are obvious and strong. For such organizations, it is first of all necessary to determine the most attractive market segments and invest in them, develop their advantages, resist the influence of competitors.

Loser 1 is a position with medium market attractiveness and low relative market advantage. Improvements need to be sought in low-risk areas.

"Loser 2" - a position with low market attractiveness and an average level of relative advantages in the market. This position does not have any particular strengths or opportunities. This branch of business is unattractive. The organization is not a leader, but it can and should be considered as a serious competitor.

"Loser 3" - a position with low market attractiveness and a low level of relative advantages of the organization in this type of business. In such a state, one can only strive to make a profit. You should refrain from any investment or exit from this type of business at all.
Business areas that fall into three cells located along the diagonal, going from the lower left to the upper right edge of the matrix, are called border. Such types of business can both develop (under certain conditions) and shrink.

If the business belongs to dubious types (upper right corner), then the following options for strategic decisions are offered:
1) the development of the organization in the direction of strengthening those of its advantages that promise to turn into strengths;
2) allocation by the organization of its niche in the market and investing in it;
3) termination of this type of business.
The types of business of an organization, the state of which is determined by a low level of market attractiveness and a high level of relative advantages of the organization itself, are called profit producers. In this state, it is necessary to manage investments from the point of view of obtaining an effect in the short term, since a collapse may occur in the industry at any time. At the same time, investments should be concentrated around the most attractive market segments.

The main disadvantage of the McKinsey matrix is that it does not provide an opportunity to answer the question of how exactly the portfolio structure should be restructured. The answer to this question lies outside the scope of the analytical possibilities of this model.

is a tool for comparative analysis of the company's strategic business units to determine their relative priority in the allocation of investment resources, as well as to obtain standard strategic recommendations as a first approximation.

portfolio analysis is a tool by which the management of an enterprise identifies and evaluates its economic activity in order to invest in the most profitable or promising areas and reduce / terminate investments in inefficient projects. At the same time, the relative attractiveness of the markets and the competitiveness of the enterprise in each of these markets are assessed.

Unit of portfolio analysis is a "strategic economic zone" (SZH).

SZH is any market to which the company has or is trying to find a way out.

Enterprise Portfolio, or Corporate Portfolio, is a set of relatively independent business units (strategic business units) owned by one owner.

Purpose of portfolio analysis– coordination of business strategies and distribution of financial resources between business units of the company.

Portfolio analysis, in general, is carried out according to the following scheme:

All activities of the enterprise (product range) are broken down into strategic business units, and levels in the organization are selected to analyze the portfolio of businesses.

The relative competitiveness of individual business units and the development prospects of the respective markets are determined.

Data collection and analysis in this case is carried out in the following areas:

industry attractiveness;

competitive position;

opportunities and threats to the firm;

resources and staff qualifications.

Portfolio matrices (strategic planning matrices) are built and analyzed, and the desired portfolio of businesses and the desired competitive position are determined.

Each business unit is developed, and business units with similar strategies are combined into homogeneous groups.

Next, management evaluates the strategies of all divisions in terms of their alignment with the corporate strategy, commensurate the profit and resources required by each division using portfolio analysis matrices. At the same time, business portfolio analysis matrices are not in themselves a decision-making tool. They only show the state of the portfolio of businesses, which should be taken into account by management when making a decision.

Depending on the plans of the enterprise for the implementation of a particular strategy, the goals of its further development, as well as the current strategic position in a particular sector of the economy, approaches are chosen to assess the competitive positions of strategic business units and the attractiveness of the market.

The following approaches are best known in the literature:

Portfolio of the Boston Consulting Group (BCG matrix);

"General Electric - McKinsey" or "business screen";

Arthur D. Little Consulting Company Matrix;

Shell's Directed Policy Matrix;

Ansoff matrix;

Abel matrix.

A convenient tool for comparing the various SBAs (strategic business areas) in which SSH (strategic business units) organizations operate is the developed Boston Advisory Group (BCG) matrix. The vertical size in this matrix is given by the growth rate of the demand volume, and the horizontal size by the ratio of the market share owned by its leading competitor. This ratio should determine the comparative competitive positions in the future.

portfolio analysis

An enterprise portfolio or corporate portfolio is a set of relatively independent SBUs that have the same owner. Portfolio analysis is the most commonly used strategic analysis tool.

The most famous methods and models used in portfolio analysis are:

M. Porter's approach to competition analysis

Various two-dimensional matrices (BCG, McKinsey, I. Ansoff matrix, Arthur D. Little)

PIMS method (Profit Impact of Market Strategies).

Portfolio analysis is a tool by which the company's management identifies and evaluates the results of its business activities in order to invest in the most profitable or promising areas and stop investing in inefficient projects. At the same time, the relative attractiveness of the market and the competitiveness of the enterprise in each of these markets are assessed. It is assumed that one of the results of portfolio analysis is the achievement of a state of balance, i.e. the right combination of units or products that need capital to support their growth, with business units that have some excess capital.

Regular portfolio analysis is needed so that managers of all ranks have a deeper understanding of the problems of their organization's business, have a clear picture of the formation of costs and profits in a diversified company. This, in turn, requires a careful analysis of opportunities and threats for each business unit. The results of the portfolio analysis, in particular, were used when deciding on the restructuring of the company in order to make the best use of the newly opened opportunities inside and outside the company.

Portfolio analysis methods were developed 30-40 years ago and are a few specialized methods of strategic management. Most of the methods of strategic management are universal.

The theoretical basis of portfolio analysis is the concept of the product life cycle, the experience curve and the PIMS database. At the same time, it is recommended that for the purposes of developing a strategy, each company's product and its business units are considered independently, which allows them to be compared among themselves and with competitors.

The main methodological technique of portfolio analysis is the construction of two-dimensional matrices, with the help of which business units or their products could be compared with each other according to such important criteria as market share, sales growth rate, relative competitive positions, life cycle stage, industry attractiveness. At the same time, the principles of market segmentation (selection of the most significant criteria based on the analysis of the external environment) and analysis of the enterprise's activities are implemented when the criteria are agreed upon (for example, by the method of pairwise comparison).

Portfolio analysis is designed to solve the following specific tasks:

coordination of business strategies and strategies of business units

distribution of financial and human resources between departments

portfolio balance analysis

setting performance targets

carrying out competent restructuring of the enterprise.

In all matrices used by portfolio analysis, on one axis the assessment of the prospects for the development of the market is postponed, and on the other - the assessment of the competitiveness of the economic unit of the enterprise.

The portfolio analysis process has been worked out and is being supplemented according to the following simplified scheme:

All activities of the enterprise (product range) are divided into SBU. It is believed that SBUs should:

serve the market rather than work for other divisions of the enterprise

have their own customers and competitors

SBU management should control CFU in the market

In organizations with a functional management structure, the product range acts as a business unit, and with a divisional structure, the business unit is the main unit of analysis.

The relative competitiveness of these business units and the prospects for the development of the respective markets are determined.

A strategy is developed for each SBU, after which business units with similar strategies are combined into homogeneous groups of business units.

Senior management evaluates the business strategies of all business units in terms of their alignment with corporate strategy, commensurate with the profit and resources required by each unit.

Based on such a comparative analysis, it is possible to make decisions on adjusting business strategies. This is the most difficult stage of strategic analysis, at which the influence of the subjective experience of managers, their ability to foresee the development of events in the external environment (a kind of market sense) and other non-formalizable moments is great.

The main disadvantage of portfolio analysis is the use of data on the current state of the business, which cannot always be extrapolated to the future. The best known approaches are those proposed by the BCG and the consulting firm McKinsey. In any matrix, different types of business are evaluated according to only two criteria, while many factors (for example, product quality, investments) are left without attention.

BCG matrix

The BCG matrix is based on a product life cycle model, according to which a product goes through four stages in its development: entering the market (problem product), growth (star product), maturity (cash cow product) ) and recession (the “dog” product). At the same time, the cash flows and profits of the enterprise also change: negative profit is replaced by its growth and then a gradual decrease.

The range of products manufactured by the enterprise is analyzed on the basis of this matrix, i.e. it is determined to which position of the specified matrix each type of enterprise product can be attributed. To do this, the business units of the enterprise are classified in terms of relative market share (RMO) and industry market growth rates. The ODR ratio is defined as the market share of the business unit divided by the market share of the largest competitor. It is clear that the ODR of the market leader will be greater than one, including ODR = 2 means that the market share of the market leader is twice that of the nearest competitor. On the other hand, ODR< 1 соответствует ситуации, когда доля рынка бизнес-единицы меньше, чем у рыночного лидера. Высокая доля рынка рассматривается как индикатор бизнеса, который генерирует положительные денежные потоки, как показатель ожидаемого потока доходов. Это положение основано на опытной кривой.

The second variable, the Industry Market Growth Rate (ITG), is based on sales forecasts for the industry's products and is related to industry life cycle analysis. The management of the enterprise can expertly assess the stage of the life cycle of the industry in which it operates in order to determine (predict) the need for finance. In high-growth industries, significant investments in research and development of new products and in advertising are needed to try to achieve a dominant position in the market and, accordingly, positive cash flows.

To construct the BCG matrix, the values of ODR are fixed along the horizontal axis, and TRR values along the vertical axis. By dividing this plane into four parts, the desired matrix is obtained. The value of the ODR variable, equal to one, separates products - market leaders - from followers. Usually industry growth rates of 10% or more are considered high. It is believed that each of the quadrants of the matrix describes significantly different situations that require a different approach in terms of financing and marketing.

The BCG matrix is based on two hypotheses.

The first hypothesis is based on the experience effect and assumes that the existing market share means the presence of a competitive advantage associated with the level of production costs. From this hypothesis it follows that the largest competitor has the highest profitability when selling at market prices, and for him the financial flows are maximum.

The second hypothesis is based on the LCT model and assumes that presence in a growing market means an increased need for financial resources for updating and expanding production, advertising, etc. If the market growth rate is low, then the product does not need significant financing.

If both hypotheses are fulfilled, 4 groups of markets can be distinguished with different strategic goals and financial needs.

1 - innovator

2 - follower

3 - failure

4 - mediocrity

Each SBU or its product falls into one of the quadrants of the matrix according to the growth rate of the industry in which the enterprise operates and relative market share. When using this matrix, it is very important not to make a mistake in determining the industry in which the enterprise operates.

Graphically, the position of the SBU or product is depicted as a circle, the area of which corresponds to the relative importance of this product for the enterprise, estimated by the amount of profit or assets used.

New products appear more often in growing industries and have the status of a “problem” product (“difficult children”). They have prospects, but they need big financial investments. The question often arises of stopping funding for these SBUs, and if so, when? If this is done too early, then you can lose the “star” product. The "stars" can include both completely new products and new trademarks of the company's products.

Stars are market leaders at the peak of their life cycle. They have a strategic appeal, but the returns from them are small, because investments are required to ensure high growth rates, after which the experience curve can be used.

When the growth rate of the market falls, the "stars" turn into "cash cows", having a leading position in the market with a low growth rate. They are attractive because they do not require large investments and provide large cash flows based on an experience curve. These SBUs not only pay for themselves, but also provide the funds to invest in new products on which future growth depends.

“Dogs” are products that have a low market share and do not have the opportunity to grow, because are in an unattractive industry (high competition). Net cash flows from them are zero or negative. If there are no special circumstances, then these business units should be disposed of. In the "mature" industry, "dogs" can be left, because. they are protected from sudden fluctuations in demand and major innovations that fundamentally change consumer preferences, which makes it possible to maintain competitiveness of products even in conditions of small market share.

Thus, the sequence of product development can be represented as follows:

"Problem" "Star" "Cash Cow" [and if unavoidable] "Dog"

A balanced product portfolio of an enterprise should ideally include 2-3 "cash cows", 1-2 "stars", several "problems" as a reserve for the future and as few "dogs" as possible, and a typical unbalanced portfolio, as a rule, has one "cash cow", many "dogs", a few "problems", but no "stars" that can take the place of "dogs". An excess of obsolete goods (“dogs”) leads to the danger of a recession, even if the current results of the enterprise are positive. An excess of new products can lead to financial hardship. In a dynamic corporate portfolio, for example, there may be such trajectories:

"trajectory of the innovator". By investing in R & D funds received from the sale of "cash cows", the company enters the market with a fundamentally new product, which takes the place of the "star";

"trajectory of the follower". Funds from the sale of "cash cows" are invested in a "problem" product, the market of which is dominated by one leader. In this situation, the company chooses an aggressive strategy of increasing its market share, and the “problem” product turns into a “star”;

"trajectory of failure". Due to the decrease in investment, the "star" loses its leading position in the market and becomes a "problem";

"trajectory of permanent mediocrity". The “problem” product fails to increase its market share, and it enters the next stage of development, becoming a “dog”.

The BCG matrix represents any corporation in the form of divisions that are practically independent of each other in terms of production and sales (business units), which are positioned in the market depending on two criteria.

The essence of portfolio analysis is to determine which departments to withdraw resources from and to whom to transfer them. They usually take it from the "cash cow" and give it to the "star" or "problem".

Thus, the analysis based on the BCG matrix allows us to draw the following conclusions:

identify a possible strategy for business units or products;

assess their funding needs and profitability potential;

assess the balance of the corporate portfolio.

Portfolio analysis has a positive effect in the following areas:

encourages top managers to separately evaluate each type of business, set goals for it and redistribute resources;

gives a simple and visual picture of the relative "strength" of each SBU in a corporate portfolio;

shows both the ability of each business unit to generate a stream of income, and its need for financing;

encourages the use of environmental data;

addresses the problem of matching financial flows to the needs of business expansion and growth.

The main criticism of the BCG matrix is as follows:

it provides only two dimensions - market growth and relative market share, does not consider many other factors of growth;

the position of the SBU essentially depends on the exact definition of the boundaries and scope of this market;

it is not always possible to establish how the growth of the market / market share affects the profitability of the business. The hypothesis of the relationship between relative market share and profitability potential is applicable only if there is an experimental curve, i.e. mainly in mass production industries;

the interdependence of economic units is ignored;

a certain cyclical development of commodity markets is also ignored.

Portfolio matrices show that each individual unit within the enterprise is obliged not only to keep records of its profits and not share it with other units. The situation changes over time, and a unit that was, for example, a "star" becomes a "cash cow", and that sooner or later becomes a "dog". It can be recalled that within the framework of this approach, the existence of an experience curve in the industry is assumed, and the development strategy of each individual business is reduced to a simplified alternative: expansion - maintenance - reduction of activity (movement through the stages of the product life cycle), and in real life, the relationship of factors and possible strategies development is much more difficult.

McKinsey Matrix

Another type of portfolio matrix, called the "business screen", was developed by the McKinsey consulting group in conjunction with the General Electric Corporation. It is designed to assess the long-term attractiveness of the industry and the competitive position of the SBU.

The McKinsey model requires much more data than the BCG matrix. The market growth factor has been transformed into a multifactorial concept of “attractiveness of the market (industry)”, and the market share factor has been transformed into a strategic position (competitive position) of business units.

McKinsey Portfolio Analysis Matrix - General Electric

McKinsey experts believe that the factors that determine the attractiveness of the industry and the position of businesses in individual markets are different. Therefore, when analyzing each market, you should first highlight the factors that best meet the specifics of this market, and then try to objectively evaluate them using three levels: low, medium, high. Because a specific market is always a mystery, you can stick to already accepted lists of factors.

Factors of attractiveness of the market and the strategic position of the business

Market attractiveness

Strategic position

Market characteristics (industries)

Market size (domestic, global)

Market growth rates (for the last 5-10 years)

Geographical advantages of the market

Price dynamics, market sensitivity to prices

Sizes of key market segments

Market cyclicality (annual fluctuations in sales)

Market share controlled by the firm

SBE Growth Rate

Firm competitiveness

Characteristics of the product range

The effectiveness of the marketing strategy

Competition factors

The level of competition in the market

Trends in the number of competitors

Benefits of Industry Leaders

Sensitivity to substitute products

Relative market share (typically estimated domestic market share and share relative to the top three competitors)

The potential of the company and its competitive advantages

Financial and economic factors

Barriers to entry and exit from the industry

Capacity utilization level

Industry level of profitability

Industry cost structure

Firm's capacity utilization rate

Profitability level

Technological development

Cost structure

Socio-psychological factors

Social environment

Legal business restrictions

Corporate culture

Worker efficiency

Company image

The most characteristic positions are in the corner quadrants of the matrix. Intermediate positions are often difficult to interpret because a high score for one parameter may be combined with a low score for another, or there are only average scores for all criteria.

The main strategic alternatives for this matrix are:

invest in order to maintain a position and follow the development of the market;

invest targeted improvements in the position held, shifting along the matrix to the right, towards high competitiveness;

invest to regain lost ground. Such a strategy is difficult to implement if the attractiveness of the market is weak or medium;

reduce the level of investment with the intent to "harvest", for example, by selling a business;

deinvest and leave the market (or at least a segment of the market) with low attractiveness, where the company cannot achieve a significant competitive advantage.

Assess the attractiveness of the industry by following these procedures:

select essential evaluation criteria (KFU for this industry market);

assign a weight to each factor that reflects its importance in the light of corporate goals (the sum of the weights is equal to one);

evaluate the market for each of the selected criteria from one (unattractive) to five (very attractive);

multiplying the weight by the assessment and summing the obtained values for all factors, we get a weighted assessment/rating of the attractiveness of the market for this SBU.

An example of assessing the attractiveness of an industry

Assess business strength/competitive position using a procedure similar to that described in the previous step. The result will be a weighted assessment or rating of the competitive position of the analyzed SBU.

All divisions of the portfolio, ranked at the previous stages, are positioned, and their parameters are entered into the matrix. In this case, the coordinates of the centers of each circle coincide with the parameters of the corresponding SBUs calculated at stages 1 and 2. The matrix constructed in this way characterizes the current state of the corporate portfolio.

Portfolio analysis can be considered complete when its current state is projected into the future. To do this, it is necessary to assess the impact of predicted changes in the external environment on the future attractiveness of the industry and the competitive position of the strategic business unit. Managers need to understand whether the portfolio will improve or deteriorate in the future? Is there a gap between its predicted and desired state? The gap should stimulate a revision of the mission, purpose and strategy.

This matrix is more perfect, because it takes into account a much larger number of factors. It is more flexible, because indicators are chosen according to the specific situation. But unlike the BCG matrix, there is no logical connection between competitiveness indicators and cash flows. The scope of this matrix is wider, but the results obtained are based on subjective assessments. To increase the objectivity of the assessments, it is recommended to involve a group of independent experts.

The portfolio analysis method has general disadvantages inherent in the McKinsey matrix:

Difficulties in taking into account the factors of market relations (boundaries and scale of the market), too many criteria. As the number of factors grows, their measurement becomes more difficult;

The static nature of the models;

Subjectivity of assessments of SBU positions;

Brief portfolio analysis. Theoretical foundations of portfolio analysis. Analysis using the BCG matrix

Send your good work in the knowledge base is simple. Use the form below

Similar Documents

Send your good work in the knowledge base is simple. Use the form below

Similar Documents

BCG matrix

McKinsey matrix