Corporate Portfolio Analysis

When companies are having more then one business unit, they need to know the performance of their each business unit. To manage and maintain each business unit, managers make portfolio of businesses using corporate portfolio matrix.

The first and most commonly used and known portfolio matrix is BCG matrix- developed by Boston consulting. In this idea businesses could be evaluated using 2x2 matrix where we can identify that which business is offering high opportunities and which one is going in loss. This way you can best analyze your businesses and make decision in which business to invest, where to cut the costs, which needs more attention etc.

In the diagram above, the horizontal axis represents market share, which has two values either low or high; and the vertical axis indicates anticipated market growth, which also has two values either high or low.

There are four categories in which businesses are placed in order to evaluate each of them:

Cash Cows: This category business is having high market share but there growth rate is quite low. So due to high market share these are highly profit generating for you organization but there future prospects are no certain and are limited.
Managers should milk cash cows as much as they can and stop making new investments in these businesses.

Stars: these businesses have both high growth and high market share. So along with generating high amounts of profits for your organization, these also hold a dominant share of market. There growth rate is very fast and have future certainty.
Managers should invest heavily in stars to get more benefit out of these businesses. This way growth will keep on increasing and high market share will be maintained giving huge amounts of cash to organization. Eventually stars will turn into cash cows, when they will reach the stage of maturity and growth will slow down.

Question marks: these businesses have high growth but there market share is not strong. These are attractive opportunities but due to small market share they are not profit generating.
Managers should make new investments in question marks as they have growth potential. So they should invest to get the market share and enjoy high profits by holding strong market share as well. And when they will achieve the market share along with high growth, these will turn into stars and ultimately cash cows. Some of these may be sold out if managers are not willing or having heavy investments.

Dogs:Business in this category are both with low growth and low market share. These neither produce nor consume much of organizational resources.
Since these businesses are giving nothing to organization, so these should be either sold off or liquidated.


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