Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach. The BCG matrix helps managers make resource allocation decisions once different products are classified. Download PDF. What factors are used as the basis for analyzing businesses and brands using the BCG and the GE approaches. Holding market share means the company wants to keep the product’s share at the same level. There’s simply no room for project failures in a project-driven organizations.But portfolio-based organizations actively embrace appropriate risks, knowing that strategic portfolio risk management will yield high rewards. The iPod, when it was first released, was an example of a star product. In order to evaluate each business, companies sometimes utilize what’s called a portfolio planning approach. A group of businesses can be considered a portfolio, just as a collection of artwork or investments compose a portfolio. Businesses are classified as stars, cash cows, question marks (problem children), or dogs. Assess the Current Situation. A portfolio plan is an overall strategy that guides day-to-day decisions on investing. One of the best ways for companies to create superior value is by excelling in portfolio strategy—that is, investing capital across its businesses, products, and initiatives to maximize returns. Portfolio planning 1. Businesses are classified as stars, cash cows, question marks (problem children), or dogs. Proctor & Gamble also sold Jif peanut butter brand to Smuckers. A group of businesses is called a portfolio. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage. How would you classify a product that has a low market share in a growing market? A cash cowBusiness or offering with a large share of a shrinking market. A star is a product with high growth and a high market share. In applying the concepts of variance and co-variance, Markowitz showed that a diversified portfolio of financial assets could be optimized to deliver the maximum return for a given level of risk (Teach & Goff, 2003). To maintain the growth of their star products, a company may have to invest money to improve them and how they are distributed as well as promote them. In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automotive manufacturers. The firms then determine their investment strategies based on how well the two correlate with one another. [citation redacted per publisher request]. The reality is that agile portfolio planning is a never-ending activity. The firms then determine their investment strategies based on how well the two correlate with one another. However, some manufacturers have a very low share of this market. Figure 2.17 The General Electric (GE) Approach. As competitors enter the market, technology advances, and consumer preferences change, the position of a company’s products in the BCG matrix is also likely to change. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio. Portfolio management is the selection, prioritisation and control of an organisation’s programmes and projects, in line with its strategic objectives and capacity to deliver.. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them. Managers classify these products as question marks or problem children. The same question or problem arises when a product has a low share of a high-growth market. The IT portfolio management step-by-step methodology presented in detail in Chapter 5 is a proven process for applying IT portfolio management and has eight stages. Management can then choose which strategies to advance based on context, differentiation, selection and amplification. A group of business units owned by a single firm. involves analyzing a firm’s entire collection of businesses relative to one another. For example, DVD players are a cash cow for Sony. Identify each projects relative value as it relates to other projects in the … During bad economic times, many industries are not attractive. Another portfolio planning approach that helps a business determine whether to invest in opportunities is the General Electric (GE) approach. Holding market share means the company wants to keep the product’s share at the same level. Portfolio planning approaches help firms analyze the businesses relative to each other. A cash cow is a product with low growth and a high market share. Explain how SBUs are evaluated using the Boston Consulting Group matrix. Planning your investments with a financial adviser, rather than taking an ad hoc approach, has the potential to At a broader level, portfolio construction help you more closely reach your investment objectives. When a firm drops or sells a product or business. However, when the economy improves businesses must reevaluate opportunities. The goal is to balance the implementation of change initiatives and the maintenance of business-­as­-usual, while optimising return on investment. Business or offering with a large share of a shrinking market. Portfolio risk management accepts the right amount of risk with the anticipation of an equal or higher reward, while project and program risk management focuses on identifying, analyzing and controlling risks and potential threats that can impact a project. Managers classify these products as question marks or problem childrenBusinesses or offerings with a low share of a high-growth market.. On the vertical axis, existing markets and new markets are differentiated. In the early 1950s, Harry Markowitz began developing his modern portfolio theory (MPT). Hotels and airlines face similar situations. Strategic Portfolio Planning - Optimize Your Product Portfolio. On the horizontal axis, existing products and … Figure 2.17 The General Electric (GE) Approach. helps companies evaluate each of its strategic business units based on two factors: (1) the SBU’s market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and (2) the SBU’s relative market share (i.e., how the unit’s share of the market compares to the market share of its competitors). A portfolio planning approachAn approach to analyzing various businesses relative to one another. Strategic Portfolio Planning Approaches. Though related, tasks associated with project, program, and portfolio management are by nature very different. A dog is a product with low growth and low market share. A group of businesses can be considered a portfolioA group of business units owned by a single firm., just as a collection of artwork or investments compose a portfolio. The Boston Consulting Group (BCG) matrix helps companies evaluate each of its strategic business units based on two factors: (1) the SBU’s market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and (2) the SBU’s relative market share (i.e., how the unit’s share of the market compares to the market share of its competitors). The application of strategic planning in business is a result of difficult managerial decisions that comprise good and less desirable courses of action. The new Pre- and Post- planning activities are part of that. Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investment decisions. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio. The goal is to try to generate short-term profits from the product regardless of the long-term impact on its survival. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them. However, some manufacturers have a very low share of this market. The Boston Consulting Group Matrix Everyone wants to be a star. is a product with low growth and a high market share. Any of their products as dogs, when it sold its Folgers brand... Success sequence is often used as a means to help question marks or children... 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