The aim of a portfolio analysis is to:
– analyze its current business portfolio and decide which SBUs should be allocated more or less investment;
– develop growth strategies for adding new products and businesses to the portfolio;
– decide which businesses or products should be divested.
The GE/McKinsey Matrix is more sophisticated than the BCG Matrix:
1. Market (industry) attractiveness replaces market growth as the dimension of industry attractiveness. Market attractiveness includes a broader range of factors than just the market growth rate that can determine the attractiveness of an industry/market.
2. Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors than just the market share that can determine the competitiveness of a SBU.
3. The GE/McKinsey Matrix works with a 3*3 grid, while the BCG matrix has only 2*2.
SBUs are portrayed as a circle plotted in the GE/McKinsey Matrix whereby:
– The size of the circles represents the market size
– The size of the pies represents the market share of the SBUs
– Arrows represent the direction and the movement of the SBUs in the future.
A six-step approach to implementation of portfolio analysis using the GE/McKinsey Matrix could look like this:
1. Specify drivers of each dimension.
2. Weight drivers.
3. Score SBU’s each driver.
4. Multiply weights by scores for each SBU.
5. View resulting graph and interpret it.
6. Perform a review/sensitivity analysis using adjusted other weights and scores.
Some important limitations of the GE/McKinsey Matrix are:
– aggregation of the indicators is difficult;
– core competencies are not represented;
– interrelations between SBUs are not considered.
Source: www.valuebasedmanagement.net
Essential Vocabulary
1. product life-cycle – жизненный цикл товара
2. business unit – бизнес-единица
3. proxy n – доверенность; лицо, уполномоченное выступать за другого по доверенности; ориентир
4. industry n – промышленность, индустрия; отрасль промышленности
industrial a – промышленный, производственный; промышленная корпорация (США) – любая корпорация, которая не может быть отнесена к коммунальным, финансовым или транспортным компаниям
5. framework n – рамки
6. experience curve – кривая опыта
7. maturity n – зрелость; срок погашения (ценной бумаги), срок кредита
mature v – зреть; погашаться
mature a – зрелый; подлежащий оплате ввиду наступившего срока погашения
8. divestiture n – лишение права; реализация актива путем продажи
9. net a – чистый, нетто
net out v – вычитать, определять нетто-позицию, взаимозачитывать
10. return on assets (ROA) – доходность активов
11. service v debt – обслуживать долг
12. dividend (div) n – дивиденд
13. shareholder n – акционер
14. cash flow – денежный поток
15. present value – приведенная ценность
16. discounted cash flow (DCF) – дисконтированный денежный поток
17. allocation n – распределение, назначение; ассигнование; размещение
allocate v– распределять, назначать; ассигновать; размещать
18. one-size-fits-all – единый для всех, общий
19. generic a – родовой, общий, характерный для определенного рода или группы
20. fund n – фонд, финансовое средство, сумма денег
fund v – финансировать
21. strategic business unit (SBU) – стратегическая бизнес-единица
22. parent company – материнская компания
23. return n – возврат; доходность; налоговая декларация
24. entry barrier – барьер на выход в отрасль или на рынок
25. competency n – компетентность, умение, способность; компетенция
26. access n – доступ
access v – иметь доступ
accessible a – доступный
27. score n – счет, задолженность, долг; причина, основание; количество набранных очков; удача; истинные факты
score v – подсчитывать очки, вести счет; выигрывать, получать преимущество
28. sensitivity analysis – анализ чувствительности
29. core competency – основная сфера компетенции
Exercise 1. Answer the following questions.
1. What kind of product portfolio should a company have to ensure long-term value creation? 2. How can business units be categorized? 3. What are the characteristics of the Dog Business Units? 4. What is the potential future of Question Marks? 5. What are the specifics of Stars? 6. What is the function of Cash Cows in a company? 7. Why is it unadvisable to have a one-size-fits-all approach to strategy? 8. What are the limitations of the BCG matrix? 9. What is the basis of the GE/McKinsey matrix? 10. What is the aim of the portfolio analysis? 11. Why is the GE/McKinsey matrix more sophisticated than the BCG matrix? 12. What are the external factors that affect market attractiveness? 13. What are the internal factors that affect competitive strength? 14. What approach can be used to implement the portfolio analysis? 15. What are the limitations of the GE/McKinsey matrix?