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During the 1970s and early 1980s, a number of leading
consulting firms developed the concept of portfolio matrices. The objective was
to help managers in reaching a better understanding of the competitive position
of the overall portfolio of businesses, to suggest strategic alternatives for
each of the businesses, and to develop priorities for resource allocation.
The most popular portfolio matrices are:
Growth-share matrix developed by the Boston Consulting Group,
which pioneered this concept;
Industry attractiveness-business strength matrix, conceived
jointly by General Electric and McKinsey & Company. The latter organization was the first to
introduce multidimensional criteria in the external and internal dimensions;
Portfolio matrices have several elements in common. First, they constitute graphical
displays of the overall competitive standing of the portfolio of businesses of
the firm. As such, they constitute a powerful communication vehicle because in
one single picture we are able to apprehend the overall strength or weakness of
the portfolio. Second, each matrix
positions the business unit of the firm according to two dimensions. One is an external dimension that
attempts to capture the overall attractiveness of the industry in which the
business participates. The other is
an internal dimension, relating to the strength of the business within its
industry. The factors that describe industry
attractiveness are normally uncontrollable by the firm; those that contribute to
business strength are largely under the control of the firm.
Table below briefly summarizes the characteristics of
external and internal dimensions used by each one of the portfolio matrices.
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MATRICES
|
EXTERNAL FACTORS
|
INTERNAL FACTORS
|
|
Growth-Share Matrix
|
Market growth
|
Relative market share
|
|
|
|
|
|
Industry Attractiveness- Business Strength
Matrix
|
Overall industry attractiveness
Critical structural factors
Five-forces model
|
Sources of competitive advantage
Critical success factors
Value chain
|
Third, the positioning of each business unit in the
corresponding portfolio matrix is associated with a strategy that fits the
competitive strength enjoyed by the business, and the degree of attractiveness
of its industry. This is what has
been referred to as generic or natural strategy, which serves as a useful
initial reflection in the process of designing the overall strategy for the
business unit.
Finally, and most importantly, this methodology contains a
suggestion for allocating resources to each business in accordance with the
priorities that can be identified by its position in the corresponding matrix.
To facilitate this purpose, it might be useful to attach some key financial
information – such as sales, net income, assets, and return on net assets –
along with the position of the business units of the firm within a given matrix.