Managing this vast business portfolio profitably requires a combination of diligence, skill, and talent.Whether the company’s business portfolio consists of only one or two operations or dozens, the strategic planning process is the same: First, the company must analyze its current business portfolio and determinewhich businesses should receive more, less, or no investment. Second, it must shape the future portfolio by developing strategies for growth and downsizing.Analyzing the Current Business PortfolioThe major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses that make up the company. The company will want to put strong resources into its more profitable businesses and phase down or drop its weaker ones.Management’s first step is to identify the key businesses that make up the company, called strategic business units (SBUs). An SBU can be a company division, a product line within a division, or sometimes a single product or brand. The company next assesses the attractivenessof its various SBUs and decides how much support each deserves. When designing a business portfolio, it’s a good idea to add and support products and businesses that fit closely with the firm’s core philosophy and competencies.The purpose of strategic planning is to find ways in which the companycan best use its strengths to take advantage of attractive opportunitiesin the environment. So most standard portfolio analysis methods evaluate SBUs on two important dimensions—the attractiveness of the SBU’s market or industry, and the strength of the SBU’s position in thatmarket or industry. The best-known portfolio-planning method was
developed by the Boston Consulting Group, a leading management consulting firm.The Boston Consulting Group ApproachUsing the now-classic Boston Consulting Group (BCG) approach, a company classifies all its SBUs according to the growth–share matrix, as shown in Figure 2.2. On the vertical axis, market growth rate provides a measure of market attractiveness. On the horizontal axis, relative market share serves as a measure of company strength in the market. The growth–share matrix defines four types of SBUs:Stars. Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventuallytheir growth will slow down, and they will turn into cash cows.Cash Cows. Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of cash that the company uses to pay its bills and support other SBUs that need investment.Question Marks. Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone
increase it. Management has to think hard about which question marksit should try to build into stars and which should be phased out.
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