Application: Analysis of Business Portfolios
One of the best known, but poorly understood, portfolio management tools is the Boston Consulting Group’s “growth-share matrix”. It plots relative market share against relative growth, and was an attempt to give corporate strategic planners a way of evaluating different business units in different markets.
First, the annual growth rate of each business unit, in each market, is calculated. This is plotted on the matrix, depending on whether its growth is high or low because that is assumed to be an indication of investment needs. (Note: originally it was suggested that the horizontal axis of the matrix should be a growth rate of 10%.) Secondly, the relative market share of each unit is calculated and plotted on the matrix; that is share relative to the largest competitor. The turnover of each unit is then represented by appropriately sized circles.
The portfolio of business units is then categorized by the matrix into four groups, according to their cash generative ability:
(i) The “question-marks” (otherwise called “problem children” or “wild cats”) have low market share in high growth markets. A business which has just started operations would be a “question mark” because the ability of the management team to improve on its competence would be unproven. These are businesses with long-term potential which may ...