The growing and brisk market during the 1950s and 1960s made
companies to operate more and more businesses and led not only to
larger and complex firms but also to a high number of divisions. The
overall corporate strategy was therefore insufficient, especially when
divisions led on to diversifications different strategies, business unit strategies, were required. In order to find out in which business a company should be in and how resources can be allocated amongst them, different portfolio analyses are developed in the 1970s. The idea goes back to the Portfolio Selection Theory from Markowitz (1959) in which a portfolio is described
as an ideal mix of different securities. The portfolio analysis in this context can be described as a framework to analysis the balance of an organization’s strategic business units (Johnson and Scholes, 1999, p.186). The objective of this piece of work is to explain the two best-known portfolio analysis approaches: The Boston Consulting Group’s growthshare and growth-gain matrix and the General Electric Company business screen in regard to advantages and disadvantages, generated strategies, interdependence of products, opportunities for synergy as well as the problems which can occur when applying those models in practice. In the first chapter both models and the different strategies will be explained and definitions will be given.
A comparison of both models in relation to their advantages and
disadvantages can be found in the second chapter. In the third chapter the relevance of synergy will be discussed. Chapter four contains a GE matrix for Nestlé Waters and the validity of the possible strategies is critically evaluated. The conclusion can be found in chapter five.
Table of Contents
- Introduction
- Portfolio Analysis
- The BCG growth – share matrix
- The GE business screen
- Comparison
- Review of both models
- Synergies and the portfolio models
- Application of the GE business screen
- Conclusion
Objectives and Key Themes
The objective of this work is to explain two portfolio analysis approaches: the Boston Consulting Group's growth-share matrix and the General Electric Company business screen. It will analyze their advantages and disadvantages, the strategies they generate, the interdependence of products, opportunities for synergy, and practical application problems.
- Portfolio analysis models and their application in strategic planning.
- Comparison of the BCG growth-share matrix and the GE business screen.
- Synergies and their relevance in portfolio management.
- Practical application of portfolio models and potential challenges.
- Strategic business unit (SBU) definition and its role in portfolio analysis.
Chapter Summaries
Introduction: This introductory section sets the stage by highlighting the growing complexity of companies in the 1950s and 60s, leading to the need for business unit strategies beyond overall corporate strategy. It introduces portfolio analysis as a framework for analyzing the balance of an organization's strategic business units and lays out the work's objective: to explain the BCG growth-share matrix and the GE business screen, focusing on their advantages, disadvantages, generated strategies, synergy opportunities, and practical application challenges. The structure of the subsequent chapters is outlined.
Portfolio Analysis: This chapter delves into the core concept of portfolio analysis, emphasizing its reliance on both external factors (competition, costs) and internal factors (number of businesses, available assets) to assess a company's strengths, weaknesses, opportunities, and threats. It introduces the concept of Strategic Business Units (SBUs) – independent business units within a larger organization – and explains how portfolio diagrams, typically two-dimensional matrices, visually represent the interplay of internal and external influences on an SBU's position. The chapter concludes by summarizing how portfolio models are utilized to balance cash-generating and cash-absorbing businesses, ultimately aiming to increase the overall value of the company.
Keywords
Portfolio analysis, BCG growth-share matrix, GE business screen, strategic business units (SBUs), strategic planning, synergy, cash flow, competitive advantage, market share, business portfolio management.
Frequently Asked Questions: Portfolio Analysis: BCG Growth-Share Matrix and GE Business Screen
What is the purpose of this document?
This document provides a comprehensive overview of portfolio analysis, focusing on two key models: the Boston Consulting Group (BCG) growth-share matrix and the General Electric (GE) business screen. It details the objectives, key themes, chapter summaries, and keywords related to these models and their applications in strategic planning.
What are the key themes explored in this document?
The document explores portfolio analysis models and their application in strategic planning, comparing the BCG growth-share matrix and the GE business screen. It also examines synergies and their relevance in portfolio management, practical application of portfolio models and potential challenges, and the definition and role of Strategic Business Units (SBUs) in portfolio analysis.
What models of portfolio analysis are discussed?
The main focus is on two models: the BCG growth-share matrix and the GE business screen. The document compares and contrasts these models, analyzing their advantages, disadvantages, and the strategic implications of each.
What is the BCG growth-share matrix?
The BCG growth-share matrix is a portfolio analysis tool that helps companies analyze their business units based on market growth rate and relative market share. It categorizes business units into four quadrants: Stars, Cash Cows, Question Marks, and Dogs, each requiring a different strategic approach.
What is the GE business screen?
The GE business screen, also known as the GE McKinsey matrix, is another portfolio analysis tool that considers a wider range of factors than the BCG matrix. It uses a nine-cell matrix based on industry attractiveness and business unit competitive strength to guide strategic decisions.
How are the BCG and GE models compared?
The document compares the two models, highlighting their similarities and differences in terms of factors considered, strategic implications, and practical application. It analyzes the advantages and disadvantages of each model in different business contexts.
What is the role of Strategic Business Units (SBUs) in portfolio analysis?
SBUs are independent business units within a larger organization. Portfolio analysis uses SBUs as the fundamental units of analysis, assessing their performance and strategic fit within the overall corporate portfolio.
What is the significance of synergy in portfolio management?
The document explores the importance of synergy—the combined effect of multiple business units being greater than the sum of their individual parts—in portfolio management. It discusses how companies can leverage synergies to improve overall profitability and competitive advantage.
What are the practical application challenges of portfolio models?
The document addresses potential challenges in applying portfolio models in practice, including difficulties in accurately assessing market growth and competitive strength, defining SBUs, and managing the complexities of balancing cash flow across different business units.
What are the key takeaways from the chapter summaries?
The chapter summaries provide a concise overview of each section, outlining the introduction, the detailed explanation of portfolio analysis, the comparison of the two models, and the exploration of synergies and practical applications. They emphasize the historical context of portfolio analysis and the complexities of strategic business unit management.
What are the key words associated with this topic?
Key words include: Portfolio analysis, BCG growth-share matrix, GE business screen, strategic business units (SBUs), strategic planning, synergy, cash flow, competitive advantage, market share, business portfolio management.
- Quote paper
- Minea Linke (Author), 2003, Portfolio Models, Munich, GRIN Verlag, https://www.grin.com/document/21583
