SHRI SIDH THAKURNATH COLLEGE OF

ARTS & COMMERCE,

ULHASNAGAR 421 004
2015-2016
NAME: payal .m. bhagtani
CLASS: M-COM (PART I)(SEM-1)
ROLL NO: 1561131
SUBJECT: strategic management
PROJECT TOPIC: portfolio analysis bcg
matrix and ge matrix
SUBMITED TO: Varsha savlani

CERTIFICATE
1

This is to certify that the project report titled Portfolio Analysis

BCG Matrix & GE Matrix has been completed satisfactorily in
partial fulfillment of M.COM PART I course of the University of
Mumbai, for the academic year 2015-2016 by PAYAL MEGHRAJ
BHAGTANI a student of S.S.T College of Arts and Commerce,
Ulhasnagar 400 004.

----------------------------------------------------------Signature of External Guide

Signature of Internal Guide

ACKNOWLEDGEMENT
The most pleasant part of any project is to express Thankfulness and
Give Honor towards all those who contributed to the smooth flow of the
project work and this being the good opportunity; I dont want to miss it.
Sincere thanks to the institution of S.S.T. COLLEGE which endow me
with the valuable opportunity so interesting and critical topic is the subject of
the present report.
I thank my project guide Varsha Sawlani Sir for his valuable inputs
in the Research and spending so much of their valuable time and efforts in
helping with my topic.
I also wish to express gratitude to the respondents of the project without the
kind co-operation of whom this one would not have been possible.

Table of Contents

Sr No.

Particulars

Page No

Introduction to BCG

Strength & Weakness of BCG

Matrix
Application to Competitive
Intelligence: Automotive Industry

3
4
5

GE/McKinsey Matrix
Strengths and Weaknesses

12
14
19

Application to Competitive
Intelligence: Apple Inc

20

BCG Matrix vs. GE/McKinsey Matrix

22

Conclusion

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Introduction to BCG
Competitive Intelligence (CI) often requires a great deal of analysis to convert gathered
information into useable intelligence. Several different analytical techniques can be
utilized in order to accomplish this task. This project looks at two analytical techniques,
the Boston Consulting Group (BCG) Matrix and the GE/McKinsey Matrix, their
respective advantages and disadvantages, what CI situations they are best suited for, and
provides an example of their use when applied to the CI scenario of the Smartphone
industry.

Background
The BCG Matrix (Growth-Share Matrix) was created in the late 1960s by the founder of
the Boston Consulting Group, Bruce Henderson, as a tool to help his clients with efficient
allocation of resources among different business units. It has since been used as a
portfolio planning and analysis tool for marketing, brand management and strategy
development.
In order to ensure successful long-term operation, every business organization should have
a portfolio of products/services rather than just one product or service. This portfolio
should contain both high-growth and low-growth products/services. High-growth
products have the potential to generate lots of cash but also require substantial amounts of
investment. Low-growth products with high market share, on the other hand, generate lots
of cash while needing minimal investment.

How it Works
The BCG Matrix helps a company with multiple business units/products by determining
the strengths of each business unit/product and the course of action for each business
unit/product. An understanding of these factors will give the company the highest
probability of winning against its competitors, since the intelligence generated can be used
to develop portfolio management strategies.
The BCG Matrix helps managers classify business units/products as low or high
performers using the following criteria:

1. Relative market share (strength of a business unit's position in that market)

2. Market growth rate (attractiveness of the market in which a business unit

operates)

Relative market share (RMS) is the percentage of the total market that is being controlled
by the company being analyzed. It is calculated using the following formula:
RMS = Unit sales this year / Unit sales this year by a leading rival
The relative market share is measured on a scale where 1.0 is considered a cut-off point.
An RMS of more than 1.0 indicates that this company/product/business unit has a higher
market share than the leading competitor.
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Market growth (MGR) is used as a measure of a markets attractiveness. It is calculated

using the following formula:
MGR = (Individual sales this year - individual sales last year) / Individual sales last
year
High growth markets are the ones where the total available markets share is expanding,
offering plenty of opportunity for everyone to make money. Traditionally, a market growth
rate of 10% has been used as a cut-off point for the purpose of classifying the units in the
business portfolio. Any unit with a growth rate of more than 10% would be placed in the
high growth segment of the BCG Matrix.
This classification places business units/products in the following four categories:
1. Stars BUs/products characterized by high-growth and high- market share. They often
require heavy external investment to sustain their rapid growth as they may not be
producing any positive cash flow. Eventually, their growth will slow, and they will turn
into cash cows.
2. Cash Cows - BUs/products characterized by low-growth, high-market share. These are
well established and successful BUs that do not require substantial investment to keep
their market share. They produce a lot of cash to be used for other business units (Stars
and Question Marks) of the company.
3. Question Marks - BUs/products characterized by low-market share in high-growth
markets. They require a lot of financial resources to increase their share since they cannot

generate enough cash themselves. The crucial decision is to decide which Question Marks
to phase out and which ones to grow into Stars.
4. Dogs - BUs/products with low-growth, low-market share. In addition, they often have
poor profitability. The business strategy for a Dog is most often to divest. However,
occasionally management might make a decision to hold a Dog for possible strategic
repositioning as a Question Mark or Cash Cow.

The BCG model follows the following major steps:

1. Identify major organizational business units (BUs) and identify RMS and MGR

for each BU

2. Plot the BUs on the BCG Matrix

3. Classify the BUs as Question Marks, Stars, Cash Cows and Dogs

4. Develop strategies for each BU based on their position and movement trends

within the matrix

Figure 1: An example of the BCG Matrix

Strengths of the BCG Model:

The BCG Matrix allows for a visual presentation of the competitive position of

all units in a business portfolio.

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The BCG model allows companies to develop a customized strategy for each

product or business unit instead of having a one-size-fits-all approach.

Simple and easy to understand.

It works well for companies with multiple divisions and products

Allows for quick and simple screening of business opportunities in order to

determine investment priorities in the portfolio of products/business units.

It is used to identify how corporate cash resources can be best allocated to

maximize a companys future growth and profitability.

Useful for the development of investment, marketing and operating decisions:

a. Investment in the business unit in order to build its market share

b. Sufficient investment to maintain the business unit's market share at the

current level
o

c. Determine which business unit/product will function as a cash cow to

provide necessary cash flow for the other business units/products

o

d. Divest a business unit

Weaknesses of the BCG Model:

The BCG model assumes that high market share and market growth are the

only success factors. Based on numerous real life examples, we can conclude that high
market share does not always lead to profitability. Businesses with low market share can
be highly profitable as well. Relative market strength is also determined by the following
factors which the BCG does not take into account:
a. Technological competence
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b. Ability to maintain low manufacturing costs

c. Financial strength of competition
d. Distribution capabilities
e. Human resources

The BCG model focuses on major competitors when analyzing the relative

market share of a company. However, it neglects some small competitors with fast
growing market shares.

It is a rather short-term model that doesnt fully show how characteristics of

business units change over the long term.

Assumes that high rates of profit are directly related to high market share

BCG is a primarily qualitative model

The Y axis represents the annual market growth which fails to see the full picture

that goes beyond a one year span

It does not take into consideration other important factors such as: market

barriers/restrictions, market density, profitability, politics

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Application to Competitive Intelligence: Automotive

Industry
The BCG model could be helpful in situations where big economic swings produce
significant changes in the original classification of companies, BUs and products. For
example, 10-15 years ago, the automobile manufacturers in the US dismissed the market
for small economy cars in favour of big SUVs. At that time, small cars were considered
Dogs while SUVs were Stars. That happened because car manufacturers did not take into
consideration the important factors of rising oil/gasoline prices and the changes in the
environmental consciousness of the society. What if the management of major car
manufacturers in the US had ran the BCG model under different scenarios (high gas
prices; increased environmental awareness) to decide which cars would be Stars and Dogs
under each of those scenarios? We believe that doing so would have better prepared the
individual players in the industry for the rising competition with foreign car
manufacturers.
It is also important to constantly analyze business news to look at what other companies
are selling/divesting or acquiring. If they are selling a product/BU with a small market
share in a declining market then we know they are most probably selling a Dog. The
question is why are they selling it? Do they need the cash to fund a new Star? If GM
tomorrow announces that they are selling its hybrid vehicle division, does it mean that
they are in possession of a new technology that will revolutionize the entire industry?
Looking at the competition through the prism of the BCG Matrix would help managers

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ask the right questions and then collect necessary intelligence in the process of answering
them.
The BCG Matrix could also be used by business analysts for the purpose of forecasting
future trends. These analysts would analyze whole industries/technologies using the BCG
Matrix in order to predict future changes. For example, business analysts at GM could
develop various scenarios to predict the future of the automobile. With the price of oil and
other commodities rising, they need to look beyond traditional technologies and sources of
energy and evaluate other alternatives. From this point of view, the analysts could plot
various traditional and breakthrough technologies on the BCG Matrix in order to
determine the current Question Marks, Starts, Cash Cows and Dogs and forecast how the
Matrix will change in the next 5-10 years under various scenarios (high inflation, scarcity
of resources, change in consumer tastes and demands). Another application of the BCG
Matrix in CI would be to see where the currently emerging technologies will be five years
from now from the point of view of relative market share and market growth. Most of the
breakthrough technologies today would appear in the Question Mark quadrant of the BCG
Matrix. How will this picture change in 2-3 years from now? By monitoring and plotting
these changes the business leaders at GM could get an insight into what will drive the
future of the automotive industry in the future. In fact, in this context the BCG Matrix
could become an important part of the business foresight which combines deep analysis of
the past patterns and emerging trends with business insight. Those who are able to come
up with the most accurate foresight and timely capitalization on it will be the future
leaders in the industry.

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GE/McKinsey Matrix
Background
The GE/McKinsey Matrix was developed jointly by McKinsey and General Electric in the
early 1970s as a derivation of the BCG Matrix. GE, by that time, had approximately 150
different business units and was disappointed with the profits derived from its
investments. This raised internal concerns about the approach the organization had to
investment decision making. While exploring new models to implement, GE started to be
interested in visual strategic frameworks like the Growth-Share Matrix created by the
Boston Consulting Group (BCG) a few years before. However, the BCG Matrix showed to
have some limitations. It was considered not flexible enough to include all the broader
issues that a company was facing while operating in a fast changing global environment.
The GE/McKinsey Matrix solves most of the issues of the BCG model and proposes a
more sophisticated and comprehensive approach to investment decision making.

How it Works
The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix and it is primary used to perform
business portfolio analysis on the strategic business units (SBU) of a corporation. A
business portfolio is the collection of all the business units within a corporation and a large
corporation has normally many SBUs. Each SBU is a distinctive and unique unit that falls
under the same strategic hat. A well balanced portfolio is one of the top priorities of a large

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organization. The strategic business units are the basic blocks that compose a business
portfolio. A unit can be a divisions or even a whole company owned by the parent
organization.
The nine-box matrix provides decision makers with a systematic and effective framework
for a decentralized corporation to make better supported investment decisions and for
developing strategies for future product development or new market segment entries.
Instead of looking solely at each unit's future prospects, a corporation can adopt a multidimensional approach based on two components that will indicate how well the unit will
perform in the future. The two components used to evaluate businesses, which also serve
as the axes of the matrix, are the 'attractiveness' of the relevant industry and the unit's
'competitive strength' within the same industry. Each axis is then divided into Low,
Medium and High.

15

Figure 2: Factors that influence the axes of the GE/McKinsey Matrix

Six steps are necessary to implement the GE/McKinsey analysis:

1. Determine which factors are relevant for the corporation in the industry where

it operates

2. Assign a weight to each factor

3. Score each factor

4. Multiply the relative scores and weights

5. Sum all up and interpret the graph

6. Perform a review / sensitivity analysis

The plotted circles convey the information in the following way:

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The size of the circle represents the market size of the SBU

The share owned by the SBU is expressed as a pie slice with its relative

percentage inside

The expected future direction of the SBU is represented with an arrow

The circles representing SBUs are then placed within the matrix. As a result, the
executives of the corporation will have a clear and powerful analytic map for
understanding and managing their entire multi-unit business. The units that fall above the
diagonal indicate the investment and growth to be pursued; the units along the diagonal
require a thorough analysis and individual selection for investment; finally the units below
the diagonal might indicate divestments are necessary or otherwise that businesses can be
kept only for cash reasons. The placement of the units within the matrix is a necessary first
step before the analysis phase that requires human judgement can begin. For example, a
strong unit in a weak industry is in a very different situation than a weak unit in a highly
attractive industry.

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18

Figure 3: An example of the GE/McKinsey Matrix

Strengths and Weaknesses

The GE/McKinsey Matrix, as an extension of the BCG framework, shares the
aforementioned advantages of the BCG model. Though the GE/McKinsey Matrix is more
sophisticated than the BCG matrix and can provide higher value information for the
executive management, it has several flaws and limitations:

No proven relationship between market attractiveness and business position.

The relationships between different units are not taken into account.
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The core-competencies that lead to value creation are not taken into consideration.

The approach requires extensive data gathering.

Scoring is personal and subjective (risk of bias)

There is no hard and fast rule on how to weight elements.

The GE/McKinsey Matrix offers a broad strategy and does not indicate how best

to implement it.
For the above limitations and issues, the GE/McKinsey Matrix can serve more as a
quick strategic visual framework rather than as a resource allocation tool.

Application to Competitive Intelligence: Apple Inc.

Apple Inc. is a large technology company with several business units operating in different
markets, including desktop computers, laptops, tablet computers (iPads), portable music
players (iPods), smartphones (iPhones) and software to support these products. A
competitor wishing to gain competitive intelligence on the activities of Apple Inc. could
do so by placing its business units into a GE/McKinsey Matrix. By analyzing this matrix,
it could determine which business units Apple is likely to invest in heavily, develop
selectively, or divest.
The market attractiveness axis would be relatively easy for the competitor to assess if it
is currently operating in that market, since this consists of factors external to Apple.
This includes easily obtainable information such as the current market size and market
growth rate. However, some factors would have to be assessed subjectively, such as
barriers to entry and the state of technological development.
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In contrast, the business unit strength axis would be more difficult to assess since it
consists of factors internal to the company, such as customer loyalty, access to
resources, and management strength. However, a great deal of information could be
obtained from secondary sources, such as the Internet, the media, and shareholder reports.

Figure 4: Assessment of Apple business units in the GE/McKinsey Matrix

From an assessment of the above GE/McKinsey Matrix, it becomes clear that Apple is at
least moderately strong in each of its business units and it competes in a number of
attractive and fast-growing segments, such as tablet computers and Smartphones. A
competitor performing this analysis would realize that Apple is unlikely to divest any of
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these business units and is likely using its personal computer and music products as cash
cows in order to fund R&D and growth in the faster-growing markets. The barriers to
entry in all of these markets are considerable, since entry would require a large amount of
funding for either R&D or the acquisition of the necessary technology and expertise. If the
company performing this analysis decides to compete with Apple, it should do so in the
newest, fastest-growing markets (tablets and smartphones), as these represent the areas of
greatest opportunity, despite Apples early dominance.

BCG Matrix vs. GE/McKinsey Matrix

The BCG and the GE/McKinsey analytical models have been created and used for the last
40 years as portfolio analysis frameworks, with the main objective of supporting managers
in taking more informed investment and/or divestment decisions. Both models adopt
visual frameworks that map internal strategic business units versus predetermined external
factors.
Although these models strongly focus on strategic decisions for large corporations, they
can also be effectively used in the more comprehensive competitive intelligence
environment. Competitive intelligence is often wrongly identified with marketing
practices or competitive analysis. Competitive intelligence does not deal only with
products and competitors, and it is a broader subject. It can be defined as the action of
defining, gathering, analyzing, and distributing intelligence about products, customers,
competitors and any aspect of the environment needed to support executives and managers
in making strategic decisions for an organization.
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Going back to the models being analyzed, a few differences have to be considered. The
GE/McKinsey Matrix is a far more sophisticated and powerful tool than the BCG
Matrix because it takes into consideration more factors to measure the market
attractiveness (external factors) and the strength of each SBU (internal factors). In the
GE/McKinsey Matrix, market attractiveness and competitive strength substitute the BCG's
market growth and market share, respectively.
Another difference is that GE/McKinsey is a 3*3 matrix while the BCG's is a 2*2. This
allows for more sophistication. Being more complex, the framework takes a longer time to
be implemented since the retrieval of all the necessary information could be lengthy.
Because of that, in certain cases corporations can either loose the proper time to market or
at the end of the collection process the data could be already old and thus not useful
anymore.
Another drawback of the tool is that it could be misleading if not used properly.
Assigning weights and scoring factors can be a very difficult work, and has to be done by
expert hands. When these are not done in the right way, results can lead executives in the
wrong direction. Often companies need to rely on external consultant organizations to get
the necessary professionalism.
The BCG Matrix's advantage is being a simple and effective tool. The market size of the
business unit and the market share of the business under analysis are easily retrievable
factors and the framework provides executives with a quick and valuable overview of the
SBU's position. The GE/McKinsey and the BCG models can be effectively used in
intelligence projects in different ways. Instead of considering only internal SBUs
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compared to the market, an effective approach would be to use the frameworks in

analyzing the competitive landscape. This way, corporations can see where internal SBUs
stand compared to competitors'.
Ideally, the two tools can be used together in sequence to take advantage of each other's
strengths. For example, initially when considering a large number of competitor's
products, the BCG Matrix can be adopted as a first step. The easy and quick approach that
is the main advantage of this model, would let corporations perform a first skim, thus
reducing the number of SBUs under analysis from many to just a few. The remaining
competitors can be thoroughly analyzed with the GE/McKinsey Matrix, which provides a
better and more inclusive framework.
When running intelligence projects, a particular attention should be given to the type and
quality of data that is used with these tools. The data has to always be validated with a
non-correlated secondary source of information and corporations should tap both into
internal and external data to get a broader picture. Below is an example of internal and
external sources that could be used:
* Inside People (Internal to the organization)
* Inside Documents (Internal to the organization)
* Outside People (External to the organization)
* Outside Documents (External to the organization)

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Conclusion
Both the BCG and GE/McKinsey Matrix have proven over the years to be useful tools in
order to assess the strength of a companys portfolio of products relative to the
attractiveness of the market they inhabit. They can be used both internally as a strategy
tool and externally as a competitive intelligence technique, with their strength lying in
their ease of use and interpretation. Despite these strengths, users must be aware of their
limitations and would be wise to use them primarily as an overview or as a complement to
other analytical techniques.

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