Corporate Strategy - Portfolio Models

Corporate Strategy – Portfolio models
Tools & Frameworks - v 1.0

CORPORATE STRATEGY defines the scope of industries and
markets in which the firm competes
Product scope
How specialized should the firm be in terms of the
range of products it offers?
Geographical scope
What is the optimal
geographical scope of the
firm?
Vertical scope
What is the optimal range of
vertically linked activities within the
value chain?
Product-Market-Combinations (PMCs)
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McKinsey / General Electric
Portfolio planning matrix

McKinsey/GE matrix – The position in the matrix determines the
strategy per PMC
Selectivity
• Specialize in niche markets
• Consider acquisitions
Selective Growth
• Identify weaknesses,
develop strengths
• Evaluate leadership potential
through segmentation
Investment and Growth
• Grow and seek dominance
• Maximize investment
Harvest/Liquidate
• Consider exit
Selectivity
• Identify growth segments
• Invest selectively to
specialize
Selective Growth
• Invest heavily
Harvest/Liquidate
• Closely watch market
leader
• Determine time to exit
Harvest/Liquidate
• Minimize product portfolio
and investments
• Consider exit
Selectivity
• Maintain position and
generate cash
• Only invest to keep position
Low
High
Medium
Source: McKinsey / GE
Competitive Advantage
Low Medium High
Market Attractiveness

McKinsey/GE matrix – The position in the matrix determines the
strategy per PMC
Low
High
Medium
Source: McKinsey / GE
Competitive Advantage
Low Medium High
Market Attractiveness
Selectivity
• Consider acquisitions
Selective Growth
• Identify weaknesses,
develop strengths
• Evaluate leadership potential
through segmentation
Investment and Growth
• Grow and seek dominance
• Maximize investment
Harvest/Liquidate
• Consider exit
Selectivity
• Invest selectively to
specialize
Selective Growth
• Invest heavily
Harvest/Liquidate
• Closely watch market
leader
• Determine time to exit
Harvest/Liquidate
• Minimize product portfolio
and investments
• Consider exit
Selectivity
• Maintain position and
generate cash
• Only invest to keep position

Boston Consulting Group
Portfolio planning matrix

BCG matrix – The position in the matrix determines the strategy
per PMC
Market growth [%]
Relative market share [%]
Low High
Low
High
Source: BCG
STARSQUESTION MARKS
DOGS CASH COWS
• Proceed selectively or exit
• Large negative cash flow
• Desinvest and liquidate
• Small positive or negative cash flow
• Maintain position and harvest
• Large positive cash flowThis document is a partial preview. Full document download can be found on Flevy:

BCG matrix – The position in the matrix determines the strategy
per PMC
Market growth [%]
Relative market share [%]
Low High
Source: BCG
Low
High
STARSQUESTION MARKS
DOGS CASH COWS
• Desinvest and liquidate
• Small positive or negative cash flow
• Maintain position and harvest
• Large positive cash flowThis document is a partial preview. Full document download can be found on Flevy:

BCG matrix – Relative market share and market growth are
determined by scoring internal and external factors
• Relative market share
indicates cash generation
• As a result of 'economies of
scale‘ and ‘experience curve
benefits’ which deliver a cost
advantage, it is assumed that
earnings will grow faster the
higher the market share
• A trendline needs to be set
above which a significant
dominance can be exercised
in the market
Relative market share Market growthVS
X-axis (internal factors) Y-axis (external factors)
SizeVS
Bubble size
• Revenue
• Profitability
Sales
Sales of
market leader
Relative
market share
=
• The theory behind the matrix
assumes that a higher
growth rate is indicative of
accompanying demands on
investment
• Market growth is a good
indicator of a market's
strength, of its future
potential, of its 'maturity' in
terms of the market life-cycle,
and also of its attractiveness
to future competitors
• A trendline needs to be set
above which growth is
assumed to be high
(typically 10%)
Source: BCG

ADL matrix – The firm´s strategic options are assessed by
evaluating the industry life cycle stage vs the competitive position
Favorable
Tenable
Weak
Competitive
position
Dominant
Strong
INVEST
DIVEST
PROVE
VIABILTIY
Source: Arthur D Little
Aging Mature EmbryonicGrowth
Industry life cycle stage
PMC 1
PMC 5
PMC 4
PMC 3
PMC 2

ADL matrix – The position in the matrix determines the strategy
per PMC
Favorable
Tenable
Weak
Competitive
position
Dominant
Strong
Aging
Industry life cycle stage
Mature EmbryonicGrowth
• Selective or all out
push for share
• Selectively attempt
to improve position
• Selectively push for
position
• Up or out
• Attempt to improve
position
• All out push for share
• All out push for share
• Hold position
position
• Selective push for
share
• Find niche and
protect it
• Turnaround or
abandon
position
• Push for share
• Hold position
• Hold share
• Custodial or
maintenance
• Find niche and
attempt to protect it
• Find niche and hang
on, or phased out
withdrawal
• Selectivity
• Hold position
• Grow with industry
• Hold position
• Grow with industry
• Harvest, or phased
out withdrawal
• Phased out
withdrawal or
abandon
• Abandon
• Hold position or
harvest
• Hold position

ADL matrix – Industry life cycle stage and competitive position are
determined by scoring external and internal factors
• Market growth rate
• Market growth potential
(industry potential)
• Breadth of product lines
• Number of competitors
• Distribution of market share
among competitors (Market
share stability)
• Customer loyalty (purchasing
patterns)
• Entry barriers
• Technology
• Dominant - Often a monopoly
or strongly protected
technological leadership
• Strong - Can usually follow own
strategies, irrespective of
competitors, enjoys a competitive
advantage
• Favorable - In fragmented
industries with no outstanding
competition market leaders stand
in "favorable position"
• Stable - Profitability possible
when specialized in a narrow or
protected market niche
• Weak - Too small to survive
independently or retain long-term
profitability. Suffering from costly
mistakes or critical weaknesses
Industry life cycle stage Competitive positionVS
X-axis (external factors) Y-axis (internal factors)
SizeVS
Bubble size
• Revenue
• Profitability

Adjusted Mck/GE matrix – The firm´s strategic options are assessed
by evaluating the market attractiveness vs the competitive position
Low
Favorable
Tenable
Weak
Market attractiveness
Average
Competitive
position
Dominant
Strong
High
INVEST
DIVEST
PROVE
VIABILTIY
PMC 1
PMC 5
PMC 4
PMC 3
PMC 2

Adjusted Mck/GE matrix – Market attractiveness and competitive
position are determined by scoring external and internal factors
• Market size
• Market growth
• Market profitability
• Market life cycle
• Competitive structure
• Entry barriers
• Technology
• Legal restrictions
• Labor market
• Social problems
• Environmental problems
• Political problems
• Dominant - Often a monopoly
or strongly protected
technological leadership
• Strong - Can usually follow own
strategies, irrespective of
competitors, enjoys a competitive
advantage
• Favorable - In fragmented
industries with no outstanding
competition market leaders stand
in "favorable position"
• Stable - Profitability possible
when specialized in a narrow or
protected market niche
• Weak - Too small to survive
independently or retain long-term
profitability. Suffering from costly
mistakes or critical weaknesses
Market attractiveness Competitive positionVS
X-axis (external factors) Y-axis (internal factors)
SizeVS
Bubble size
• Revenue
• Profitability

Adjusted BCG matrix – The firm´s strategic options are assessed
by evaluating organic growth above market vs the market share
Market share [%]
PMC 1
PMC 5
PMC 4
PMC 3
PMC 2
Organic growth above market growth [%]
Low
High
Fair share1)
OWN THE SPACEDEFEND
Market growth
Growing faster than marketGrowing slower than market
INVESTDIVEST
1) Overall market share of firm (across all products / geographies)

Adjusted BCG matrix – Organic growth and market share are
determined by scoring internal and external factors
• Market share indicates cash
generation
• As a result of 'economies of
scale‘ and ‘experience curve
benefits’ which deliver a cost
advantage, it is assumed that
earnings will grow faster the
higher the market share
• The trendline is set at the
‘fair share’. The overall
market share of firm across
all products / geographies
Organic growth above
market growth
Market shareVS
X-axis (internal factors) Y-axis (internal factors)
SizeVS
Bubble size
• Revenue
• Profitability
• A higher growth rate
indicates accompanying
demands on investment
• Growing faster than the
market means the business
is outperforming competition
(or buying growth)
• The trendline is set at the
market growth rateThis document is a partial preview. Full document download can be found on Flevy:

Innovation matrix – The firm´s strategic options are assessed by
evaluating the technology position vs the market position
Low
Favorable
Tenable
Weak
Average
Technology position
(Ability to differentiate)
Dominant
Strong
High
DIVEST
PMC 1
PMC 5
PMC 4
PMC 3
PMC 2
INVEST IN
MARKET ACCESS
CATCH-UP
TECHNOLOGY
PROVE
VIABILTIY
OWN THE
SPACE
Market position (Ability to capture opportunities)

Innovation matrix – Market attractiveness and competitive are
determined by scoring external and internal factors
The market position that
provides the ability to capture
sales opportunities, which is
based on:
• Market share
• Sales growth
• Sales to key accounts
• Distribution channels
The technology position vs
competition that provides the
ability to differentiate, which is
based on:
• Competitive position
• Technology rating
• New product introductions
Technology position
(Ability to differentiate)
Market position
(Ability to capture
opportunities)
VS
X-axis (internal factors) Y-axis (internal factors)
Size of opportunityVS
Bubble size (external)
Industry profit pool, which is
based on:
• Market size
• Market growth
• Profitability

1
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