Growth–share matrix, or product portfolio matrix, evaluates the attractiveness of a business and the competitiveness of the company for each business, distinguishes between businesses that generate cash and businesses that require investment, and then clarifies the positioning of the company. It is intended to be positioned as one of “Cash cows”, “Stras”, “Question marks(problem child)”, and “Dogs” .
After positioning, we will decide the future strategy of each positioned business.
Invented by the Boston Consulting Group in 1970, it finds surplus management resources in terms of profitability, investment necessity, etc. in each independent business of a company, and decides where and how much to distribute. It is a plot (figure) used for.
- Cash Cows -Cash Source Business
- Stars -Business with a large amount of cash input and inflow
- Question Mark -Business at the training stage
- Dog -Business with small cash input / inflow
- Ignoring synergies between businesses
- Demoralizes the loser and the employees of the business located in the cash cows
Two axes of Growth–share matrix
What is the market growth rate?
Market growth is a measure of how much money is flowing into an industry or industry in a year compared to the previous year.
The formula is expressed as total sales of this year ÷ sales of the previous year of the market. For example, if 1 million yen flowed into the market last year, it was 1.1 million yen this year. In the case of 10% market growth rate.
If the market growth rate is high, new entrants will intensify, and it can be thought that sales will basically increase steadily just by gaining a certain market share, and it will mature with the growing market. In a market that has stopped growing, marketing strategies will change dramatically.
What is relative market share?
Relative market share refers to the ratio of the share of other companies’ products to be compared with the share of own products ( own share ÷ other company’s share ). This is not the share of the company’s products in the entire market. For example, if the company’s products are the third largest in the industry with a 20% share, and the products of the industry’s number one company have a 60% share, the relative market share of the company is about 0.3. It becomes.
Basically, the larger the relative market share that your company occupies, the more economies of scale work and the more you tend to gain an advantage in terms of work efficiency and cost.
Composition of Growth–share matrix
It is generally accepted that business does not last forever, but goes through birth, growth, maturity, and decline like a human life.
This is called the product life cycle, and it is also greatly involved in product portfolio management.
Cash Cows -Cash Source Business
Cash cows have a high relative share, so the inflow of funds is large, while the market growth rate is low, so the investment is small.
Therefore, we can expect abundant cash from businesses in this segment.
Normally, it is mature and the future of the business itself is not very attractive, but it is a business that has a high competitive advantage in the company, and is now a source of cash.
Marketing Strategy-Maintenance Strategy
With money trees, the market is already mature and requires less investment, thus stabilizing cash.
Stars -Business with a large amount of cash input and inflow
Since the flower-shaped business has a high relative share, we can expect an inflow of funds, but the high market growth rate also results in a large outflow of funds.
Therefore, we cannot expect to generate a large amount of cash, but we need to grow it into a “money tree” in the future.
The flower-shaped business is in the growth period and has attractive future as a business, and it is a field with a high competitive advantage of the company. Currently, it is necessary to invest funds at the same time as a large inflow of funds, but in the future As the life cycle changes, so does the need for funding, which may replace the “money tree”.
Marketing Strategy-Expansion Strategy
Although it is generating mellow profits, it is in a growing period, so competition with competitors is fierce, and the profits generated from this project require continuous investment in this project.
Question Mark -Business at the training stage
The problem child has a low relative share, so the inflow of funds is small, but the market growth rate is high, so the outflow of funds is large.
You can expect growth, but it is also a gold eater, so you need to decide whether to make a bold investment to gain a share or to withdraw.
Problem children are in the growth period and are very attractive as an industry, but their competitive advantage is not high.
It currently requires a significant amount of funding, but it is unclear if it will result in a large inflow in the future.
Problem children need to improve their competitive advantage, which requires more funding than they can keep up with the growing life cycle.
Marketing Strategy-Expansion Strategy
This strategy is mainly used by problem children. In addition to investing the profits obtained from this project in this project, we will aggressively invest the surplus management resources obtained in other projects for growth in problem children, aiming to sublimate into the flower-shaped business. ..
Dog -Business with small cash input / inflow
Losing dogs have a low relative share and low market growth rate, so it is a segment that should be judged as unlikely to succeed as a business.
It is a decline in the life cycle, and its future attractiveness as an industry is small due to slowing growth, etc., and it is a business that does not have much competitiveness.
There is no need to invest money, but there is no inflow because there is no advantage. In other words, it is a business that companies should consider strategic withdrawal.
Marketing Strategy-Withdrawal Strategy
The business positioned as a losing dog aims to withdraw from the business and sell the business. However, if you can still squeeze out profits that are unfortunate to withdraw, you may try profit maximization .
Growth–share matrix ideal
In Growth–share matrix, cash from “cash cows” or gains on sales of “dogs” and “Question marks” who are not expected to increase their market share will be put into promising “Question marks” and “stars”. However, the ideal step is to raise the “problem child” into a flower-shaped business and to grow a new “money tree” in the future.
Disadvantages and limitations of Growth–share matrix
Ignoring synergies between businesses
A synergistic effect is a synergistic effect.
The biggest problem with product portfolio management is that businesses limit the resources they generate to money.
In reality, businesses produce not only money but also information management resources that are invisible assets. PPM ignores the fact that informational resources are circulated among multiple businesses, creating competitiveness.
Even businesses that are positioned as losing dogs or problem children in terms of business units have synergistic effects with other businesses, and it is often possible that profits are increasing for either or both.
Demoralizes the loser and the employees of the business located in the cash cows
In particular, business units that are positioned as losing dogs or money trees do not have sufficient resource allocation and tend to make internal investment difficult, so if there is no future development, employees will be motivated and motivated. It will be difficult to attach.
Advantages and purposes of Growth–share matrix
Optimal distribution of limited management resources
Despite the problems mentioned above, PPM is still used by many companies.
The reason is that it is a very difficult guideline for deciding to stop the business , and it is very effective in clarifying the necessity of withdrawing from the business when things are not progressing due to multifaceted consideration. Because.
The decision to withdraw is negative, but making this decision allows us to take positive action to focus our resources on other businesses.
In this way, it will be an advantage to be able to “select and concentrate” to decide withdrawal and “expand business” by redistributing management resources.
GE’s Business Screen
GE (General Electric)’s business screen is a more sophisticated product portfolio management. It was jointly created by General Electric and McKinsey.
Whereas product portfolio management has two axes, “market growth rate” and “relative market share,” GE’s Business Clean has compressed various factors and advanced “long-term industry.” “Attractiveness” and “competitive position” are the two axes.
This is an attempt to evaluate the competitiveness and attractiveness of a business based on a number of criteria. The two axes are divided into three equal parts, high, medium, and low, and the business is further subdivided into nine types. , It is about to decide the policy of management resource allocation.
As a result, while Growth–share matrix can only analyze the current position of the business, GE’s business screen allows you to analyze the current and future position of the business.