Portfolio analysis tools are crucial for evaluating a company's diverse business units. The BCG Matrix and GE-McKinsey Matrix help managers assess market share, growth potential, and industry attractiveness to make informed decisions about resource allocation and strategic direction.

These tools align with corporate-level strategies by guiding diversification choices. They provide a framework for balancing a company's portfolio, identifying which units to invest in, maintain, or divest, and optimizing overall corporate performance across multiple business areas.

BCG Growth-Share Matrix

Overview and Purpose

• Framework developed by Boston Consulting Group (BCG) helps companies analyze their business units or product lines
• Assists in resource allocation decisions by classifying business units into four categories based on their relative market share and market growth rate
• Provides insights into which businesses to invest in, maintain, harvest, or divest

Matrix Categories

• Stars: Business units with high market share in a fast-growing industry
  • Require significant investment to maintain their growth and market position
  • Have the potential to become cash cows in the future (iPhone for Apple)
• Cash Cows: Business units with high market share in a slow-growing or mature industry
  • Generate more cash than they consume, providing funds for other business units
  • Require minimal investment to maintain their market position (Microsoft Office)
• Question Marks: Business units with low market share in a high-growth industry
  • Require substantial investment to gain market share and become stars
  • Uncertain future potential; may need further evaluation to determine their viability (electric vehicles for traditional automakers)
• Dogs: Business units with low market share in a slow-growing or declining industry
  • Generate little or no cash and may consume more resources than they create
  • Candidates for divestment or liquidation (DVD rental business for Netflix)

Key Dimensions

• Market Growth Rate: Percentage rate at which the market for a particular business unit is growing
  • Determines the attractiveness and potential profitability of the industry
  • High growth rates indicate greater opportunities for expansion and investment
• Relative Market Share: Business unit's market share compared to its largest competitor
  • Serves as a proxy for competitive advantage and cash generation potential
  • Higher relative market share often translates to economies of scale and stronger bargaining power

GE-McKinsey Matrix

Overview and Purpose

• Framework developed by General Electric and McKinsey & Company extends the BCG matrix
• Assesses business units based on industry attractiveness and business unit strength
• Provides a more comprehensive view of a company's portfolio by considering multiple factors

Key Dimensions

• Industry Attractiveness: Evaluates the overall appeal and potential profitability of an industry
  • Factors include market size, growth rate, competitive intensity, entry barriers, and regulatory environment
  • Industries with high attractiveness offer greater opportunities for growth and profitability
• Business Unit Strength: Assesses the competitive position and capabilities of a business unit within its industry
  • Factors include market share, brand reputation, technological capabilities, and operational efficiency
  • Stronger business units are better positioned to capitalize on industry opportunities and withstand competitive pressures

Nine-Cell Matrix

• The GE-McKinsey matrix is divided into nine cells, each representing a different combination of industry attractiveness and business unit strength
• Cells are typically labeled as high, medium, or low for each dimension
• Business units falling in the top-left corner (high industry attractiveness, high business unit strength) are considered the most attractive and should receive priority for investment and growth (Apple's iPhone in the smartphone industry)
• Business units in the bottom-right corner (low industry attractiveness, low business unit strength) are the least attractive and may be candidates for divestment or restructuring (Kodak's film business in the digital photography era)
• The matrix helps companies prioritize their investments and allocate resources based on the relative positions of their business units